Economics Sample Paper for class XII of Andhra Pradesh Board

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Economics is one of the most interesting subject to deal but at the same time it the toughest subject for Class XII students. This subject require proper attention and focus. For this purpose, I have prepared following Economics Sample Paper for the students of class XII of AP Board by taking help from some previous year papers and textbook. I tried to cover all difficult and important topics in this sample paper for your performance judgement.

Economics Sample Paper for Class XII

Solved Economics Sample Paper Class XII

Andhra Pradesh Board of Secondary Education:The Board was established in 1953 and well known for its quality education and standards. Under the Department of Education, Board work as as an autonomous body.The head office of the board is in Hyderabad. which deal with executing and supervising activities like conducting exams, support and leadership to the educational system of State.

You can visit following to get more AP Board Sample Ppaers for Class XII
1) AP State Board Previous years English Papers

Economics Sample Paper for class XII

General Instructions:

  1. This paper consists of three sections
  2. Section-A carries questions from 1-5.
  3. Section-B carries questions from 6-13.
  4. Section-C carries questions from 14-23
  5. Marks are allotted to each sections.

4x 10 = 40 Marks
Each question carries 10 marks

1. Explain the law of Demand and its exceptions.
ANS:- Law of demand says that when the price of a good or service rise , demand for that good or service falls and when price of a good or service falls its demand rises. This shows that there is an inverse relation between price and demand.
Exceptions ARE:-
1. Test and fashion of consumer will not change.
2. Income of the consumer will not change.
3. Prices of other substitutes of that good or service will not change.
4. There will no discovery of substitutes of that good or service

Exceptions to the law of demand are:
There are two reasons- ostentatious consumption and the effects of speculative demand.
(a) Ostentatious consumption: The demand for the product is a direct function of its price.
(b) Speculative Demand: When the price of a good rises the speculative demand may grow, adding to the upward pressure on prices.

2. Explain the law of variable proportions with diagram.
ANS:- In economics, diminishing returns refers to how the marginal contribution of a factor of production usually decreases with rise in factors. In a production system with fixed and variable inputs, after certain point, each unit of the variable input yields smaller increase in output. Conversely, producing one more unit of output costs more and more in variable inputs.
The Law of Variable Proportions Is also called the Law of Decreasing marginal returns.It states that ” An increase in some inputs relative to other fixed inputs will, in a given state of technology , cause the output to increase, however after a certain point extra output resulting from the same additions of extra inputs will become less and less ”

3. What are the features of perfect competitive market. Explain.
ANS:- a. Perfectly Competitive Market
– Numerous buyers and sellers
– Homogeneous products
– Consumers have proper  information about prices

b. Profit-Maximization by a Price-taking firm
It is calculated as follows:
(2.1) Economic profit vs. accounting profit
Accounting profit = revenue – accounting cost
Economic profit = revenue – total opportunity cost
(2.2) The profit-maximization problem
Max Profit = TR(Q) – TC(Q)

c.Short-run Market Supply
 Short-run is described as follows-
Short-run costs
STC (Q) = TFC + TVC(Q)
– The curve is the horizontal sum of the individual firm supply curves.
– It makes the  supply and demand together

d. Long-run Market Equilibrium is defines as
Adjusting (short-run) fixed inputs: change plant size
The Firm’s long-run supply curve
It satisfies three conditions:· profit is maximized
The long-run market supply curve
Cost structure of the industry and long-run market supply·

 e. Economic Rent
Economic rent of an input = A – B
Where A = maximum amount a firm in the industry is willing to pay for the input
B = opportunity cost of the input outside the industry

4. Define National Income ? Explain the various methods of measuring of National Income.
ANS:- National income measures the monetary value of the flow of output of goods and services produced in an economy over a period of time.

Measuring the rate of growth of national income  is important:

  • The rate of economic growth
  • Changes to average living standards
  • Changes to the distribution of income

The method for calculating National Income by Output, Value Added method:
a) GDP at market price = Value of Output in a year – Intermediate consumption
b) NNP at factor cost  = GDP at market price – Depreciation + NFIA (Net Factor Income from Abroad) – Net Indirect Taxes

The method for calculating National Income by Income Method:
a) NDP at factor cost = compensation of employee + operating surplus + Mixed income of self employee
b) National Income   = NDP at factor cost + NFIA (net factor income from abroad)

The method for calculating National Income by Expenditure Method:
a) GDP = C + I + G + (X – M)

C = Personal consumption expenditures
I = Gross investment
G = Government consumption
X = Gross exports
M = Gross imports

5) Explain the concepts of Effective Demand.
ANS:- The Demand or Effective Demand should fulfil the following conditions.

  • A person’s willingness to buy the good
  •  A person should have the purchasing power to buy the goods he wanted
  • He should use the purchasing poweer to buy that particular good.
  • In a market how much he is willing to purchase backed by the purchasing power to buy that good and in   a particular market in a particular period how much he is going to purchase is called Demand or effective  demand.
  • When the price goes up the demand falls and when the price falls the demand rises and the -Demand shows the inverse relationship between price and demand.

Each question carries 5 marks

6. Define and distinguish between Micro and Macro Economics.
ANS:- Macroeconomics is the study of an economy of nation. It is  the aggregate demand and aggregate supply forces of the entire economy. It study a nation’s total output  as a whole, and the economic forces at work.

1) money market (assets market),
2) interest rates,
3) inflation rate,
4) labour market,
5) consumption saving patterns,
6) foreign exchange rates,
7) economic costs ,

Macroeconomics does not take into account of how individuals will react to say, interest rates increase. It generalise the whole economy as a whole and observe the resulting change as a whole.
Microeconomics is the study of economics in a smaller context in many different areas. These areas includes
1) study of the individual consumer (consumer behaviour)
2) an individual firm (production theory)
3) a single industry (market structures & game theory), and
4) externalities.
Microeconomics is not concerned with how interest rates will affect an individual. Hence these models are done under the assumption of holding  indicator constant, while observing changes in the variables of the individuals behaviour functions.

7. Explain the importance of the law of Diminishing Marginal Utility.
ANS:- A law of economics which states that as a person increases consumption of a product – while keeping consumption of other products constant – there is a decrease in the marginal utility that person derives by consuming each additional unit of that product.
It also states that as more units of a good are consumed, marginal utility eventually falls and become negative beyond a certain point. The point at which marginal utility becomes negative varies according to good and individual.
It  states that for any good, the marginal utility of that good decreases as the quantity of the good increases. In other words, total utility increases as the quantity consumed increases.

8. Explain Internal and external Economics?
ANS:- Types of economics:

1. Internal Economics
2. External Economics

Internal economics:
a. Technical Economies: It is concerned with the size of the firm, superior techniques or increase in specialization.
b. Managerial Economies: It arises by creating special departments or functional specialization. It is used when production is taken on a large scale.
c. Commercial Economies: Purchase or material and goods, increase in the bargaining power and concessions in transport.
d. Financial Economies: Big firms enjoy the position of better credit worthiness and can borrow money at a favorable rate if interest.
e. Risk Bearing Economies: A big firm can spread the risks over a larger area by diversifying output.

External economics:
a. Economics of concentration (advantages of localization)
b. Economics of information

9. How markets are classified ?
ANS:- A market is a form in which a market is dominated by a small number of sellers. Earlier it was classified in three ie Monopoly, Duopoly and Monopolistic competition.
1.Monopoly: Here a seller dominates a market or industry.
2. Duopoly: Here two sellers dominates a market or industry.
3. Monopsony: Only one buyer faces many sellers.
4. Oligopsony: Here the number of buyers is less while the number of sellers is more

10. What are factors that determines National Income.
ANS:- 1 Technology :This factor is more important for nations with little natural resources. The level of invention and innovation on production affects the development in the technology

2. Government :Government can help to provide a proper business environment for investment.  It provides laws and order, regulations that affect exchanges.  .

3. Political Stability :A stable economic and political system helps the allocation of resources. Social unrests  discourages the investment and business activities.

11. What are the functions of Money.
ANS:- “Money is a commodity which is generally acceptable as a medium of exchange and at the same time it acts as a measure and a store of value “. Thus the economists agree that anything which is to serve as money should be:

  • Generally acceptable
  • Used for the measurement of  the values of goods and services
  • Used to store the values.
  • Thus the methods followed by the experts to define money:
  • Transaction Approach which involves money as a medium of exchange.
  • Liquidity Approach which involves money as a temporary store of value.
  • Scientific Construct Approach which involves money as a measure of value.

12.  Explain any five types of Inflation.
ANS:-Types of inflation are:-
i) Hyperinflation is the most extreme inflation phenomenon in which the yearly price increases  three-digits percentage points and an explosive acceleration.Extremely high inflation could range anywhere between 50% and 100%. High inflation is a situation of price increase of, say, 30%-50% a year. Both kinds can be stable or dangerously accelerate to enter in an hyperinflation condition.
ii) Moderate inflation can be differently described as an indication , one can consider an inflation as moderate when it ranges from 5% to 25-30%. For some countries, the higher part of this range is already “high inflation”.
iii) Low inflation can be characterized from 1-2% to 5%. Around zero there is no inflation. Below zero, a country faces deflation.

13) Explain the importance of International Trade.

  • International trade is the medium of exchange of capital, goods, and services across international borders or territories. In most countries, these trade indicate a important share of gross domestic product (GDP).
  •  It is the backbone of our modern, commercial world, as producers in various nations try to profit from an expanded market, rather than be limited to selling within their own borders.
  • It has economic, social, and political importance which  is on a rise in recent centuries.
  • It allow us to expand our markets for both goods and services that otherwise may not have been available to us.
  • As a result , the market contains greater competition and therefore more competitive prices, which brings a cheaper product home to the coins.

Each quesion carries 2 marks

14. Who are the economic agents?
ANS:- Economic agent  are the profit maximiser whio work towards self interest and act on behalf of the principal.

15. Define Equilibrium Price.
ANS:- The equilibrium price is the price where the goods and services supplied by the producer equals the goods and services demanded by the customer

16) Define cardinal utility.
ANS:- Cardinal Utility meaning is that consumer can measure the satisfaction derived by the consumption of any goods or services in terms of number and unit of that measurement is Utils or the money.

17) What is cross demand?
ANS:- Cross price elasticity of demand measures how much demand of one good changes when the price of another good changes, when others are  constant.

For example, you can measure what happens to the demand of bread when the price of milk changes.
The cross price elasticity is calculated as the percentage change in the quantity demanded of good x divided by the percentage change in the price of good y.

18. What is opportunity cost?
ANS:- The cost of passing up the next best choice when making a decision is called an opportunity cost. It is an important part of a company’s decision-making processes, but is not treated as an actual cost in any financial statement.

19. What is Gross Profit?
ANS:- Gross profit margin is the total amount of moneys take in on a daily basis.
It can be expressed as:
Gross margin = net sales – cost of goods sold + annual sales return

20. Define Personal Income.
ANS:- Total Personal Income can be described by the United States’ Bureau of Economic Analysis as persons who receive income from all sources like income received from participation in production as well as from government and business transfer payments. It is the sum of compensation of employees (received), supplements to wages and salaries, proprietors’ income with inventory valuation adjustment and capital consumption adjustment , personal income receipts, and personal current transfer receipts.

21. What is G.D.P.
ANS:- Gross Domestic Product (GDP) is the broadest quantitative measure of a nation’s total economic activity. To be specific, GDP describes the monetary value of all goods and services produced within a nation’s geographic borders over a particular period of time.
It can be calculated as:
GDP = Consumption + Government Expenditures + Investment + Exports – Imports

22. What is Bartar System?
ANS:- The Barter system is an economic system in which two parties trade certain goods or services for their survival. A mutual benefit is being seen in exchanging goods and services rather than cash by the bartering benefits companies and countries and it also enables those who are lack”hard currency” to obtain goods and services.
The biggest problem of the barter system in economics is that primitive barter requires those whom you wish to trade with must have something which you want, and that you in turn have something which they want.

23. What is  Devaluation?
ANS:- Devaluation refers to a decrease in a currency’s value with respect to other currencies.A currency is considered devalued when it loses value relative to other currencies in the foreign exchange market. A currency’s devaluation is the result of a nation’s monetary policy.

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Click following to get pdf of more Andhra Pradesh Board Sample Papers.
1) Economics Sample Paper for Class XII
2) Political Science Sample Paper for Class XII

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