Solution

ANNUAL EXAMINATION

Class 11 - Economics
Section A
1.
(b) Both A and R are true but R is not the correct explanation of A.
Explanation:
The Ministry of Finance is responsible for preparing the annual budget of the country for which reliable statistical data of
revenue and expenditure is necessary. Statistical tools are of maximum utility in the governance of the state and formulation of
various economic policies.

2. (a) 125
Explanation:
According to the question,
Given : P1 = P0 + 1.25
P0P1 = 2.25
We assume base price P0= 100
P1 = 2.25 ( 100)
P1 = 225
Price of that place = 225
3. (a) Perfectly Negative
Explanation:
if all the points of scatter diagram fall on a straight line with negative slope, then the correlation is said to be perfectly negative,
i.e. r = -1.
4.
(c) 125.49
Explanation:
sum of p1 q0 3200
cost of living index = × 100 =
2550
× 100 = 125.49
sum of p0 q0

5.
(d) Quality
Explanation:
Index number is measured for quantitative data not qualitative data .

6.
(d) p1
Explanation:
While calculation index number, p1= Current year value of item with respect to the variable.

7. (a) Interpretation of data

Explanation:
Interpretation of data refers to concluding it.
8.
(c) Study more than one variable at a time
Explanation:
Here,each bar represents a separate variable rather than parts of a single variable.

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 9.
(b) Paasche Index
Explanation:
IIt's as per definition of Paache's index number.

10. (a) 1.0

Explanation:
X Y dX dY dX
2
dY
2
dXdY

1 2 -4 -8 16 64 32

3 6 -2 -4 4 16 8

4 8 -1 -2 1 4 2

5 (A) 10 (A) 0 0 0 0 0

7 14 2 4 4 16 8

8 16 3 6 9 36 18

∑ -2 -4 34 136 68
N ∑ XY −∑ X ∑ Y
r=
2 2 2 2
√N ∑ X −(∑ X) √N ∑ Y −(∑ Y )

6(68)−(−2)(−4)
= =1
2 2
√6(34)−(−2) √6(136)−(−4)

11. Index numbers are used as economic barometers. Index number is a special type of averages which helps to measure the economic
fluctuations on price level, money market, economic cycle like inflation, deflation etc. G.Simpson and F.Kafka say that index
numbers are today one of the most widely used statistical devices. They are used to take the pulse of economy and they are used
as indicators of inflation or deflation tendencies. So index numbers are called economic barometers.
12. For calculating the weighted mean, we have to multiply each item of the series by its weights, i.e. X has to be multiplied by W and
then we have to find the total of XW i.e. ΣXW .
Calculation of Weighted Mean
X W XW

12 6 72

29 4 116

14 5 70

41 2 82

ΣW = 17 ΣXW = 340

¯¯¯
¯ ΣXW 340
Weighted mean = X W =
ΣW
=
17
= 20

¯¯¯
¯
Thus, X W = 20

OR
It can be defined as each of ten equal groups into which a population can be divided according to the distribution of values of a
particular variable. In other words, it is a method of splitting up a set of ranked data into 10 equally large subsections. This type of
data ranking is performed as part of many academic and statistical studies in the finance field. The data may be ranked from
largest to smallest values, or vice versa.
13. i. Quantitative classification: In quantitative classification the data are classified according to some characteristics that can be
measured numerically such as height, weight, production, income, marks secured by the students etc. Example: Students of a
college may be classified according to there weights as given in the table
Weight (in Kg) No of students

30-40 20

40-50 25

50-60 40

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 60-70 45
ii. Qualitative classification: In qualitative classification, the data are classified on the basis of attributes or quality such as sex,
colour of hair, literacy, religion etc.

14. The primary difference between classification and tabulation is that the process of classifying data int groups is known as
classification of data, whereas tabulation is the act of presenting data in tabular form, for better interpretation.
Differences between classification and tabulation of data are:
Basis Classification Tabulation

Classification of data means that the data is arranged in Tabulation of data means that the classified data is
Meaning different classes according to the presence or absence of arranged in rows and columns, under suitable heads
certain attributes. and sub-heads,

Sequence Classification precedes the process of tabulation. Data can be tabulated only after it has been classified.

Tabulation is a process which facilitates the

Method Classification is a method which facilitates statistical
presentation of data by preparing
or Process analysis.
table.

Tool It is a tool which helps to organise data. It is a tool which helps in the presentation of data.

Bifurcates
Categories and sub-categories. Headings and sub-headings.
data into

Purpose To analyse data. To present data.

OR
General rules of a table are as follows:
1. A table should be simple and attractive. There should be no need of further explanations (details).
2. Proper and clear headings for columns and rows should be need.
3. Suitable approximation may be adopted and figures may be rounded off.
4. The unit of measurement should be well defined.
5. If the observations are large in number they can be broken into two or three tables.
6. Thick lines should be used to separate the data under big classes and thin lines to separate the sub classes of data.
15. Following factors will be considered while selecting the sample size:
i. Size of the population: Size of sample depends upon the size of population. More is the size of the population, bigger will be
sample size and vice versa.
ii. Degree of Accuracy Required: Size of sample depends on degree of accuracy required. If the degree of accuracy required is
high, more will be the sample size and vice versa.
iii. Homogeneity or Heterogeneity of Population: For a homogeneous population, a smaller sample is required as the it
represents all the population but incase of heterogeneous the more sample required to represent all.
iv. Nature of the Study: In case of intensive and exclusive study, the smaller sample is required but of irregular surveys, a larger
sample is required.
16. Rank correlation is more precise than simple correlation coefficient in the following situations:
i. When extreme values are present in the data: Sometimes the correlation coefficient between two variables with extreme values
may be quite different from the coefficient without the extreme values.

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 ii. When the Measurements of the Variables are not accurate: If the exact measurement of a quantifiable variable cannot be taken,
then rank correlation should be preferred. For example, in a remote village, where measuring rods or weighing scales are not
available, height and weight of people cannot be measured precisely but the people can be easily ranked in terms of height and
weight.
iii. When the data is Qualitative: It is difficult to quantify qualities such as fairness, honesty, etc. The Ranking may be a better
alternative for quantification of qualities.
Under these circumstances rank correlation provides a better alternative to simple correlation.
17. 1. All the given inclusive series will be converted into an exclusive series:
To convert the inclusive series into exclusive series ;
Correction factor = (50-49)/2=0.5
This is added to the upper limit and subtracted from the lower limit of the class.
2. Now, after conversion of series, mode will be determined.

Marks Number of Students (f)

39.5-49.5 12

49.5-59.5 30

59.5-69.5 24

69.5-79.5 20

79.5-89.5 12

89.5-99.5 2
The modal class is not clear by inspection.
Although, class interval 49.5-59.5 has the highest frequency 30, yet the greatest concentration of items is around class
interval 59.5-69.5 (with a frequency of 24.)
Therefore, we will find mode by the method of grouping.
Grouping Table
Marks (X) Frequency (f)

I II III IV V VI

39.5-49.5 12
42
49.5-59.5 30 66
54
59.5-69.5 24 74
44
69.5-79.5 20 56
32
79.5-89.5 12 34
14
89.5-99.5 2

Analysis Table
Frequency (f)

39.5-49.5 49.5-59.5 59.5-69.5 69.5-79.5 79.5-89.5 89.5-99.5

I √

II √ √

III √ √

IV √ √ √

V √ √ √

VI √ √ √

Total 1 4 5 3 1

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 From the analysis table, the modal class is 59.5-69.5. The frequency of this group is 24. So,
f1 − f0
Mode(Mo ) = l1 + × c
2f1 − f0 − f2

But in this case, when f1 (24) is less than f0 (30), (f1-f0) will be negative and because of this modal value will lie outside the
group.
In such cases, calculation of mode is done using the following formula,
f2
Mo = l1 + × c
f0 + f2

20
⇒ Mo = 59.5 + × 10
30+20

⇒ Mo = 59.5 + (0.4 × 10)

⇒ Mo = 59.5 + 4

⇒ Mo = 63.5

Therefore, the mode of the given distribution is 63.5

OR
Calculation of Arithmetic Mean by Step Deviation Method
dm
Items Mid-value (m) Frequency (f) dm (m-A)(A=15) ′
d m(
c
) fd'm

0-10 5 28-24=4 -10 -1 -4

10-20 15 24-14=10 0 0 0

20-30 25 14-4=10 +10 +1 +10

30-40 35 4 +20 +2 +8
′
Σf = 28 Σf d m = +14

Now,
A=15 ′
Σf d m = +14

c =10 Σf = 28
′
¯¯¯
¯ Σf d m 14
X = A+ × c = 15 + × 10 = 15 + 5
Σf 28

¯¯¯
¯
⇒ X = 20

∴ The arithmetic mean using the step deviation method = 20

Section B
18. (a) 2.0
Explanation:
percentage change in qty supplied
Elasticity of supply = percentage change in price

19.
(c) Economy’s capacity to produce increases
Explanation:
The most common reason a PPF would shift is because of a change in technology, or because of economic growth. Everything
else held constant more goods can be produced after the technological change.

20.
(b) Maximum
Explanation:
In perfect competition when MR=MC the firm will earn normal profits and at this point profits are maximised and producer
will be at equilibrium. After this point MC starts rising. and MR is constant at the same level. So, when MC>MR , the producer
will start incurring losses. So MR= MC level gives him maximum profits.

21.
(c) AR is decreasing
Explanation:
When AR diminishes, MR declines faster than AR.

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22.
(b) explicit cost
Explanation:
Explicit cost is the opportunity cost of purchasing inputs from the market.

23.
(d) A is false but R is true.
Explanation:
Diamond jewellery, costly carpets have more demand in the market because the prices of these items are abnormally high as
compared to other cheaper items.

24.
(b) Yes
Explanation:
At break even point the total revenue equals the total costs and the firm is able to cover all its costs thus making normal profits.

25.
(d) Addition to the total revenue on the sale of an additional unit of Output
Explanation:
M Rn = T Rn − T Rn−1

26. (a) True

Explanation:
The AC curve is U shaped as it initially falls with increase in output. Once the output rises till optimum level, AC starts rising.
27. (a) fee entry and exit
Explanation:
Entry into the market as well as exit from the market is free for firms under perfect competition. It ensures their normal profit
in the long run.
28. PPC is a graph that shows the maximum number of possible units a company can produce if it only produces two products using
all of its resources efficiently.
i. Widespread floods in the river will lead to the destruction of resources.
ii. It there is the destruction of resources the PPC will shift to the left.
OR

PPC would rotates from ab to ab1(Fig.) indicating higher production of wheat owing to improved technology.
29. In Perfect Competition, all sellers sell identical units of a product or all units of goods are identical in color, shape, size or packing
of the product of each seller. A buyer will have no reason to prefer the product of any particular seller.
Implications:
i. There are no selling costs(cost of marketing and selling a product)
ii. Because of homogeneous products (one that cannot be distinguished from competing products from different suppliers), there
is a single price in the whole market.
iii. Transportation costs may also be avoided.
iv. he negative implication of this feature is that the consumers are deprived of the different varieties of products like garments.

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30. The quantity of a good that the consumer demands can increase or decrease with the rise or fall in income depending on the nature
of the good. Normal goods are these goods for which the demand is directly related to consumers income .other things remaining
constant, demand for those goods increase in response to increase in consumers income because purchasing power of consumer
increases.

31. Quantity in units Price=AR TR TC MR MC

0 10 0 5 - -

1 10 10 25 10 < 20

2 10 20 35 10 = 10

3 10 30 40 10 > 5

4 10 40 50 10 = 10

5 10 50 70 10 < 20

6 10 60 100 10 < 30
The firm will be in equilibrium at 4 units of output as at this level of output both the conditions of firm’s equilibrium are satisfied,
i.e.
i. MR is equal to MC (₹ 10)
ii. MC is increasing at the point of equilibrium
OR
Producer’s equilibrium refers to a situation, where a producer is producing that level of output, at which its profits are maximum.
In other words, it is a situation of profit maximisation or cost minimisation (under MR and MC approach). According to this
approach, the producer is in equilibrium when the Marginal Revenue (MR) is equal to the Marginal Cost (MC) and Marginal Cost
curve cuts the Marginal Revenue curve from below. Two conditions under this approach are:
i. MC = MR
ii. MC curve should cut the MR curve from below.
MR is the addition to Total Revenue from the sale of one more unit of output and MC is the addition to Total Cost for increasing
the production by one unit. The basic aim of every producer is to maximise the profit. For this, a firm compares its MR with its
MC.
As long as the addition to revenue is greater than the addition to cost, it is profitable for a firm to continue producing more units of
output.
In the below diagram, output is shown on the X-axis, revenue and cost on the Y-axis.
The Marginal curve, is ‘U’ shaped and p = MR= AR.
MC = MR at two points, R and K in the diagram but profits are maximised at point K, corresponding to OQ level of output.
Between OQ1 and OQ levels of output, MR exceeds MC. Therefore, firm will not stop at point R but will continue to take
advantage of additional profit. Thus, equilibrium will be at point K where both the conditions are satisfied.
Two other situations may also exist:
i. MR > MC At output level less than
OQ, MR > MC which implies that firm is earning profit on the last unit of output. The marginal profit provides an incentive to
the firm to increase production and move towards OQ units of output. Therefore, when MR>MC, the firm increases output to
maximise its profit.
ii. MR < MC At output level more than
OQ, MR < MC which implies that firm is making a loss on its last unit of output. Hence, in order to maximise profit, a rational

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 producer decreases output as long as MC > MR. Thus, the firm moves towards producing OQ units of output.

32. i. Higher IC lying above and to the right of another IC represents a higher level of satisfaction. All combination of goods X and
Y lying on the higher indifference curve IC2 have more satisfaction than the lower indifference curve IC1 as shown in figure
given here.

ii. This is because of monotonic preferences, as monotonic preferences state that we must have atleast more of one good and no
less that of other goods (means other goods can be equal or greater, but not less). The figure above shows that bundle F(OX2 +
OY2) is monotonic preferred to bundle E(OX1 + OY1). So, bundle F bundle gives more satisfaction than that of Bundle E.
iii. It can be seen from the above diagram that all combinations of IC2 contain a more units of both X and Y, than all
combinations on IC1. For, e.g., point E lying on IC represents OX1 units of X and OY1 units of Y. Point F lying on IC2
represents more units of Y, i.e., OY1 as well as more units of X, i.e. OX2. The consumer gets greater satisfaction by
consuming more units of a good. Hence, point F shall be on a higher IC and shall be more preferable to point E, lying on a
lower IC.
33. The behavior of Marginal Product in the law of variable proportion is as under:
i. When total product increases at an increasing rate (convex shape) (till point P), MP also increases.(till the point P
1

ii. when total product increases at a diminishing rate (concave shape) (till point A)., then Marginal product falls and remains
positive (Till point B1),
iii. when total product is at its maximum and constant (At point B), Marginal Product is zero (at point B1),
iv. when total product falls (after point B), Marginal product becomes negative (after point B1)

Causes or Reasons of this Behaviour is as Under:

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 i. Phase I
a. Proper utilization of the fixed factor
In the initial stage of production the supply of the fixed factory, eg. land is too large whereas the supply of variable
factors are too few. So, the fixed factor is not fully utilised.
Proper utilization of the fixed factor is attained when more and more units of variable factor (labour units) are
applied to the fixed factor (land). So, in this phase, when more and more variable factor, i.e. labour is used, the
production increases at an increasing rate.
b. Specialization and division of labour
Suppose, initially there was only one labour working on all the 5 acres of land doing all the jobs of ploughing,
watering, etc.
As the number of labour units increases, each worker specializes in a particular activity and this leads to
specialization of the variable units which in turn leads to increased efficiency.
ii. Phase II
a. The non-optimal combination of variable factor with the fixed factor
There is a optimum combination of variable factors and fixed factors and this point productivity is at it maximum
and all the fixed factors are effectively utilised. After this optimum combination, the marginal returns of the
variable factors starts diminising, i.e. TP increases but at a diminishing rate.and MP starts falling but remains
positive. In other words, as many workers share the same fixed factor, the share of each worker would obviously
fall. Therefore, the cooperation of the fixed factor is not available to the same extent. Thus, an increase in the
variable factor would add less and less to total output.
b. Imperfect Substitutes
Diminishing return to factor occurs because variable factor and fixed factor are imperfect substitutes to each other.
Technically speaking, there is a limit to which variable factor can be substituted for fixed factor and that limit
depends upon the efficiency of fixed factor. But beyond the optimum limit they become imperfect substitutes to
each other which leads to diminishing returns.
iii. Phase III
a. Efficiency of Variable Factor Fall
In this stage the amount of variable factor becomes excessive relative to the fixed factor. This happens when too
many labour are engaged in cultivating on a given piece of land.
Instead of helping each other in production they cause overcrowding and chaos and thus hamper each other’s
work. With continous increase in variable factor, the advantages of specialization and division of labour starts
diminishing. In such a case, the contribution of additional labour to production is bound to be negative.
Thus, the marginal returns become negative and the total returns start diminishing.
b. Efficiency of Fixed Factor Fall
Too much of a variable factor may also lead to the inefficiency of the fixed factor as well.
In case of capital, which is a fixed factor, too much of labour may cause lot of wear and tear of machinery, frequent
breakdowns and excessive cost of maintenance. This is bound to affect total production adversely.
In such a situation it is advisable to reduce the units of the variable factor than to increase it with a view for getting
maximum production.
34. Answer the following questions
(i) Ed=-2, P = IO, ΔP = 11 − 10 = 1 , Q = 40, ΔQ = ?
ΔQ P
Ed = ×
ΔP Q

ΔQ 10
= −2 = ×
1 40

= −80 = 10ΔQ

= ΔQ = −8

New Quantity = Q + ΔQ
= 40 - 8 = 32 units
(ii) Elasticity of demand refers to how sensitive the demand for a good is to changes in other economic variables, such as
prices and consumer income, which is calculated in this case as follows:-
Price (P) Demand (Q)
(Rs.) (units)

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 P 50 1000 Q

P1 45 1080 Q1
ΔQ P
Ed = (−) ×
ΔP Q

(45 - 50 = -5)
ΔQ = 1080 -1000 = 80
80 50 4000
= (−) × = = 0.8
−5 1000 5000

Ed<1, so it is inelastic demand because demand increases less than proportionate fall in price.

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