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CBSE Sample Papers Class 11 Economics 2024

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CBSE Sample Question Paper for Class 11 Economics – in PDF

CBSE Sample Papers Class 11 Economics for the session 2023-24 are now available on myCBSEguide app.  We have followed the new marking scheme and the blueprint released by CBSE. We are providing Economics sample papers for Class 11 CBSE exams. Sample Papers are available for free download on the myCBSEguide app and website in PDF format. This helps students find the to answer the most frequently asked question. After practicing some of the model papers, students will definitely understand how to prepare for the CBSE exams.

Download Economics Sample Papers as PDF

CBSE Sample Papers Class 11 Economics 2023-24

CBSE Class 11 Economics Sample Papers 2024 follow the blueprint of the current session only. We advise students to download these model question papers and practice them as much as possible. It will certainly boost their level of preparation for the examinations.

Class 11 Eco sample paper 2024 with the solution is here with well-explained answers. Our team has solved each question in such a manner that students will understand the steps easily.

The model papers of class 11th Eco have two sections. The first section has questions from Micro Economics and the second section has questions from Statistics. Here, both sections have an equal weightage of 40 marks each. The remaining 20 marks are for internal assessment.

CBSE class 11 Economics Sample Paper

Class 11 – Economics Sample Paper (2023-24)

Maximum Marks: 80
Time Allowed: : 3 hours

General Instructions:

  1. This question paper contains two sections:
    Section A – Micro Economics
    Section B – Statistics
  2. This paper contains 20 Multiple Choice Questions type questions of 1 mark each.
  3. This paper contains 4 Short Answer Questions type questions of 3 marks each to be answered in 60 to 80 words.
  4. This paper contains 6 Short Answer Questions type questions of 4 marks each to be answered in 80 to 100 words.
  5. This paper contains 4 Long Answer Questions type questions of 6 marks each to be answered in 100 to 150 words.

  1. Class 11 Economics Sample Paper Section A

  2. Assertion (A): Housewife working in the house is termed as Non-economic activity.
    Reason (R): There is no monetary gain or salary paid to the housewife for working in the house.

    a) Both A and R are true and R is the correct explanation of A.
    b) Both A and R are true but R is not the correct explanation of A.
    c) A is true but R is false.
    d) A is false but R is true.
  3. Inflation is measured in terms of weekly changes in:
    a) Cost of Living Index
    b) WPI
    c) CPIAL
    d) CPIIW
  4. A correlation coefficient:
    1. Efficiently summarises some of the information in a scatterplot.
    2. Is a sort of index of how close the points of a scatter diagram deviate from the best-fitting straight line through those points.
    3. Tells you the direction of the slope of the scatter diagram.
    a) Only B
    b) All of these
    c) Only C
    d) Only A
  5. From the data given below, find Paasche’s price index:
    CommodityBase yearCurrent year
    PriceQuantityPriceQuantity
    A4263
    B3521
    C8246
    a) 68.42
    b) 69.82
    c) 69.84
    d) 68.85
  6. The weights used in Passche’ s formula belong to
    a) The base period
    b) To any arbitrary chosen period
    c) The given period
    d) None of these
  7. Purchasing power of money is
    a) None of the given
    b) Equal to price index number
    c) Reciprocal of price index number
    d) Unequal to price index number
  8. The scope of statistics extends to
    a) government
    b) All of these
    c) economics
    d) industry
  9. Caption stands for:
    a) The table headings
    b) The column headings
    c) The row headings
    d) A numerical information
  10. The price relative is a price index that is determined by
    a) (price in period t + base period price)(100)
    b) price in period t/base period price)(100)
    c) none of the above
    d) (base period price/price in period t)(100)
  11. The data consist of scores on three different scales of Political attitudes.
    Scale-AScale-BScale-C
    354
    266
    158
    522
    781

    What is the Spearman rank correlation coefficient between the Scale-Aand the Scale-C?

    a) -0.1
    b) -1.0
    c) 0
    d) 1
  12. Mr. Ashok was getting Rs.400 in the base year and Rs.800 in the current year. If Consumer Price Index is Rs.350, then what extra amount is required for maintaining the earlier standard of living?
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  13. Find out the weighted arithmetic mean from the following data.
    BooksPrice per Book (X)Number Sold (W)
    Statistic (S)2040
    Physics (P)3025
    Economics (E)1512
    Commerce (C)2513
    Chemistry (Ch)2510

    OR

    Mr Ram has annual income of Rs,10,00,000 while Mr Raj has annual income of RS.70,00,000. Their average income has been computed at Rs.40,00,000 per annum. Do you think average income is a good representation of their actual annual incomes?

  14. Present the following table in the form of more than series.
    Class IntervalFrequency
    10-2012
    20-3013
    30-4018
    40-5013
    50-6012
    60-709
    70-808
    80-901
    Total86
  15. Net domestic product by industry of origin (at 2004-05 prices) is given for the year: 2013-14 and 2014-15. Present this data in terms on percentage bar diagram.
    Net Domestic Product by Industry of Origin (at 2004-05 prices) in 2013-14 and 2014-15 (Rs. in crore)

    SectorYear (2013-14)Year (2014-15)
    Primary6,65,7516,71,674
    Secondary8,23,2208,46,805
    Tertiary21,58,07021,70,512
    Total36,47,04136,88,991

    OR

    Draw a histogram from the following data.

    MarksNumber of students
    10-205
    20-3010
    30-4012
    40-6028
    60-8020
    80-11024
  16. “A good sample is generally based on correctness and continuity”. In the context of above statement explain the characteristics of good sample.
  17. Calculate the correlation coefficient between the height of fathers in inches (X) and their sons (Y).
    X6566576768697072
    Y6756656872726971
  18. Determine the missing frequencies when mode = 36 and total frequency is 30.
    Class Interval10-2020-3030-4040-5050-60
    Frequency (f)–512–2

    OR

    Calculate Q1 and Q3 from the following data.

    MarksNumber of Students
    104
    2010
    3020
    408
    506
    603


  19. Class 11 Economics Sample Paper Section B

  20. Supply curve shifts forward due to:
    a) decrease in price of competing product
    b) decrease in factor price
    c) increase of firms in the market
    d) all of these
  21. Normative economics deals with:
    1. facts
    2. opinions
    3. both facts and opinions
    4. none of these
    a) only D
    b) Only B
    c) Only C
    d) Only A
  22. Assume that consumers income and the number of sellers in the market for milk both falls. Based on this information, we can conclude with certainty that the equilibrium:
    a) Price will increase
    b) Quantity will increase
    c) Quantity will decrease
    d) Price will decrease
  23. Revenue =
    a) Costs {tex}\div{/tex} Profit
    b) Costs – Profit
    c) Costs + Profit
    d) Costs {tex}\times{/tex} Profit
  24. Marginal cost of a good includes:
    a) none of these
    b) variable cost and fixed cost
    c) only fixed cost
    d) only variable cost
  25. Assertion (A): A good is considered normal when with rise/fall in income of its consumer, its demand rises/falls.
    Reason (R): Normal goods have a negative income effect.

    a) Both A and R are true and R is the correct explanation of A.
    b) Both A and R are true but R is not the correct explanation of A.
    c) A is true but R is false.
    d) A is false but R is true.
  26. In which of the following types of market structures, are resources, assumed to be mobile?
    a) Oligopoly
    b) Monopolistic competition
    c) Perfect competition
    d) Monopoly
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  27. AR is more elastic in monopolistic competition than in monopoly as
    a) Many close substitutes do not exist in monopolistic competition
    b) Many close substitutes do not exist in monopoly competition
    c) Many close substitutes exist in monopolistic competition
    d) Many close substitutes exist in monopoly competition
  28. TC increases at an increasing rate when MC is:
    a) negative
    b) constant
    c) increasing
    d) decreasing
  29. The break- even point where TR=TC, the firm cannot earn abnormal profits
    a) Can’t say
    b) FALSE
    c) True
    d) None of these
  30. Explain the problem of ‘what to produce’.

    OR

    What happens, if resources do not have alternative uses?

  31. Analyse the impact of (i) an increase in consumer income and (ii) an increase in the number of consumers on market equilibrium. Use a suitable diagram in support of your answer.
  32. A good may be inferior for one consumer and normal for another. Do you agree with the statement? Justify.
  33. From the following schedule, find out the level of output, at which the producer is in equilibrium. Give reason for your answer.
    Output (units)Price (Rs)Total Cost (TC in Rs)
    12426
    22450
    32472
    42492
    524115
    624139
    724165

    OR

    How is producer’s equilibrium determined in case of perfect competition using MR and MC approach?

  34. Define Marginal Rate of Substitution. Why is an Indifference Curve convex?
  35. State the behavior of marginal product in the law of variable proportions. Explain the causes of this behavior.
  36. Answer the following questions
    1. Explain the price elasticity of demand.
    2. Explain the effect of the following on Price Elasticity of Demand of a commodity.
      1. Number of substitutes.
      2. Nature of the commodity

Class 11 – Economics Sample Paper Solution (2023-24)

Only question paper is not sufficient to practice. You need well-explained solutions to check your performance. That’s why, you will always get sample papers with complete solutions in myCBSEguide app and website.

CBSE 11th Economics sample paper 2024 also comes with a solution. If you want to download it as a PDF, you get it by using the link provided at the top of this page.

The model question paper of XI Economics has questions from two different books. Both of them are placed in two separate sections. Here, you will get solution for questions from both the books.

Class 11 Economics Sample Paper Solution Section A

  1. (a) Both A and R are true and R is the correct explanation of A.
    Explanation: Both A and R are true and R is the correct explanation of A.
  2. (b) WPI
    Explanation: The monthly WPI number shows the average price changes of goods usually expressed in ratios or percentages. The index is based on the wholesale prices of a few relevant commodities available. The commodities are chosen based on their significance in the region.
  3. (b) All of these
    Explanation: The correlation coefficient is a statistical measure of the strength of the relationship between the relative movements of two variables. The values range between -1.0 and 1.0. A calculated number greater than 1.0 or less than -1.0 shows that there was an error in the correlation measurement.
  4. (c) 69.84
    Explanation:

    Commodity

    Base Year

    Current Year

    P1q1

    P0q1

    Price (P0)

    Quantity (q0)

    Price (P1)

    Quantity (q1)

    A

    4

    2

    6

    3

    18

    12

    B

    3

    5

    2

    1

    2

    3

    C

    8

    2

    4

    6

    24

    48

    Total

    44

    63

    Paasche’s price index= {tex}\frac{{44}}{{63}} \times 100 = 69.84{/tex}
    (Paasche’s price index ={tex}\frac{{p1\ q1}}{{p0\ q1}} \times 100{/tex}

  5. (c) The given period
    Explanation: Paasche’s Method:
    Under this method of calculating Price Index, the quantities of the current year are used as weights as compared to base year quantities used by Laspeyres.
  6. (c) Reciprocal of price index number
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    Explanation: Purchasing power of money = 1 / Cost of living index.
    Hence,it is a reciprocal of Cost of Living index.
  7. (b) All of these
    Explanation: Statistics is used by the government as the role of government has increased and requires much greater information in the form of numerical figures to fulfil the welfare objectives. Statistics is also an indispensable tool for a proper understanding of various economic problems. Statistics is also useful for Industries as it helps in forecasting, production planning, quality control etc.
  8. (b) The column headings
    Explanation: At the top of each column in a table, a column designation is given to explain figures of the column. This is called a caption.
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  9. (b) price in period t/base period price)(100)
    Explanation: By definition, we have, price relative ={tex}\frac{p_1}{p_0}{/tex}.It implies that we are comparing current year with base year which we require. Instead, if we write
    price relative ={tex}\frac{p_0}{p_1}{/tex} , it implies that we are comparing base year with current year which is quite absurd both logically and practically.TO express the comparison in percents we multiply it by 100.
  10. (b) -1.0
    Explanation: -1. 0 shows a perfect negative correlation between the two variables.
  11. With the increase in prices, the amount of goods and services which money wages can buy goes on decreasing. Change in real wages is computed as follows:
    {tex}= \frac { \text { Salary in Base Year } \times \mathrm { CPI } } { 100 }{/tex}
    For former standard of living, Ashok should get
    {tex}= \frac { 400 \times 350 } { 100 } = 1400{/tex} where 400 is his salary in base year and 350 is the Consumer Price Index.
    When CPI goes up to Rs. 350, his salary should also increase to Rs. 1400, whereas his salary is only Rs. 800.
    {tex}\therefore{/tex}  Amount required for maintaining the same standard of living = 1400 – 800 = Rs. 600.
  12. For finding out weighted mean, each item of the series is multiplied by its weights. Here price per book is multiplied by Number of books sold. Number sold is the weight in this question. Then we have to find {tex}\Sigma XW {/tex} and divide it by {tex}\Sigma W{/tex}

    Calculation of Weighted Arithmetic Mean

    BooksPrice per Book (X)Number Sold (W)XW
    S2040800
    P3025750
    E1512180
    C2513325
    Ch2510250
    {tex}\Sigma W = 100{/tex}{tex}\Sigma X W = 2305{/tex}

    Now,  {tex}\overline { X } _ { w } = \frac { \Sigma X W } { \Sigma W } = \frac { 2305 } { 100 } = 23.05{/tex}
    Hence, required weighted arithmetic mean=23.05

    OR

    In this particular case, Mr. Ram has an annual income of Rs,10,00,000 while Mr. Raj has annual income of RS.70,00,000. Their average income has been computed at Rs.40,00,000 per annum.
    As per the given case, the average income computed is not representative of the actual annual incomes of Mr. Ram and Mr. Raj. The average income exceeds Mr. Ram’s actual income by Rs.30,00,000 and it falls short of Mr. Raj’s income by Rs.30,00,000 So, it is not a good representation of their actual annual incomes.
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  13. More than cumulative frequency is obtained by finding the cumulate total of frequencies starting from the highest to the lowest class.
    The given table in the form of more than series is shown below:

    ItemFrequency (f)
    More than 1086 (total)
    More than 2086 – 12 = 74
    More than 3074 – 13 = 61
    More than 4061 – 18 = 43
    More than 5043 – 13 = 30
    More than 6030 – 12 = 18
    More than 701 8 – 9 = 9
    More than 809 – 8 = 1
  14. Percentages are computed as under Year 2013-14
    Percentage share of primary sector{tex}= \frac { 6,65,751 } { 36,47,041 } \times 100{/tex}

    Net Domestic Product by Industry of Origin in 2013-14 and 2014-15

    OR

    The above distribution has unequal class intervals. Therefore, the frequencies will be adjusted before constructing the histogram. For calculating the adjusted frequency, we have to take the width of the lowest class interval, which in this case is 10.
    Then we calculate the Adjustement factor for any class = {tex}{Width \; of \; the \; class }\over{Width\; of \; the \; lowest \; class} {/tex}.  The given frequency will be divided by this adjustment factor. The calculations are shown below:

    MarksNumber of studentsAdjustment factorAdjusted Frequency
    10-205{tex}{10}\over{10} {/tex} =1{tex}{5}\over{1} {/tex}= 5
    20-3010{tex}{10}\over{10}{/tex}=1{tex}{10}\over{1}{/tex} = 10
    30-4012{tex}{10}\over{10}{/tex} = 1{tex}{12}\over {1}{/tex} = 12
    40-6028{tex}{20}\over{10}{/tex}= 2{tex}\frac { 28 } { 2 } = 14{/tex}
    60-8020{tex}\frac{20}{10}=2{/tex}{tex}\frac {20 } { 2 } = 10{/tex}
    80-11024{tex}\frac{30}{10}=3{/tex}{tex}\frac { 24} { 3 } = 8{/tex}

    Histogram-based on above distribution is shown below

  15. The characteristics of a good sample are as follows:
    1. A Sample must represent characteristics of the entire universe population i.e., it should be representative.
    2. It must be adequate enough to offer reliable conclusions.
    3. The units of the sample should be independent of each other.
    4. In case more than one sample is selected from a given population, then these samples should be homogeneous.
    5. To have a correct picture of the problem under investigation, it is important to draw a sample keeping in view the objective of the investigation.
  16. Calculation of Coefficient of Correlation
    Xx(X – {tex}\overline X{/tex}), {tex}\overline X{/tex}= 66.75x2Yy(Y – {tex}\overline Y{/tex}), {tex}\overline Y{/tex}= 67.5y2xy
    65-1.753.062567-0.50.250.875
    66-0.750.562556-11.5132.258.625
    57-9.7595.062565-2.56.2524.375
    670.250.0625680.50.250.125
    681.251.5625724.520.255.625
    692.255.0625724.520.2510.125
    703.2510.5625691.52.254.875
    725.2527.5625713.512.2518.375
    {tex}\Sigma{/tex}X = 534{tex}\Sigma{/tex}x2 = 143.5{tex}\Sigma{/tex}Y = 540{tex}\Sigma{/tex}y2 = 194{tex}\Sigma{/tex} xy = 73

    Here, n = 8, {tex}\Sigma{/tex}X = 534, {tex}\Sigma{/tex}x2 = 143.5, {tex}\Sigma{/tex}Y = 540, {tex}\Sigma{/tex}y2 = 194, {tex}\Sigma{/tex} xy  = 73
    Now, {tex}\overline { X } = \frac { \Sigma X } { n } = \frac { 534 } { 8 }{/tex}= 66.75, and {tex}\overline { Y } = \frac { \Sigma Y } { n } = \frac { 540 } { 8 }{/tex}= 67.5
    {tex}r = \frac { \Sigma x y } { \sqrt { \Sigma x ^ { 2 } \times \Sigma y ^ { 2 } } } = \frac { 73 } { \sqrt { 143.5 \times 194 } }{/tex}{tex}= \frac { 73 } { \sqrt { 27839 } } = \frac { 73 } { 166.85 } = 0.438{/tex}
    It indicates that there is low degree of positive correlation between height of fathers and sons.

  17. Let the missing frequencies be x and y.
    Class IntervalFrequency (f)
    10-20x
    20-305
    30-4012
    40-50y
    50-602
    n=30

    Calculation of Missing Frequencies

    Mode = 36 (given)Sum of frequencies={tex} n = \Sigma f = 30{/tex} (given)
    As the value of mode is 36, so the modal class is 30-40.
    {tex} \therefore \text { Mode } , \left( M _ { 0 } \right) = l _ { 1 } + \frac { f _ { 1 } – f _ { 0 } } { 2 f _ { 1 } – f _ { 0 } – f _ { 2 } } \times c{/tex}
    {tex}\Rightarrow \quad 36 = 30 + \frac { 12 – 5 } { 24 – 5 – y } \times 10{/tex}
    {tex}\Rightarrow \quad 6 = \frac { 7 } { 19 – y } \times 10{/tex}
    {tex} \Rightarrow{/tex}6(19-y)=70 {tex} \Rightarrow{/tex}114-6y=70
    {tex} \Rightarrow{/tex}6y=44 {tex} \Rightarrow{/tex}{tex} y = \frac { 44 } { 6 } = 7.33 = 7{/tex}
    [as the frequencies cannot be in fractions]    		x+5+12+y+2=30
    {tex} \therefore \Rightarrow{/tex}x+5+12+7+2=30 [{tex} \because{/tex}y=7] {tex} \because{/tex} x=4

    Thus, the two missing frequencies are 4 and 7.

    OR

    MarksNumber of Students (f)Cumulative Frequency (cf)
    1044
    201014
    302034
    40842
    50648
    60351
    {tex} n = \Sigma f = 51{/tex}

    First quartile and third quartile can be calculated by using the formula given below:

    Q1Q3
    {tex} Q _ { 1 } = \text { Size of } \left( \frac { n + 1 } { 4 } \right)th\ item{/tex}{tex} Q _ { 3 } = \text { Size of } 3 \left( \frac { n + 1 } { 4 } \right)th\ item{/tex}
    {tex}= \text { Size of } \left( \frac { 51 + 1 } { 4 } \right)th\ item{/tex}
    = Size of 13th item and it lies in cf 14,
    Hence Q1= 20 marks    		{tex} = \text { Size of } 3 \frac { ( 51 + 1 ) } { 4 }th\ item{/tex}
    =Size of 39th items and it lies in cf 42,
    Hence Q3= 40 marks


  18. Class 11 Economics Sample Paper Solution Section B

  19. (d) all of these
    Explanation: Increase in supply refers to a situation when more is supplied at the existing price of the commodity. It leads to a forward shift in the supply curve. Increase in supply may occur due to improvement in technology, reduction in factor prices, a decrease in the price of a competing product etc.
  20. (b) Only B
    Explanation: opinions
  21. (c) Quantity will decrease
    Explanation: Due to a fall in income and number of sellers, supply decreases. We can conclude with certainty that the equilibrium quantity will decrease.
  22. (c) Costs + Profit
    Explanation: The revenue of a firm is its sale receipts or money received from the sale of a product.
  23. (d) only variable cost
    Explanation: Marginal cost is an additional cost and additional cost cannot be fixed cost, it can be a variable cost. Accordingly, the sum total of marginal cost corresponding to different units of output becomes TVC.
  24. (c) A is true but R is false.
    Explanation: A is true but R is false.
  25. (c) Perfect competition
    Explanation: The resources(land, labour, capital and entrepreneurship) are free to move to the industry in which they get the best price as there is freedom of entry and exit
  26. (c) Many close substitutes exist in monopolistic competition
    Explanation: In monopoly, there is a single seller and no close substitutes are available for the product. So the customer cannot shift to any other product(as there are no substitutes) if the monopolist increases the price of the product. In such a case the demand is less elastic or inelastic. Whereas in monopolistic competition, there are large number of sellers and substitutes are available, so the customer will shift to substitute product if there is a increase in price. As such in this situation the demand is more elastic.
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  27. (c) increasing
    Explanation: MC is the rate of TC. If TC increases at increasing rate, MC must be increasing.
  28. (c) True
    Explanation: The firm can earn abnormal profits only when TR > TC
  29. Problem of ‘what to produce’ arises as the economy has limited resources. Because of the scarcity of resources, producers are unable to produce everything in desired quantity, so they have to make a choice as to which product or service is important as a whole so that limited resources can be rationally managed. There is a problem of allocation of resources among different goods.
    For example, the production of more bread is possible only by reducing the production of other goods.
    Problem of ‘what to produce’ involves two-fold decisions

    1. Selection of goods and services to be produced,
    2. Quantity of to be produced of each of the selected goods.

    OR

    There would not be any problem of choice or the problem of rational management of resources. The problem of choice then ceases to exist; accordingly there should not be any economic problem and no economics as such.
    Example: If farming land could be used only for the production of rice (and no other crop) then where is the problem. Just grow rice and relax! The problem arises because farming land can be used for the production of different crops, like rice and Bajra.


  30. The diagram shows an increase in demand while supply remains unchanged. Equilibrium price rises to OP1, and equilibrium quantity rises to OQ1.

    1. When the income of the consumer rises, the demand curve shifts to the right.
    2. When the number of consumers increases, market demand for the commodity increases. Again, it implies a forward shift in the demand curve. It will shift towards the right thereby increasing the quantity demanded and price of the product.
  31. It is true to say that a good may be inferior for one consumer and normal for other. Whether a good is considered as inferior or normal depends upon income of the consumer. Any good is identified as inferior good when income effect is negative i.e., with increase in income the demand for good falls.
    (i) If a poor person’s income increases and because of this increases he switches from coarse grains to low quality grains, then for him low quality grains is a normal good. Whereas for  a person in the middle income group low quality grains is an inferior good.
    (ii) Even a normal car can also be an inferior good for some people. A person may be owning a normal car due to his low income, but when his income increases he will start demanding luxury cars. So, for him normal car is an inferior good and luxury car is a normal good.
  32. Total and Marginal Cost and Revenue Schedule
    Output (Q)
    (units)    		Price (P)Total CostTotal Revenue
    (TR in Rs)
    (AR{tex}\times{/tex}Q)    		Profit (Rs)Marginal RevenueMarginal Cost
    1242624-22426
    2245048-22424
    324727202422
    424929642420
    52411512052423
    62413914452424
    72416516832426

    Reason :
    At 2nd and 6th unit, MR=MC. But at 7th unit MC>MR. Thus, by this both the condition of producer equilibrium is satisfied.

    OR

    In order to get maximum profit under perfect competition, a firm must compare its marginal cost with marginal revenue.
    According to marginal analysis, a firm would, therefore, be in equilibrium when the following two conditions are fulfilled :

    1. MC = MR.
    2. The MC curve cuts the MR curve from below.

    In this figure, MC cuts MR at two points A and ‘E’. Point ‘A’ cannot indicate the position of equilibrium of the firm as at point A Marginal cost of the firm is still falling or we can say MC is not cutting MR from below.

    Here point ‘E’  represents the equilibrium of the firm. At this point, both the conditions of equilibrium are being fulfilled: Marginal cost is equal to marginal revenue (MC = MR) and the marginal cost curve is cutting the marginal revenue curve from below. At point ‘E’,  the firm gets a maximum profit. In case, the firm produces more or less than OM output, then its profits will be less than the maximum.

  33. Marginal Rate of Substitution (MRS) refers to the rate at which the consumer is willing to sacrifice one good to obtain one more unit of the other good. Symbolically,
    {tex}\mathrm { MRS } _ { \mathrm { xy } } = \frac { \text { Quantity of the Good Sacrificed (Y) } } { \text { Quantity of the Good Obtained (X)}}{/tex}
    Indifference Curve (IC) is convex to origin due to diminishing Marginal Rate of Substitution. It means that a consumer is willing to sacrifice less and less units of a good to gain an additional unit of the other good because the utility that he gets from consuming an additional unit of a good goes on diminishing. As the consumer substitutes commodity X for commodity Y, the marginal rate of substitution diminishes as X for Y along an indifference curve. Thus indifference curve is steeper towards the Y axis and gradual towards the X axis. It is convex to the origin.
    To practice more questions & prepare well for exams, download myCBSEguide App. It provides complete study material for CBSE, NCERT, JEE (main), NEET-UG and NDA exams. Teachers can use Examin8 App to create similar papers with their own name and logo.
  34. The behavior of Marginal Product in the law of variable proportion is as under:
    1. When total product increases at an increasing rate (convex shape) (till point P), MP also increases.(till the point {tex}P_1{/tex}
    2. when total product increases at a diminishing rate (concave shape) (till point A)., then Marginal product falls and remains positive (Till point B1),
    3. when total product is at its maximum and constant (At point B), Marginal Product is zero (at point B1),
    4. when total product falls (after point B),  Marginal product becomes negative (after point B1)

    Causes or Reasons of this Behaviour is as Under:

    1. Phase I
      1. 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.
      2. 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.
    2. Phase II
      1. 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.
      2. 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.
    3. Phase III
      1. 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.
      2. 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.
  35. Answer the following questions
    1. Price elasticity of demand is a measure showing percentage change in quantity demanded with respect to some percentage change in the own price of the commodity.
      Price elasticity of demand (Ed) {tex}=(-) \frac{P}{Q} \times \frac{\Delta Q}{\Delta P}{/tex}
      Here, {tex}\Delta{/tex}Q = Change in quantity demanded; {tex}\Delta{/tex}P = Change in price; Q = Initial quantity; P = Initial price.

      1. Number of substitutes of goods: Demand for goods which have close substitutes (like tea and coffee) is relatively more elastic, because when the price of such a good rise, the consumers have the option of shifting to its substitute. Goods without close substitutes like cigarettes etc are generally found to be less elastic or inelastic in demand. Thus, the availability of close substitutes makes demand sensitive to change in prices.
      2. Nature of the commodity: Ordinarily, necessaries like salt, matchboxes, medicines etc have inelastic demand as it is required for human survival and its demand does not fluctuate much with a change in price. Luxuries, like air conditioner, costly furniture, car etc have more elastic demand as compared to the demand for comforts. Comforts like, cooler, fans etc have an elastic demand as consumers can postpone their consumption.

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