Roll No.

: Time -
Date : MM - 883  

1. Make a list of activities that constitute the ordinary business of life. Are these economic 3
activities? 

Ans : Following is the list of activities that constitute the ordinary business of life :
(i) Working in a factory or office
(ii) Shop run by a shopkeeper
(iii) Milkman working in a dairy farm
(iv) Treatment of a patient by a doctor
(v) A teacher teaching in a school
(vi) A teacher teaching his own son
(vii) A nurse serving her old mother
(viii) Cooking food by the housewife in her home
(ix) Social services rendered by an NGO to flood victims
Activities (i) to (v) are economic activities whereas activities (vi) to (ix) are non-economic activities.

2. You have unlimited wants and limited resources to satisfy them. Explain by giving an example.  3

Ans : Human wants are unlimited and resources to satisfy them are limited having alternative
uses. For example, farmers need resources like land, labour, capital, water, fertilisers, etc.
to produce food. These resources are limited and have alternative uses. These limited
resources can be used to produce food crops such as wheat, rice, etc. and non-food
crops such as rubber, cotton, jute, etc. Thus, alternative uses of resources give rise to the
problem of choice between different crops that can be produced. We have to choose the
crops whose demand is more urgent and intensive. 

3.Explain any three functions of statistics. 3

Or
Explain the role of statistics in economic planning. 

Ans : Following are the functions of statistics :

(i) Statistics presents complex facts into simple and definite form.
(ii) Statistics helps in condensing vast statistical information into a few significant figures.
(iii) Statistics facilitates comparisons among similar data.

4.What are the three limitations of statistics ? 3

Or
Statistical methods are no substitute for common sense. Comment. 

Ans : Following are the limitations of statistics :

(i) Statistics deals with aggregate of facts and not with individual facts.
(ii) Statistics deals only with quantitative data and ignores qualitative data.
(iii) Statistical results are true on an average. The results obtained in any statistical
analysis are not accurate.

5.What are the main features of statistics as a numerical data ? Describe any three. 3
Or
Define statistics in plural sense. Give its any two characteristics. 
Ans : In the plural sense, statistics means numerical facts systematically collected relating to
any field of enquiry. In other words, statistics in its plural sense refers to ‘data’. Main
features of statistics as a numerical data are :
(i) Statistical data is aggregate of facts : A single number does not constitute statistics.
Only when numbers are placed in relation to each other and conclusions can be drawn
from it then they constitute statistical data.
(ii) Statistical data is numerically expressed : Statistics are expressed only in quantitative
figures. Qualitative aspects of a problem do not constitute statistics.
(iii) Statistical data has reasonable standards of accuracy : Statistics are reasonably
accurate though it has limitations. The accuracy of the statistical data depends upon the
purpose of investigation, nature, size of sample and method of collecting data.
(iv) Statistical data is placed in relation to each other : Statistical data should be
comparable. Data should be placed in such a way that these can be compared.
Comparisons are possible only if the data are homogeneous. (Any three)

6. Conventional divisions of the study of economics comprises study of consumption, production 3

and distribution. Explain. 

Ans : Economics involves the study of men engaged in economic activities of all kinds which
are production, consumption and distribution.
(i) Production : Manufacturing of goods by producers for the market (or for profit motive)
is called production.
(ii) Consumption : Purchase of goods by consumers to satisfy their various needs is
called consumption.
(iii) Distribution : Division of national income into wages, profit, rent and interest is called
distribution.

7. ‘Statistics are figures, but all figures are not statistics.’ Justify the statement.  3

Ans : Statistics is often regarded as being a means by which observations are expressed
numerically in order to investigate causal relations or associations. Things that can be
counted, totalled, divided and subdivided, analysed and compared, score as a
quantitative measure of assessment. Thus, any facts, to be called statistics must be
numerically expressed, and should be placed in relation to each other. Qualitative data
cannot be included in statistics unless they are quantified by assigning some figures for
assessment. However, not all numbers are continuous and measurable. For example, the
fact that marks of a student are 50 tells nothing unless it is comparable. Thus, for figures
to be included in statistics, they must be aggregates of facts and not individual figures.

8. Distinguish between primary data and secondary data.  3

Ans : Following are the main differences between primary and secondary data :
(i) Primary data is collected by the investigator himself. It is original and first hand
information. On the other hand, secondary data is already available in published or
unpublished form. It is not original in character.
(ii) Primary data is always collected according to specific objective. It does not need any
adjustment or modifications. On the other hand, secondary data is the data which has
already been collected for some objectives. So, it is to be adjusted and modified to suit
the objective of the study.
(iii) Collection of primary data requires a lot of time, money and efforts because it is
collected by the investigator himself. On the other hand, secondary data is obtained
either from published sources or from any other sources like website. Accordingly, it is
less expensive. It also saves time and cost.
(iv) No precautions are required in the use of primary data whereas precautions should
be taken while using secondary data.

9. What do you mean by a Pilot Survey ? State the advantages of a Pilot Survey. 3

Ans : Before a questionnaire is finalised for collecting data on a large-scale, it is necessary to

carry out a preliminary survey on a small group which is known as pilot survey or pre-
testing of the questionnaire.
Advantages of Pilot Survey : There are many advantages of pre-testing the questionnaire
(or conducting a pilot survey) :
(i) The pilot survey helps in providing a preliminary idea about the survey.
(ii) The investigator can find out what are the shortcomings and drawbacks of the
questions, i.e., what questions ought to be deleted or what ought to be added.
(iii) An idea can be formed about the extent of the non-response likely to occur.
10.Discuss various sources of secondary data. 3
Or
Write in brief about the sources of secondary data.
Or
What are the sources of collection of secondary data ? Name any six such sources.
 
 

Ans : Secondary data is the one which is already available in published form or unpublished
form. Generally, published data is secondary data. It can be obtained from the published
sources or from any other source, for example, a website. Use of secondary data saves
time and cost. For example, after collecting the data on the popularity of film star among
students, we publish a report. If somebody uses the data collected by us for a similar
study, it becomes secondary data. Sources of Secondary Data : Secondary data can be
obtained from two sources, namely—published and unpublished sources.
Published Sources :
(i) Government publications
(ii) Reports of various Committees and Commissions
(iii) Publications of International Organisations
(iv) Journal and newspapers
(v) Website
(vi) Research publications
Unpublished Sources : Secondary data can be obtained from unpublished sources
because all statistical data is not published. Studies made by research institutes,
scholars etc. can be important sources of secondary data. 

11. What precautions are necessary while using secondary data. 3

Or
Explain any three limitations of secondary data.

Ans : Secondary data is collected by others to suit their requirements. Therefore, one needs to
be very careful while using this data. Some of the precautions to be taken while using
secondary data are :
(i) Whether the data is adequate ? : While using the secondary data, it must be seen that
they are adequate or sufficient for the purpose of enquiry.
(ii) Whether the data is reliable ? : While using the secondary data, the investigator would
see that the data obtained is accurate and reliable. For testing the reliability of the data,
one must see “Who collected the data ?”, “From where the data was collected ?” etc.
(iii) Whether the data is suitable for the purpose of enquiry ? : While using the secondary
data, it must be seen that the data obtained is suitable for the present study. If the data
collected is not suitable, it will defeat the whole purpose of the enquiry and lead to wrong
conclusions.

12. Give two examples each of sample, population and variable.  3

Ans : Examples of Sample :

(i) A representative group of few (say 30) individuals or households taken from a
particular locality to study the impact of rise in petrol price.
(ii) A representative group of a few students (say 25) taken from a school to study the
average monthly expenditure.
Examples of Population :
(i) All individuals or households residing in a particular locality about whom information
is to be collected.
(ii) All students studying in a school for whom the information is to be collected.
Examples of Variables :
(i) Changing price of food grains.
(ii) Increase or decrease in the production of wheat.

13.“Sampling is a necessity under certain conditions.” Explain. 3

Or

In what situations sampling is inevitable ? 

Ans : Sample method is the only method that can be used in certain situations. There are
some cases in which the census method is inapplicable and the only practical method is
sample method. For example, if one is interested in testing the breaking strength of
chalks manufactured in a factory, under census method all the chalks would be broken in
the process of testing. Hence, census method is impracticable and we have to adopt
sample method. Similarly, if a consumer wants to find whether the paneer to be
purchased by him is fresh or not, the Halwai resorts to sample method because census
method would mean complete consumption of the entire quantity of the paneer
available. Also, if the population under investigation is infinite, sample method is the only
possible solution. Sample method is also necessary when the results are required in a
short time, resources for the survey are limited and when the area of the survey is wide.

14. Distinguish between random sampling and non-random sampling. 3

Or
What do you know about random sampling and non-random sampling ?

Ans : Random sampling : Random sampling is a technique of drawing a sample from the
population in which each and every unit of the population has an equal chance of being
selected in the sample. 
Non-random sampling : In a non-random sampling method, all the units of the population
do not have an equal chance of being selected and convenience or judgement of the
investigator plays an important role in the selection of the sample. They are mainly
selected on the basis of judgement, purpose, convenience or quota.

15. Discuss how would you use the lottery method to select three students out of ten in your class. 3

Ans : The procedure of selecting a random sample of three students out of ten by using lottery
method is as follows :
(i) Take 10 slips of paper of identical shapes and size.
(ii) Write the names of students on the slips (one slip for each student).
(iii) Place the prepared slips in a box and thoroughly mix them.
(iv) Finally, without looking in the box, draw three slips.
The students whose names appear on the slips drawn, constitute the required random
sample.

16. What are sampling and non-sampling errors ? 3

Or
Which of the following errors is more serious and why ? (i) Sampling Error (ii) Non-sampling Error.

Ans : Sampling errors refer to the difference between the sample estimate and the actual value
of a characteristic of the population. It is the error that occurs when we make an
observation from the sample taken from the population. Sampling error may be due to
small size of sample or to defective methods of sampling etc.
Non-sampling errors are those which creep in due to human factors which always varies
from one investigator to other. Some of the non-sampling errors are :
(i) Errors in data acquisition
(ii) Non-response errors, and
(iii) Sampling bias
These errors arise in both census and sample surveys. They are more serious than the
sampling errors.

17. What information does the reports and publications of NSSO contain ?  3

Ans : Reports and publications of NSSO contain information regarding :

(i) Land and livestock holdings
(ii) Housing conditions and migration
(iii) Employment and unemployment status in India
(iv) Consumer expenditure in India
(v) Sources of Households Income in India etc.

18. Name at least six methods of collection of primary data. 3

Ans : Following are the methods of collecting primary data :
(i) Direct Personal Interview
(ii) Indirect Personal Interview
(iii) Information from Correspondents
(iv) Mailed Questionnaire Method
(v) Questionnaire filled by Enumerators
(vi) Telephonic interviews

19. What is a sample ? Name any four sampling methods.  3

Ans : Sample refers to a part of the population selected for analysis. The part is the
representative of the whole population. Sampling methods are simply the process of
learning about the population on the basis of a sample drawn from it. Following are the
mains methods of sampling :
(i) Simple random sampling
(ii) Stratified random sampling
(iii) Systematic sampling
(iv) Judgement sampling

20.Compare the merits of census method and sampling method of collection of data. 3
Or
Describe any three merits of censusmethod. 
 

Ans :  

Merits of Census Method  Merits of Sample Method

(i) A lot of time, energy and

(i) The results of the census method
money is saved in the
are likely to be exact and accurate.
collection of data. This is
This is because the information is
because the information is
collected from each and every unit of
collected from few
the universe without ignoring anyone.
representative units of the
(ii) An extended and detailed study of
universe.
the units is made possible. For
(ii) An extended and detailed
example, in the population census, a
study of the units is not
lot of information about the
possible. For example, while
population, viz. age, marital status,
testing the quality of sweets,
religion, nationality, education,
only samples are tested to
occupation etc. are collected.
draw conclusions.
(iii) It is more suitable where area of
(iii) It is suitable where area
enquiry is comparatively small. 
of enquiry is wide.

21. State three merits and three demerits of collecting data by ‘Personal interview.’ 3

Ans : Merits of collecting data by Personal Interview :

(i) Highest response rate : Response is more encouraging as most of the people are
willing to supply information when approached personally.
(ii) Flexible : This method is fairly flexible because the investigator makes clarification of
ambiguous questions to the informants.
(iii) Supplementary information : When in direct contact with the informants, the
investigaor may obtain any related information regarding personal characteristics of the
informants.
Demerits of collecting data by Personal Interview :
(i) Most expensive : It may be very expensive or costly where the number of persons to
be interviewed is large and they are spread over a wide area.
(ii) Personal bias : Under this method, there is a possibility that the investigator may
influence respondents. The chances of personal prejudice and bias are greater under this
method.
(iii) More time taking : More time is required for collecting information by this method as
compared to other methods.

22. What kind of data is contained in Census of India? 3

Ans : The Indian Census began in 1881 and it is the largest source of statistics on the people
of India. It brings out statistics every 10 years. For scholars and researchers, the Indian
Census is an interesting data source.
The census is available on various subjects : Population, Economy, Finance, Literacy, Sex
ratio etc. There are sub-topics in each subject, which deal with specific issues of that
subject. IMR Rate, Birth Rate, Death Rate, Workers in various sectors, Male workers,
Female workers, etc., in economy, Female Literacy, Male Literacy and so on.

23. Categorise and explain the following variables as discrete variables and continuous variables : 3
(i) Height of a student (ii) Distance covered (iii) Number of Students in a class.

Ans : (i) Height of a student is a continuous variable. It is so because

(a) it can take values that are whole numbers like 95 cm, 102 cm etc.
(b) it can take fractional values like 80.85 cm, 101.62 cm etc.
(ii) Distance covered is a continuous variable. It is so because
(a) it can take values like 400 m, 484 m etc.
(b) it can take fractional values like 48.4 km, 59.2 km etc.
(iii) Number of students in a class is a discrete variable because it can take value of
whole numbers only.
It cannot take fractional values, e.g., number of students can be 40 or 41 but not 40.5 or
40.6.

24. Do you think that classified data is better than raw data ? 3

Ans : The data collected by the investigator in its original form is called raw data. This data is
an unorganised data. It is extremely difficult to draw any conclusion from this data. It is,
therefore, necessary to arrange the data in some orderly manner. Further processing of
data into different groups or classes according to their characteristics is known as
classification of data. This facilitates comparison. The data is condensed in such a way
that their similarities and dissimilarities become very clear. Thus, we can say that
classified data is better than raw data.

25. Distinguish between univariate and bivariate frequency distribution. 3

Ans : On the basis of the variables to be studied, frequency distribution can be classified into :
(i) Univariate and (ii) Bivariate.
(i) Univariate Frequency Distribution : The frequency distribution of a single variable is
called a univariate distribution e.g., marks obtained by students in a subject.
(ii) Bivariate Frequency Distribution : The frequency distribution of two variables is called
bivariate distribution e.g., height and weight of students.

26. What are the qualities of a good table ? 3

Or
What are the requisites of a good table ?

Ans : Following are the main essentials (or requisites) of a good table :
(i) Table should be clear and brief.
(ii) It should suit the purpose.
(iii) It should be represented in a systematic manner.
(iv) It should be easily understandable.
(v) It should be self-explanatory.
(vi) It should avoid abbreviations.

27. State any three merits of tabular presentation. 3

Ans : Following are the main merits of tabular presentation of data :

(i) It presents classified data in an orderly and systematic manner.
(ii) It presents the data in a very condensed and simple form.
(iii) It facilitates comparison.
(iv) It saves time and place.
(v) It facilitates the analysis and interpretation of data.
(vi) The task of detection of errors and omissions in data becomes easier. (Any three)

28. Distinguish between classification and tabulation. 3

Ans : Following are the main differences between classification and tabulation :
 

Classification Tabulation

(i) Since data is classified before (i) Tabulation is a step after

tabulation, so classification is the
basis of tabulation.
(ii) Under classification method,
collected data is classified
according to their characteristics.
(iii) Classification is a method of
statistical analysis.
(iv) In classification, data is
classified into different groups and
sub-groups.
(v) In the process of classification,
original data is used.
classification. Only classified data
can be presented in a tabular form.
(ii) In the process of tabulation,
organised data is divided into
different columns and rows.
(iii) Tabulation is a method of
presentation of data.
(iv) In tabulation, data is presented
in titles, captions and stubs.
(v) In tabulation, both types of data
(original and derivative) are used.
(Any four)

29. Mention three advantages of diagrammatic presentation. 3

Ans : Following are the main advantages of diagrammatic presentation of data :

(i) They are attractive and impressive and leave a lasting impression on the mind.
(ii) They can be used for making quick comparisons.
(iii) Some frequency diagrams help in determining median, quartiles and modes etc.
(iv) They are used in exhibitions, fairs etc. to give information to the common man.
(v) They are easy to understand. (Any three)

30. Distinguish between a bar diagram and histogram. 3

Ans : Bar diagrams are different from histograms in two ways :

(i) In a bar diagram, we are concerned alongwith the length of the bar. They are one-
dimensional form of presentation. But, a histogram is a two-dimensional form of
presentation where length and width both are taken into account.
(ii) In a bar diagram, there is a gap between different bars whereas in a histogram, there
is no gap between different rectangles.
The following figures illustrate the idea :

31. What kind of diagrams are more effective in representing the following ? 3
(i) Monthly rainfall in a year.
(ii) Composition of the population of Delhi by religion.
(iii) Components of cost in a factory.

Ans : (i) Simple bar diagram

(ii) Sub-divided or Component bar diagram
(iii) Pie diagram

32. What do you mean by arithmetic line graph ? Explain briefly. 3

Ans : Arithmetic line graphs are graphs of time series data. In it, time period is shown on the x-
axis and
the corresponding values of the variable are shown on the y-axis. Arithmetic line graphs,
also called
time series graphs are of two types :
(i) Graphs of one variable
(ii) Graphs of two or more variables

33. Draw a ‘Simple bar diagram’ with the help of numerical example. 3

Ans : Simple bar diagram :

Wheat production of different years

Wheat production of different years

Year Production (in million tonnes)

2008 100
2009 200
2010 350
2011 500

34. “Arithmetic mean is affected by very large and very small values but median and mode are not 3
affected by them.” Explain.

Ans : Median is the value of the middle item of a series arranged in ascending or descending
order of magnitude. Mode only takes values at the points around which the items tend to
be most heavily concentrated. Arithmetic mean takes into account the value of all items
(i.e. very large and very small) in a series. Thus, it is only arithmetic mean which is
affected by extreme values in the series.

35. Show the sum of deviations of the value of variables from their arithmetic mean is equal to zero. 3

Ans : In order to show this, we take an example :

This shows that the sum of deviations of the values of the variables from their arithmetic
mean is equal to zero.

36. What is the sum of deviations from mean in a series ? 3

Ans : The sum of deviations of items from mean in a series is always equal to zero.
Symbolically,
37. What is weighted mean ? How it is different from the arithmetic mean ? 3

Ans : Sometimes, it is important to assign weights to various items according to their

importance. In such a case, we compute weighted arithmetic mean. A weighted
arithmetic mean is an average in which the values to be arranged are given varying
importance. The formula for calculating Weighted Arithmetic
Mean is as under :

Where = Weighted Arithmetic Mean, W = Weight, X = Values of the variables.

It is different from simple arithmetic mean which gives equal importance to all items. But
in many cases, relative importance of all items may not be equal. Weighted mean is the
only measure of central tendency with correct results where one item may be more
important than other. Weights are figures to indicate the relative importance of items.

38. How are quartiles calculated in a continuous series ? 3

Ans :

39. Calculate median in a moderately asymmetrical distribution if mode is 83 and arithmetic mean is 3
92.

Ans :
Z = 3M – 2
83 = 3M – 2 × 92
3M = 267
 M = 89

40. Distinguish between mean deviation and standard deviation. 3

Ans : Both these measures of dispersion are based on each and every unit of the series. But,
they differ in the following respects :
(i) In the calculation of mean deviation, signs of deviation (+) or (–) are ignored, but in the
calculation of standard deviation, signs of deviations are not ignored.
(ii) Mean deviation can be calculated from different averages (Mean, Median and Mode)
but the standard deviation is always calculated from the mean.

41. Distinguish between absolute and relative measures of dispersion. 3

Ans : Absolute measures of dispersion are expressed in the same statistical unit in which the
original data is given. For example, if the original data is in rupees, the absolute measure
is also in rupees. Absolute measure cannot be used to compare the two series which are
in the different units.
Relative measures of dispersion, also called coefficient of dispersion are independent of
the unit of measurement in which the original data is given. They are stated in the form
of ratios or percentages. These measures are used to compare the two series which are
expressed in different units.

42. Some measures of dispersion depend upon the spread of values whereas some calculate the 3
variation
of values from a centre value. Do you agree ?

Ans : Yes, we agree with the statement. Range and quartile deviation measure the dispersion
based upon the spread within which the values lie, i.e., they depend on the spread of
values. On the other hand, mean deviation and standard deviation calculate the variation
of values from a central value (mean, median, mode).

43. What is coefficient of variation ? What purpose does it serve ? 3

Ans : Coefficient of variation is an important relative measure of dispersion. It is defined and
given by :

Uses of Coefficient of Variation : It is used to compare in variability homogeneity,

stability, consistency and uniformity of two or more series. The series having less value
of the coefficient of variation is considered more consistent in comparison to a series
having a higher value of the coefficient of variation.

44. Why is range not calculated for open-ended frequency distribution ? 3

Ans : Open-ended distributions are those in which either the lower limit of lowest class or the
upper limit of the hightest class or both are not specified. In the absence of any such
limit, range cannot be calculated.

45. “Algebraic signs are not taken into consideration in computing mean deviation.” Explain. 3

Ans : While computing mean deviation, the (+) sign and (–) sign of deviations are ignored, i.e.,
it considers
all deviations positive. Absolute deviation is denoted by |D|. They are called absolute
values of deviations, where the two parallel bars indicate that the absolute value is taken.
This is also called “Modulus Value”.

46. How is standard deviation independent of origin but not of scale ? 3

Ans : Standard deviation is not affected by the value of the constant from which deviations are
calculated. The value of the constant does not figure in the standard deviation formulae.
Therefore, standard deviation is independent of origin.
Since standard deviation is based on all values, therefore, a change in even one of the
value affects the value of standard deviation. Thus, standard deviation is not
independent of scale.

47. Why is Quartile Deviation also known as semi-Inter-Quartile Range ? 3

Ans : Inter-Quartile range is calculated by subtracting lower quartile (Q1) from upper quartile
(Q3).
 Inter-Quartile Range = Q3 – Q1
Also, half of the Inter-Quartile range is called Quartile Deviation.
Therefore, Quartile Deviation is known as semi-Inter-Quartile range.

48. What is the difference between simple and multiple correlation ? 3

Ans : Simple correlation : When the relationship between only two variables is studied, it is
called simple correlation.
Multiple correlation : When the relationship among three or more than three variables is
studied simultaneously, it is called multiple correlation.

49. What is Karl Pearson’s coefficient of correlation ? State its properties. 3

Ans : Karl Pearson’s coefficient of correlation, denoted by r, measure the degree and direction
of relationship between two variables.
It is calculated as :

Properties of correlation coefficient :

(i) The value of correlation coefficient lies between –1 and +1. Symbolically, –1 ≤ r ≤ +1.
(ii) Correlation coefficient is independent of the change of origin and scale, i.e., the value
of ‘r’ is unaffected by the change of origin and scale.
(iii) If r = 0, the two variables are uncorrelated. There is no linear relationship between
them. However, other types of relationship (such as quadratic, cubic) may be there.

50. What is Scatter Diagram and how is it useful in the study of correlation ? 3

Ans : Scatter diagram is a graphic method of finding out correlation between the two variables.
For constructing a scatter diagram, X-variable is represented on the x-axis and Y-variable
on y-axis. Each pair of values is plotted. Different plotted points may be scattered in
various ways whose analysis gives us an idea of the direction and magnitude of
correlation :
(i) Perfect positive correlation (r = +1) : If all the plotted points lie on a straight line
sloping upwards from left to right, then there is perfect positive correlation (i.e., r = + 1).
See Fig. (a) on next page.
(ii) Perfect negative correlation (r = – 1) : If all the plotted points lie on a straight line
sloping downwards from left to right, then their is perfect negative correlation (i.e., r = –
1).
See Fig. (b) on next page.
(iii) Zero correlation (r = 0) : If all the plotted points are scattered here and they are
lacking any pattern, then there is zero correlation i.e., the two variables are uncorrelated.
See Fig. (c).

51. Interpret the values of r as 1, – 1 and 0. 1

Ans : (i) r = + 1, shows that there is perfect positive correlation between the two variables X
and Y.
(ii) r = – 1, shows that there is perfect negative correlation between the two variables X
and Y.
(iii) r = 0, implies that there is no linear relationship between two variables X and Y.

52. State the merits of Spearman’s Rank Correlation. 3

Ans : Following are the merits of rank correlation method :

(i) It is simple to calculate and easy to understand.
(ii) This method is very useful when the data is of qualitative nature.
(iii) When ranks are given instead of actual data, this is the only method for finding out
the degree of correlation.

53. What are the desirable properties of the base period ? 3

Or
How will you choose a base year for constructing an index number ?
Ans : The base period (base year) is the reference period with which current period (current
year) is compared. The selection of the base period is essential while preparing index
number.
Desirable Properties of the Base Period : The following are the basic properties (or
considerations) underlying the selection of base period :
(i) The base period should be a normal period. It should be free from all sorts of
abnormalities or irregular fluctuations. Abnormal periods like period of wars, floods etc.
should not be selected as the base period.
(ii) The base period should neither be too short nor too long.
(iii) It should not be a year of distant past. It should be a year of recent past.
(iv) It should not be the period for which actual data is not available.

54. Distinguish between Laspeyre’s and Paasche’s index. 3

Ans : Laspeyre’s Index uses the base period quantities (q0) as weights. The following formula
is used to construct Laspeyre’s index :

Paasche’s Index uses the current period quantities (q1) as weights. The following
formula is used to construct Paasche’s index :

55. Distinguish between simple and weighted aggregative method of constructing price index 3
numbers.

Ans : (i) Simple Aggregative Method : It is the simplest method of constructing unweighted
price index. In this method, total of the current year prices for the various commodities is
divided by the total of the base year prices and the quotient is multiplied by 100.
Symbolically,

Weighted Aggregative Method : It is a method of constructing weighted price index

numbers. Weights are assigned to various items in the index according to their relative
importance. Here weights are quantity weights. Laspeyre has used base year quantities
as weights. According to Laspeyre,

Paasche has used current year quantities as weights. According to Paasche,

(ii) In simple aggregative method, all the items are treated as having equal importance
whereas in weighted aggregative method, all the items are treated as having difference
in importance.

56. Write a short note on Sensex. 3

Ans : Sensex is the short form of Bombay Stock Exchange Sensitive Index with 1978-79 as
base. It is a useful guide for the investors in the stock market. It deals with 30 stocks
represented by different sectors of the economy. If the sensex rises, it indicates that the
market is doing well and investors expect better earnings on their investments.

57. Fisher’s Index Number is considered as an ideal method. Why ? 3

Ans : Fisher’s method is considered an ideal method because :

(i) It is based on variable weights.
(ii) It takes into consideration the price and quantities of both current year and base year.
(iii) It is based on geometric mean which is regarded as the best mean for calculating
index number.

58. Giving reasons, identify which of the following are the subject matter of microeconomics or 3
macroeconomics.
(a) National Income
(b) Price determination of a commodity
(c) General price level
Ans : (a) National income is a subject matter of macroeconomics because it studies the
determination of the income at an aggregate level.
(b) Price determination of a commodity is the subject matter of micro-economics,
because it deals with the behaviour of an individual commodity.
(c) General price level is studied in macroeconomics as it deals with the price as an
aggregate.

59. Why does an economic problem arise? Explain. 3

Or

State reasons why does an economic problem arise.

Ans : An economic problem is basically the problem of choice which arises because of the
scarcity of resources. Main reasons for economic problem are:
(a) Human wants are unlimited.
(b) Resources to satisfy them are limited.
(c) Resources have alternate uses.
In such a situation, every individual and society have to make a choice, as to which wants
should be satisfied by making use of scarce resources, which have alternative uses.

60. Explain the problem of ‘what to produce’. 3

Ans : The problem of what to produce means which goods and services and in what quantities
are to be produced by an economy. We can produce a number of commodities with our
limited resources. For example, the choice can be between consumer goods and capital
goods. Within consumer goods, it is necessary to decide whether to produce luxuries or
necessities. More of one commodity can be produced only at the cost of another. The
guiding principle while choosing goods and services, is to obtain maximum utility.

61. Explain the problem of ‘How to produce’? 3

Ans : The problem of ‘how to produce’ means what technique should be employed to produce
a good. The techniques of production are classified as:
(a) Labour-intensive technique: using more of labour than capital.
(b) Capital-intensive technique: using more capital than labour.
The technique which causes least possible cost to produce per unit of a commodity
should be adopted.

62. Lot of people died and many factories are destroyed because of severe earthquake in a country. 3
How will it affect the country’s PPC?

Ans : With the death of lot of people due to severe earthquake, working force in a country will
fall. Similarly, destruction of factories will cause a reduction in the stock of capital in a
country. Thus, earthquake causes decrease in labour and capital resources of a country.
This decrease in resources causes a shift of production possibilities curve to the left
showing less production of both the goods than before.

63. How is a production possibilities curve affected by unemployment in the economy? Explain. 3

Or

Explain how a PPC is affected when resources are inefficiently employed in an economy.

Ans : The PP curve shows the maximum quantities of the two goods which the economy can
produce subject to full and efficient utilisation of resources. When there is
unemployment, the maximum that an economy can produce does not change. So, there
is no effect on the position of the PP curve. In case of unemployment of resources, the
economy will be working at a point inside the PP curve.

64. Explain the concept of an indifference curve. Use diagram. 3

 Indifference curve shows different
Ans : combinations of good X and good Y which give
same level of utility to the consumer. In the
given diagram, ABCD is the indifference curve,
as the locus of combination A, B, C and D which
are based on the assumption that each
combination gives the consumer same utility.

65. Define an indifference curve. Explain why an indifference curve is downward sloping from left to 3
right?

Ans : Indifference curve shows different combinations of good X and good Y which give same
level of satisfaction to the consumer. Indifference curve slopes downward from left to
right because whenever a consumer wants to have more units of one commodity, he will
have to sacrifice some units of the other commodity. If the consumer can have more of
both the commodities his level of satisfaction will change which is not possible. Thus,
there exists a negative relationship between quantity of X and quantity of Y.

66. Define an indifference map. Explain why an indifference curve to the right shows more utility 3
level?

Ans : One indifference curve has one utility level all along its course. So is the case with other
ICs. The set of all possible IC’s the consumer, has, is known as an “Indifference Map”.
An IC to the right, is placed higher and thus has a higher utility level. The reason being
that, a higher IC represents more quantity of both the goods taken together. This, as per
the assumptions of IC Analysis, implies higher utility level.

67. Define MRS. Explain why an Indifference curve is convex. 3

Ans : Marginal Rate of Substitution: MRS of X for Y refers to the number of units of good Y that
the consumer is willing to forego for an additional unit of good X, so as to maintain the
same level of satisfaction.
Indifference curve is convex to origin due to diminishing marginal rate of substitution.
MRS falls because when more and more units of X are obtained, its marginal utility
declines and the consumer likes to sacrifice less of Y to obtain an additional unit of X.
So, MRS declines.

68. A consumer consumes only two goods X and Y. At a consumption level of these two goods, he 3
finds that the marginal rate of substitution is higher than the ratio of the prices. Explain the reaction
of the consumer.

Ans :
MRS > . This means to get one more unit of commodity X consumer is willing to

sacrifice more units of commodity Y than the market requires. It shows that consumer is
willing to pay higher price of commodity X than the market requires. Consumer will now
buy more of commodity X and buy less of commodity Y. This will bring down MRS till it
becomes equal to PX/PY, i.e., MRS = .

69. Explain why is an Indifference curve downward sloping from left to right. State the conditions of 3
consumer’s equilibrium, as per the indifference curve analysis.

Ans : Indifference curve slopes downward from left to right because whenever a consumer
wants to have more units of one commodity, he will have to sacrifice some units of the
other commodity. If the consumer can have more of both the commodities his level of
satisfaction will change which is not possible. Thus, there exists a negative relationship
between quantity of X and quantity of Y.
The conditions of consumer equilibrium in indifference curve analysis are:
(a) MRS = MRE or MRS =

(b) MRS continuously falls.

70. Explain any three determinants of demand for a commodity for a household. 3
Ans : The following factors affect the demand for a commodity by a household:
(a) Price of the commodity. Generally when the price of a commodity goes up quantity
demanded for it falls and when price falls its quantity demanded goes up.
(b) Income of the consumer. Generally when the income of a consumer goes up, the
demand for a commodity also goes up and when income falls, demand also falls for
normal good, but in the case of Inferior good, its demand falls when the income rises and
vice-versa.
(c) Price of related goods (i.e., Price of substitute and complementary goods). In case of
complementary goods like car and petrol, the demand for a commodity rises with a fall
in the price of complementary good. In case of substitute goods like tea and coffee,
demand for a commodity falls with a fall in the price of the substitute good and vice
versa.

71. Explain the inverse relationship between the price of a commodity and its quantity demanded. 3

Or

Why is the demand curve negatively sloped? Explain.

Ans : When the price of a good falls it has following two effects that lead a consumer to buy
more of that commodity.
(a) PX↓ {Real income (Y)↑} DX↑ and vice-versa.
Income effect. When the price of a commodity falls, the real income of the consumer, i.e.,
his purchasing power increases. As a result, he can now buy more of a commodity. This
is called income effect. This causes increase in the quantity demanded of the good
whose price falls.
(b) PX ↓ {Relative PriceX ↓} DX ↑
Substitution effect. When the price of a commodity falls, it becomes relatively cheaper
than others. This induces the consumer to substitute the relatively cheaper commodity
for the other good which is relatively expensive. This is called the substitution effect.
This causes increase in quantity demanded of the commodity whose price has fallen.
Thus, as a result of the combined operation of the income effect and substitution effect
which are sub-effects of price-effect, the quantity demanded of a commodity increases
with a fall in the price of the given commodity and vice-versa.

72. Explain the distinction between change in demand and change in quantity demanded of a 3
commodity.

Or

Explain the distinction between a shift in demand curve and a movement along the demand curve.
Use diagram.

Basis Change in a quantity demanded Change in demand

Ans :
Change in demand is due to change in
Change in quantity demanded is
(a) factors other than price of the given
due to change in price of the given
Causes commodity like change in income,
commodity.
change in taste etc.
It causes movement along a It causes shift of the demand curve. It is
(b) DD
demand curve. It is shown on the shown on the new demand curve
curve
same demand curve. as rightward shift and leftward shift.

'Movement along the demand

curve'

(c)
Diagram

73. Distinguish between increase in demand and increase in quantity demanded of a good. 3
 Basis Increase in demand Increase in quantity demanded
Ans :
Increase in demand is due to change in Increases in quantity demanded is due
(a) Cause factors other than price e.g. increase in to fall in the own price of the given
income, favourable change in tastes etc. commodity.
(b) Increase in quantity demanded leads to
Increase in demand leads to rightward shift of
Demand downward movement along a demand
the demand curve from DD′ to D1D1.
curve curve.

(c)
Diagram

Shown by 'Downward Movement'

along the demand curve from point
A to point B.

74. Distinguish between decrease in demand and decrease in quantity demanded. 3

Basis Decrease in demand Decrease in quantity demanded

Ans :
(a) Cause Decrease in demand is due to Decrease in quantity demanded is
change in factor other than price due to rise in own price of the given
e.g. decrease in income, commodity.
unfavourable
change in tastes etc.
(b) Decrease in demand leads to Decrease in quantity demanded
Demand leftward shift of the demand curve leads to upward movement along a
curve from DD′ to D0D0. demand curve from point B to point
A.
(c)
Diagram

75. Explain any two causes of increase in demand of a commodity. 3

Or

Give any three factors that can cause a rightward shift of demand curve.

Ans : The following are the three causes of a rightward shift of the demand curve of a
commodity:
(a) Increase in the income of the consumer. When the income of the consumer rises, the
demand for normal good generally rises at the given price and as a result the demand
curve of the commodity shifts to the right which implies an increase in demand.
(b) Rise in the price of substitute good. When the price of a good (say coffee) rises, the
demand for coffee falls and the demand for its substitute good (say tea) rises at the
given price and as a result the demand curve of the good (tea) shifts to the right which
implies an increase in demand.
(c) Fall in the price of complementary good. When the price of a good (say petrol) falls,
not only the demand for petrol rises but also the demand for its complementary good
(say car) rises at the given price and as a result the demand curve of the good (car)
shifts to the right, which implies an increase in demand.

76. Explain any two causes of decrease in demand of a commodity. 3

Or

Explain two or three causes of a leftward shift in demand curve of a commodity.

Ans : The following are the three causes of a leftward shift of demand curve:
(a) Fall in the income of the consumer. The demand for normal good decreases with the
fall in income. The demand curve for normal good shifts to the left with the fall in the
income of the consumer.
(b) Fall in the price of substitute goods. The demand for a good falls with the fall in the
price of its substitute good. As a result the demand curve for the commodity shifts to the
left with the fall in the price of its substitute good.
(c) Rise in the price of complementary good. The demand for a good falls with a rise in
the price of its complementary good. As a result the demand curve for the commodity
shifts to the left with a rise in the price of its complementary good.

77. 'Slope of the demand curve is constant at all points on the demand curve'. True or False? Give 3
reason in support of your answer.

Ans : False, because the slope of the demand curve is constant at all points on the demand
curve if and only if the given demand curve is a straight line demand curve (linear
demand function, i.e., linear relationship). In case of non-linear relationship, slope of the
demand curve is never constant. It either tends to increase or decrease.

78. How price elasticity of demand measured by the percentage method? Explain with the help of an 3
example.

Ans : Price elasticity of demand refers to the degree of responsiveness of quantity demanded
of a commodity to a change in its price.
One method of measuring price elasticity of demand is the percentage method. Under
this method, the price elasticity of demand is measured by using the formula:

Example: Given :

P D

10 20

20 10

79. Giving reasons, which of the following commodities have elastic, moderately elastic, highly 3
elastic or inelastic demand?
(a) salt
(b) particular brand of lipstick
(c) medicines
(d) mobile phone
(e) demand for text books
(f) demand for milk

Ans : (a) Salt has inelastic demand. This is a necessity and a consumer has to buy salt even
though its price changes.
(b) A particular brand of lipstick has elastic demand. Due to the availability of close
substitutes its demand can be shifted with increase in price.
(c) Medicines have inelastic demand. The reason being that a consumer has to buy these
even though the price of these may change.
(d) Demand for mobile phone is elastic. The reason being when price of mobile phone
goes up, the consumer will postpone its use and demand for it will fall.
(e) Demand for textbooks is completely inelastic. The reason being that a student will
purchase the textbooks irrespective of price. So, in case of textbooks, even a substantial
change in price leaves the demand unaffected.
(f) Demand for milk is elastic. The reason being that when the price of the milk increases
substantially the consumers purchase less quantity of milk.
80. Explain the law of diminishing marginal utility with the help of a utility schedule. 3

Ans : Law of diminishing marginal utility states that as a consumer consumes more and more
of a commodity, the marginal utility obtained from an additional unit of it goes on
diminishing, other things remaining the same. The following utility schedule and diagram
illustrates the law:

Units consumed Marginal Utility (Utils)

1 10
2 8
3 6
4 4
5 2

The schedule and diagram show that as the consumer consumes more and more units
of a commodity, the marginal utility derived goes on diminishing.

81. Define an indifference curve. Why is it convex to the origin? 3

Or

Explain why an indifference curve is convex to the origin?

Ans : Indifference curve shows different combinations of good X and good Y which give same
level of satisfaction to the consumer.
Indifference curve is convex to origin due to diminishing marginal rate of substitution.
Marginal rate of substitution of X for Y refers to the number of units of good Y that the
consumer is willing to forego for an additional unit of good X so as to maintain the same
level of satisfaction.

MRS falls because when more and more units of X are obtained, its marginal utility
declines and the consumer likes to sacrifice less of Y to obtain an additional unit of X.
So, MRS declines.

82. What is a budget line? Explain why is it a straight line? 3

Ans : Budget line is the graphical presentation of the different combinations of good X and
good Y which can be purchased with the given money income.
PX⋅X + PY⋅Y = M
Where m is Money income.
PX and PY are prices of X and Y respectively and X and Y are quantities of good X and
good Y respectively.
Budget line is a straight line because the market rate of exchange (MRE) between the
two goods is constant and also because the price of the two goods are constant.

83. Give the meaning of normal goods and inferior goods. Give examples in each case. 3

Or

Explain the difference between an inferior good and a normal good.

Ans : (a) Normal goods. Normal goods are those goods for which the demand rises with every
increase in the income of the consumer. In other words, in case of normal good, there is
a direct relationship between income of a consumer and his demand for normal good,
e.g., the demand for rice and wheat will increase with every increase in income. Thus,
rice and wheat are normal goods.
(b) Inferior goods. Inferior goods are those goods whose demand decreases when the
income of the consumer increases and vice versa. In other words, in case of inferior
goods, there is an inverse relationship between demand and income of the consumer,
e.g., the demand for bajra will fall with the rise in the income of the consumer. Hence,
bajra become inferior good at a higher level of income.

84. How does a favourable change in the taste of commodity affect the demand of a commodity. 3
Explain.

Ans : Favourable change in the taste of a commodity will increase the demand of a
commodity. For example, favourable change in taste will lead to increase in the demand
for that product. This will shift the demand curve to the right.

85. What does the negative sign in the formula of slope of demand curve indicate? Explain. 3

Ans :
The negative sign in the formula indicates inverse relationship between price and
commodity demanded of a commodity. It is a well known observation that when the
price of a commodity increases/decreases, its quantity demanded normally
decreases/increases.

86. Draw demand curves with the price elasticity of demand throughout equal to: 3
(a) zero (b) one (c) infinity

Or

Draw:
(a) Perfectly elastic demand curve,
(b) Perfectly inelastic demand curve and
(c) Demand curve with unitary elasticity

Ans : (a) Perfectly elastic demand

(b) Perfectly inelastic demand

(c) Unitary elastic demand

87. Explain any two factors that affect the price of elasticity of demand. 3

Or
 How do the following affect the price elasticity of demand?
(a) Number of substitutes available for the good.
(b) Proportion of income spent on the good
(c) Nature of the good

Ans : The following are the factors affecting price elasticity of demand:
(a) Number of substitutes available for the good. If price of coco-cola rises, there will be a
more than proportionate fall in its demand or consumers will shift to other cold drinks.
Therefore, its demand is elastic due to availability of close substitutes.
(b) Proportion of Income spent on the good. If proportion of income spent on a
commodity is more, it will be more elastic because a consumer will consider price
change seriously. However, if proportion of income spent is low he will not bother much
and demand will become inelastic.
(c) Nature of the good. If the good is a necessary like salt, then it will have inelastic
demand, i.e., less responsive to any change in its price. On the other hand, if the good is
a luxury like A.C., it will have more elastic demand, i.e., highly responsive to any change
in its price.

88. Draw AVC, ATC and MC curves in a single diagram. 3

Ans :

89. Define variable costs. Explain the behaviour of total variable cost as output increases. 3

Ans : Variable costs are the costs which vary with change in the level of output, e.g.,
expenditure on raw material, power and fuel etc.
TVC rises at decreasing rate in the beginning and then rises at increasing rate after a
point as output increases.

90. State whether the following statements are true or false. Give reasons for your answer. 3
(a) AVC can fall even when MC is rising.
(b) The difference between TC and TVC falls with increase in output.
(c) As soon as MC starts rising, AVC also starts rising.

Ans : (a) True, So long as MC curve (Whether rising/falling) lies below AVC curve, the AVC
curve slopes downwards.
(b) False, as the difference between TC and TVC lies in TFC, which is constant thoughout,
even when the output increases.
(c) False, so long as MC curve lies below AVC curve irrespective of the fact that MC is
rising or falling, AVC continues to fall.

91. State whether the following statements are true or false. Give reasons for your answer. 3
(a) The difference between ATC and AVC is constant.
(b) AC falls only when MC falls.
(c) As output is increased, the difference between ATC and AVC falls and ultimately becomes zero.

Ans : (a) False, difference between ATC and AVC is equal to AFC which is falling/decreasing
and not constant.
(b) False, for some portion it is observed that AC is falling while MC is rising. It happens
between minimum point of MC and point where AC = MC.
(c) False, difference between ATC and AVC is equal to AFC which never becomes zero
because TFC is positive.

92. Giving reasons, classify the following into fixed costs and variable costs. 3
(a) Wages to the daily wage workers
(b) Salary of the permanent staff
(c) Expenditure on purchase of raw materials
(d) Interest on borrowed capital
(e) Electricity Meter rent
(f) Sales Tax
Ans : (a) Wages to the daily wage workers are variable cost because they vary and are not
fixed.

(b) Salary of the permanent staff is fixed cost because it will be paid in

all circumstances.

(c) Expenditure on purchase of raw materials is variable cost as it varies and is not fixed.

(d) Interest on borrowed capital is fixed cost because it is to be borne by the borrower.

(e) Electricity meter rent is fixed cost which has to be borne by the producer.

(f) Sales tax is also variable because it will be paid only if products are sold.

93. Giving reasons classify the following into explicit costs and implicit costs. 3
(a) Salaries of employees/managers
(b) Expenditure on purchase of raw materials
(c) Rent paid for hiring building/shop
(d) Interest paid on borrowed money
(e) Estimated rent of owner’s own building
(f) Estimated interest on capital/savings invested by the owner himself.

Ans : (a) Explicit Cost – Paid to hired factor labour.

(b) Explicit Cost – Paid to the sellers of raw material
(c) Explicit Cost – building is hired from others.
(d) Explicit Cost – Capital is borrowed from outside.
(e) Implicit Cost – building is owner-occupied.
(f) Implicit Cost – Capital is owned by the investor himself.

94. Giving reasons, state whether the following statements are true or false: 3
(a) When MR is zero, average revenue will be constant.
(b) MR is always equal to the price at which the last unit of commodity is sold.
(c) When TR is maximum, MR is also maximum.

Ans : (a) False, AR is decreasing when MR is zero.

(b) False, as MR is equal to price only in case of perfect competition, whereas under
Imperfect competition MR is less than price or AR. MR < AR.
(c) False, MR is zero when TR is maximum.

95. Giving reasons, state whether the following statements are true or false: 3
(a) When MR is positive and constant, AR and TR will both increase at a constant rate.
(b) When TR is constant, AR will also be constant.
(c) When MR falls to zero, average revenue becomes maximum.

Ans : (a) False, when MR is positive and constant only TR will increase at a constant rate AR is
also constant/ same as MR.
(b) False, When TR is constant, then AR will be declining.
(c) False, As when MR falls to zero it is Total Revenue which becomes maximum and not
Average Revenue.

96. Explain the effect of technological changes on the supply of a commodity. 3

Ans : Technological changes affect the supply of a product by altering the cost of production.
If there is an improvement in production technology used by the firm, the cost of
production declines and consequently the firm would supply more than before at the
given price. That is, the supply would increase implying that the supply curve would shift
to the right. On the other hand, if the firm uses primitive technology, the cost of
production rises and consequently the firm would supply less than before at the given
price. That is, the supply would decrease implying that the supply curve would shift to
the left.

97. Give meaning of perfectly elastic supply and perfectly inelastic supply. 3
Ans : Perfectly elastic supply. When the supply of a commodity rises or falls to any extent,
without any change in its price, the supply of the commodity is said to be perfectly
elastic. The coefficient of price elasticity of supply in this case is infinity, i.e., es=∞.
Perfectly inelastic supply. When the supply of a commodity does not change as a result
of change in its price, the supply is said to be perfectly inelastic. It denotes zero elasticity
of supply. The coefficient of price elasticity of supply in this case is zero, i.e., es = 0.

98. "Returns to a variable factor operates in the long period." True or False? Give reason in support of 3
your answer.

Ans : False. Yes indeed the statement is wrong because 'Returns to a variable factor' operates
in the short period and not in long period, as stated. In short period, firm cannot vary all
the inputs. In order to vary the level of output, the firm can vary only the variable factors,
as some factors remain fixed in the short run.

99. State the relation between MC, AVC and ATC. 3

Ans : The relationship between MC, AVC and ATC is as follows:

MC affects AC, (whether AVC or ATC)

(a) If MC is lower than AC, then AC falls.

(b) If MC is equal to AC, then AC is constant and minimum.

(c) If MC is greater than AC, then AC rises.

100.State three features of perfect competition. 3

Or
Explain ‘large number of buyers and sellers’ feature of perfect competition.

Ans : Three main features of perfect competition:

(a) Large number of buyers and sellers. The number of sellers is so large that an
individual seller produces a small portion of the total output of the market. As such no
individual seller can influence price in the market. Similarly, the number of buyers is also
so large that an individual buyer purchases an insignificant portion of the total output in
the market. As such no individual buyer can influence the price in the market. Thus, no
individual seller or individual buyer can affect the price of the commodity.
(b) Homogeneous product. Homogeneous product refers to a situation where the buyers
do not differentiate between products of different firms. Product sold by different sellers
(firms) is homogenous or identical or standardised in every respect like quality, size,
design, colour etc. The products are perfect substitutes of one another. As a result, no
buyer has reason to be attached to a particular seller. All buyers pay the same price for
the product of all sellers. No seller can charge a higher price (or different price) of the
product it sells, otherwise he will lose his customers. A uniform price prevails in the
market.
(c) Free entry and exit of firms. New firms are free to enter and existing firms can leave
(market) at any time they like. This ensures that there are neither abnormal profits nor
losses by any firm in the long run. If the firms are making abnormal profits, new firms
enter and raise the total supply of the industry. This reduces the market price and wipes
out profits. In case the firms are incurring losses, some existing inefficient firms will
leave the industry and reduce the total  supply. This raises the price till the losses are
wiped out.

101.Show with the help of a diagram, the effect on equilibrium price and quantity of a commodity 3
when
(a) Demand is perfectly elastic and supply decreases.
(b) Supply is perfectly inelastic and demand increases.
(c) The demand curve perfectly elastic and the supply curve shifts out.
Ans : (a) When demand curve is
perfectly elastic and
supply decreases there
will be no change in the
equilibrium price but the
equilibrium quantity
decreases from OQ to
OQ0. In the diagram, when
supply decreases, it is
shown by the leftward
shift of the supply curve
from SS to S0S0,
equilibrium price remains
constant at OP, but
equilibrium quantity
decreases from OQ to
OQ0.

(b) When supply curve is

perfectly inelastic and
demand increases, the
equilibrium price of the
commodity will increase but
the equilibrium quantity
remains constant. In the
diagram, when demand
increases, shown by
rightward shift of the demand
curve from DD to D1D1, the
equilibrium price increases
from OP to OP1, but
equilibrium quantity remains
the same at OQ.
(c) When demand curve is
perfectly elastic and supply
curve shifts to right, there will
be no change in equilibrium
price but equilibrium quantity
increases. In the diagram,
when supply increases shown
by the rightward shift of
supply curve from SS to S1S1,
equilibrium price remains
constant at OP, but the
equilibrium quantity increases
from OQ to OQ1.

102.Show with the help of diagram the effect on equilibrium price of a commodity when demand 3
increases and supply is perfectly elastic.
 When supply curve is
Ans : perfectly elastic and
demand increases,
there will be no change
in the equilibrium price
but the equilibrium
quantity increases.
In the diagram, when
demand increases,
shown by rightward
shift from DD to D1D1,
the equilibrium price
remains unchanged at
OP but the equilibrium
quantity increases from
OQ to OQ1.

103.How does a favourable change in the taste for a commodity affect market price and quantity 3
exchanged for the commodity? Use diagram.

A favourable change in taste for a

Ans : commodity (say jeans) will cause
an increase in the demand for a
commodity (jeans). As a result,
the demand curve of the
commodity will shift to the right.
The supply curve of the
commodity remaining the same,
this will lead to a rise in the
market price of the commodity
and increase in quantity
exchanged.
It is clear from the diagram that as
a result of increase in demand, the
demand curve shifts rightwards.
As a result, the price rises from
OP to OP1 and quantity
exchanged rises from OQ to OQ1.

104.How does a cost saving technological progress affect market price and the quantity exchanged 3
of a commodity? Use diagram.
Ans : A cost saving technological
progress reduces unit cost
of production of a
commodity. This will cause
an increase in the supply of
a commodity and lead to a
rightward shift of the supply
curve as shown in the
diagram given. The demand
curve of the commodity
remaining the same, this will
cause the market price of
the commodity to fall and
the equilibrium quantity to
rise.
It is clear from the diagram
that as a result of increase
in supply, the supply curve
shifts rightwards. As a result
the price falls from OP to
OP0 and the quantity rises
from OQ to OQ1.

105.How is the equilibrium price and equilibrium quantity of a normal commodity affected by an 3
increase in the income of its buyers? Explain with the help of a diagram.

An increase in the income of the buyers of a

Ans : normal commodity will cause an increase in
demand for normal commodity, so the demand
curve of the commodity will shift to the right.
As a result, the equilibrium price and
equilibrium quantity both increase.
In the diagram, the original demand curve DD
and the original supply curve SS intersect at
point E and determine equilibrium price equal
to OP and equilibrium quantity equals OQ. Now
due to an increase in demand, demand curve
shifts to the right, i.e., DD to D1D1. The new
demand curve D1D1 intersects the given supply
curve SS at point E1 where new equilibrium
price is OP1 and new equilibrium quantity is
OQ1.

106.How will an increase in the income of the buyer of an ‘inferior good’, affect its equilibrium price 3
and equilibrium quantity? Explain with the help of a diagram.
Ans : An increase in the income of the buyer of inferior good will cause a decrease in the
demand for inferior good. As a result, the market demand curve of the commodity will
shift to the left. Consequently, the equilibrium price and equilibrium quantity both
decrease as shown in the diagram.
In this diagram, the original demand curve DD and original supply curve SS intersect at
point E and determine equilibrium price equal to OP and equilibrium quantity equal to
OQ. Now due to a decrease in demand, the demand curve shifts to the left from DD to
D0D0. The new demand curve D0D0 intersects the given supply curve SS at point E0. New
equilibrium price is OP0 and new equilibrium quantity OQ0 is determined.

107.What is the ‘price line’? 3

Ans :  

Price line shows the relationship

between the market price and a firm’s
output level. It also represents demand
curve of a firm. It is a horizontal
straight line as here (under perfect
competition) market price is fixed. At
fixed price OP, a firm can sell any
number of units of the good.

108.Why are the firms said to be interdependent in an oligopoly market? Explain. 3

Ans : Firms are said to be mutually dependent in an oligopoly market. This is so because any
change in the price and output by any individual firm is likely to affect the profit and
output of the rival firms. So the probable reaction from the rivals should be considered by
an individual firm before setting its price and output level.

109.Distinguish between perfect oligopoly and imperfect oligopoly. 3

Ans : Perfect Oligopoly. In an oligopoly industry, if the firms produce homogeneous products, it
is called perfect oligopoly.
Imperfect Oligopoly. If the firms, under oligopoly industry, produce differentiated
products, it is called imperfect oligopoly.

110.Explain the implication of non-price competition in an oligopoly market. 3

Ans : Non-price competition in an oligopoly market implies that a firm distinguish its product
by offering quality of service, customer focus, coupons, gifts etc. other than price. Firms
engaged in non-price competition in spite of the additional costs involved, because it is
more profitable than selling at a lower price and avoids the risk of a price-war.

111.Distinguish between cooperative and non-cooperative oligopoly. 3

Ans : Co-operative oligopoly. When firms mutually decide price and output or follow any
agreement and do not compete with each other.
Non-cooperative oligopoly. Here firms do not have any agreement and compete with one
another on prices to get more and more share in the market.
112.Explain the significance of the feature ‘product differentiation’ in monopolistic competition. 3

Ans : One important feature of monopolistic competition is that the product produced and
sold by various firms (or sellers) is not identical but is slightly different from each other.
Products are differentiated from each other on the basis of brand, name, shape, colour,
packing etc. These differentiated products are close substitutes of each other and
therefore, their price cannot be very much different from each other. Each firm enjoys
some monopoly on its product and is in a position to fix its price to some extent.

113.Explain the cause of limited number of firms in an oligopoly market. 3

Ans : The number of firms is small in oligopoly because there are barriers which prevent the
entry of new firms into the industry. Patents, large capital requirements, control over the
important raw materials etc. prevent new firms from entering into the given industry.
Only those firms that are able to cross these barriers, enter the industry.

114.Explain ‘black marketing’ as a direct consequence of price ceiling. 3

Ans : Price ceiling refers to upper limit imposed on the price of a good or service by the
government. It is generally imposed on necessary items like wheat, sugar etc. and fixed
below the market determined price, i.e., equilibrium price. This leads to a situation of
excess demand which culminates in creating a shortage. So, the price ceiling is
accompanied by rationing. There are adverse consequences of this on the consumers as
they are not satisfied by the quantity available to them through the fair price shops. So,
they are willing to pay higher price for it (illegally), i.e., indulge in black marketing. Thus,
black marketing is a direct consequence of price ceiling.

115.Explain any two sources of restricted entry under monopoly. 3

Ans : The sources of restricted entry under monopoly are:

(a) Patent laws, trade marks and copyrights. Restricted entry under monopoly is
attributed to the ‘patent laws’ under which those who produce new products are granted
patent rights to produce that product.
(b) Government’s license. There are certain important areas concerning the security of
the country and the government only has the license to produce these goods (defence
goods). Similarly, for production of some public utilities like water supply, State
Monopolies like DJB is there.

116.Explain the chain effects, if the prevailing market price is below the equilibrium price. 3

Ans : When the prevailing market price is below the equilibrium price, demand for the good
becomes greater than the supply and a situation of excess demand emerges. Since, the
buyers will not be able to buy all that they want to buy, there will be a competition
between the buyers leading to rise in price. A rise in price causes fall in demand
(Contraction) and rise in supply (Expansion). Such movements (contraction of demand
and expansion of supply) will continue till the price reaches equilibrium again.

117.Explain with the help of a diagram the effect of a decrease in demand for a commodity on its 3
equilibrium price and quantity.
Or
Explain the chain of effects on demand, supply and price of a commodity caused by a leftward shift
of its demand curve. Use diagram.
 In the given diagram, DD′ shows the
Ans : demand curve and SS′ shows the supply
curve of a commodity. Point E denotes the
point of equilibrium where DD′ = SS′. OP is
the given equilibrium price and OQ is the
given equilibrium quantity. A decrease in
demand leads to the demand curve shift
to the left. It is denoted by D0D0 curve.
Now, at given price OP, new quantity
demanded is OQ0 which is less than
supply by QQ0. The excess supply equal to
QQ0/AE emerges.

This excess supply results in competition among the sellers leading to a fall in price. A
fall in price results in rise in quantity demanded (a downward movement along the new
demand curve) and a fall in quantity supplied (a downward movement along the supply
curve) shown by arrows in the diagram. These changes continue till we reach  price OP0.
This is new equilibrium price at which quantity demanded and supplied are equal (=
OQ0). Hence equilibrium price falls from OP to OP0 and equilibrium  quantity also falls
from OQ to OQ0.

118.How does an increase in the input price affect equilibrium price and quantity exchanged of a 3
commodity? Use diagram.

Ans : An increase in the price of an

input used in the production of a
commodity increases the unit
cost of production of the
commodity. This will cause a
decrease in the supply of a
commodity and leads to a
leftward shift of the supply curve
as shown in the diagram given
below. The demand curve of the
commodity remaining the same,
this will cause the market price of
the commodity to rise and
quantity exchanged to fall.
It is clear from the diagram that
as a result of a decrease in
supply, the supply curve shifts
leftward. As a result, the
equilibrium price rises from OP to
OP1 and the equilibrium quantity
falls from OQ to OQ0.

119.Give any three points of difference between monopoly and monopolistic competition. 3

Ans : Monopoly differs from monopolistic competition in the following ways:

(a) Under monopoly, there is a single seller of a product, whereas under monopolistic
competition curve there are large number of sellers (firms) selling a product.
(b) A monopolist produces or sells a product which has no close substitutes. On the
other hand, the various firms working under monopolistic competition produce and sell
differentiated products, which are close substitutes of each other.
(c) In case of monopoly, there are strong barriers to the entry of new firms in the industry.
Whereas under monopolistic competition there is free entry of new firms in the industry,
as there are no restrictions on their entry.

120.Explain the feature ‘interdependence of firms’ in an oligopoly market. 3

Ans : The feature ‘interdependence of firms’ in an oligopoly market implies that when a
producer has to take any decision about price and output, he has to take into
consideration all possible reactions of the rival producers. In other words, for taking
decisions a producer or firm is interdependent on other producers or firms and not
independent to do so.
121.'To make the minimum price ceiling effective, it must be accompanied by rationing'. True/False. 3
Justify your answer.

Ans : False, this is so because it is not the minimum price ceiling but maximum price ceiling
which must be accompanied by rationing, in order to be more effective.

122.Explain the 'free entry and exit of firms' feature of monopolistic competetion. 3

Ans : Under monopolistic competition, firms are free to enter into or exit from the industry at
any time they wish. It ensures that there are neither abnormal profits nor abnormal
losses to a firm in the long run. However, it must be noted that under monopolistic
competition is not as easy and free as under perfect competition.

123.Define Average Revenue. Show that Average Revenue and Price are same. 3

Ans : Average revenue refers to revenue per unit of commodity.

Average Revenue = 

Total Revenue = Price × Units of output sold

∴  AR =   = price

This shows that AR and Price are always same.

Price Units
TR AR
( ₹) sold

10 1 10 10

10 2 20 10

10 3 30 10

10 4 40 10

From the given schedule, we can say that AR is always equal to price.

124.Giving reasons, state whether the following statements are true or false: 3

(a) When MR is positive and constant, AR and TR will both increase at a constant rate.

(b) When TR is constant, AR will also be constant.

(c) When MR falls to zero, average revenue becomes maximum.

Ans : (a) False, when MR is positive and constant only TR will increase at a constant rate AR is
also constant/ same as MR.

(b) False, when TR is constant, then AR will be declining.

(c) False, as when MR falls to zero it is Total Revenue which becomes maximum and not
Average Revenue.

125. Giving reasons, state whether the following statements are true or false: 3

(a) When MR is zero, average revenue will be constant.

(b) MR is always equal to the price at which the last unit of commodity is sold.

(c) When TR is maximum, MR is also maximum.

Ans : (a) False, AR is decreasing when MR is zero.

(b) False, as MR is equal to price only in case of perfect competition, whereas under
Imperfect competition MR is less than price or AR. MR < AR.

(c) False, MR is zero when TR is maximum.

126. Explain the effect of technological changes on the supply of a commodity. 3

Ans :  Technological changes affect the supply of a product by altering the cost of production.
If there is an improvement in production technology used by the firm, the cost of
production declines and consequently the firm would supply more than before at the
given price. That is, the supply would increase implying that the supply curve would shift
to the right. On the other hand, if the firm uses primitive technology, the cost of
production rises and consequently the firm would supply less than before at the given
price. That is, the supply would decrease implying that the supply curve would shift to
the left.

127. Explain how the supply of a commodity is affected by the change in the prices of other 3
products.

Ans :  Any change in the price of other products would influence the supply of a given product
by causing substitution of one product for another. For example, if the market price of
wheat rises, it will lead to the reduction in the production and supply of sunflower by the
farmers as they would withdraw some land and other resources from the production of
sunflower and devote them to the production of wheat. This will cause the supply of the
sunflower to decrease implying the supply curve of the sunflower would shift to the left.

128. What does the positive sign in the formula   indicate? Explain. 3

Ans :  Positive sign in the formula   indicates a positive or direct relationship between the
price and quantity supplied of a commodity. It is well-known observation that as the price
of a commodity increases normally more quantity is supplied and as its price decreases,
less quantity is supplied.

129.Distinguish between a change in supply and change in quantity supplied. 3

Or

Explain the distinction between ‘‘Change in quantity supplied’’ and ‘‘Change in supply’’. Use diagram.
Ans :  

Change in Quanti ty Supplied/Movement

Basis Change in supply/Shift in supply curve
along a supply curve
Change in supply is caused by factor other than the
Change in quantity supplied is caused
price of the commodity, i.e., change in price of related
(a) Causes by change in price of the commodity
commodities or change in the state of technology or
alone, other factors remaining constant.
change in price of inputs etc.

Change in quantity supplied of a Change supply is denoted by a ‘shift of the supply

commodity is denoted by the ‘movement curve’.
along a supply curve’.
(b) Curve    • Rightward shift in supply curve denotes ‘increase in
          • Upward movement along a supply curve supply’.
denotes ‘expansion of supply’.
• Downward movement along a supply • Leftward shift in supply curve denotes ‘decrease in
curve denotes ‘contraction of supply’. supply’.

(c)
Diagram   
   

130.Define revenue. State the relation between marginal revenue and average revenue. 3

Ans : Revenue in economics refers to the market value of output produced or it is receipts
from the sale of output produced.

Marginal Revenue and Average Revenue are related to each other in the sense that:

(a) If MR is greater than AR, then AR will rise.

(b) If MR is equals to AR, then AR remains constant.

(c) If MR is less than AR, then AR will fall.

131.What is the effect on the supply of a good when the government gives a subsidy on the 3
production of that good? Discuss.

Ans :  When a subsidy is given by the government on the production of a good, the unit cost of
production will be lowered. As a result, the firm would supply more than before at the
given price, i.e., supply would increase, implying that the supply curve would shift to the
right.

132.Distinguish between economic activities and non-economic activities.  4

Ans : Economic activities are those activities which are undertaken for a monetary gain. In
other words, activities undertaken for earning income are called economic activities.
Non-economic activities are those activities which are undertaken for personal
satisfaction or for scial services and not earning money.

133.What are the reasons for studying economics ? 4

Or

What is the importance of statistics in economics ? 

Ans : Statistics is immensely useful in the study of economics. Following are some points of
importance of statistics :
(i) Statistics help an economist to understand an economic problem. Using various
statistical methods, effort is made to find the causes behind it with the help of the
qualitative and quantitative facts. Once the causes of the problem are identified, it is
easier to formulate certain policies to tackle it.
(ii) Statistics enables an economist to present economic facts in precise and definite
forms. When economic facts are expressed in statistical terms, they become exact facts
which are more convincing than vague statements.
(iii) Statistics is used in finding relationship between different economic variables. We
can find the relationship between demand and price, consumption expenditure and
income, general price level and government expenditure by applying the statistical tool of
correlation.
(iv) Statistics helps an economist in predicting changes in one economic factor due to
changes in another factor. This can be done with the help of regression technique.

134.Distinguish between quantitative data and qualitative data. Give two examples of each.  4

Ans : Statistical data are of two types :

Quantitative data refers to the data which can be measured in numerical terms, e.g., daily
temperature, heights and weights of individuals, prices of goods, income of individuals
are quantitative data.
Qualitative data are the data or facts which cannot be measured directly in numerical
terms, e.g., beauty, intelligence, ability to sing, learning skills are qualitative data.

135.‘The Government and policy makers use statistical data to formulate suitable policies of 4
economic development.’ Illustrate with two examples.

Ans : The analysis of a problem would not be possible without the availability of data on
various factors underlying an economic problem.
For example, if the government wants to make a policy to solve the problem of
unemployment and poverty, reliable data is required for the number of persons waiting
for a job, unemployed and semiemployed persons, educated and illiterate persons,
number of people living below the poverty line, etc.
If government wants to remove poverty and disparity in income and wants to take
appropriate action, then proper reliable data is required.

136.How is statistics important in economics and economic planning ?  4

Ans : Statistics is widely used in modern times. Whenever and wherever a mass of figures
requires systematic study to draw inferences, or test hypothesis, statistics finds its use.
Statistics and statistical data are invaluable in proper understanding of various
economic issues and help in testing theories and drawing conclusions based on
collected facts. Statistics has a particular role to play in economic planning since data
has to be collected for various components of the economy or from all resources of the
community. Suitable information has to be collected regarding population,
unemployment figures, poverty ratios, growth in production, etc. The evaluation of
development of the economy would be indispensable without statistical data. 

137.There are three kinds of lies : lies, damned lies, and statistics. Explain. 4

Or
There is a general perception that statistical knowledge is all-too-frequently intentionally misused.
Explain how.

Ans : Statistics is the most dangerous tool in the hands of an inexpert. Figures can be
moulded and manipulated to conceal the truth and present a distorted picture of the
facts to meet selfish ends. By choosing a certain sample, results can be manipulated.
Such manipulations can arise from unintentional biases of the researcher, or faulty
choice of sample or data. The graphs used to summarise data can also be misleading. If
various studies appear to contradict one another, then the public may come to distrust
such studies. For example, one study may suggest that a given diet or activity raises
blood pressure, while another may suggest that it lowers blood pressure. It is, thus,
essential to know the subject thoroughly and use it with due care. Before interpreting the
results, it is necessary to know the complete facts, and verifying the results. 
138. “Scarcity is the root of all economic problems.” Explain. 4
Or
You have unlimited wants and limted resouces to satisfy them. Explain by giving two examples.

Ans : Scarcity is the root of all economic problems. In our daily life, we face various forms of
scarcity.
We face scarcity because the things that satisfy our wants are limited in availability.
The long queues at railway booking counters, massive crowd in buses, shortage of
essential commodities, etc. are showing scarcity.
If there had not been scarcity, there would not have been economic problems.

139.What do you know about Census of India and National Sample Survey Organisation (NSSO) ? 4
What type of information they provide ?
Or
Explain the following two sources of secondary data in India :
(i) Census of India (ii) National Sample Survey Organisation (NSSO)

Ans : There are two important sources of secondary data in India :

(i) Census of India, and (ii) National Sample Survey Organisation (NSSO).
(i) Census of India : It is an important source of secondary data in India. After every ten
years, a house to house survey is carried out, covering all households in India and
demographic data on birth rate, death rate, literacy, workforce, life expectancy, size and
composition of population etc. are collected. This is known as Census of India. The data
collected is published by the Registrar General of India in the report ‘Census of India’.
The last Census of India was held in February 2011.
(ii) National Sample Survey Organisation (NSSO) : Reports and publications of NSSO is
another important source of secondary data in India. The NSSO was established by the
Government of India to conduct regular sample survey on socio-economic issues. It
provides periodic estimates of literacy, school enrolment, employment, unemployment,
manufacturing and service sector enterprises, maternity, child care, utilisation of public
distribution system, etc.

140.What is the difference between census and sample methods? 4

Or
Differentiate between census and sampling method of collecting data.

Ans : Following are the main differences between census method and sample method :
(i) Under census method, each and every unit of the population is studied whereas under
sample method, only some of the items which represent the population are studied.
(ii) Under census method, conclusions are drawn on the basis of the study of the whole
population whereas under sample method, conclusions about the whole population are
drawn on the basis of the study of a sample.
(iii) Census method is more expensive from the point of view of time, money and labour
whereas sample method is less time-consuming and comparatively less expensive.
(iv) Census method is used in investigations with limited field whereas sample method is
used for investigation with large field.

141.Explain the two methods of drawing a random sample. 4

Or
Explain the Lottery Method and Random Number Method of random sampling.
Ans : Random sampling is a technique of drawing a sample from the population in which each
and every
unit of the population has an equal chance of being selected in the sample.
Methods of Drawing a Random Sample : There are mainly two methods of drawing a
random sample :
(i) Lottery Method : Under this method, all the units of the population are allotted
separate numbers and they are written on separate slips of identical shapes and sizes.
Now, these slips are put in a box or container and thoroughly mixed. Then, the selection
is made randomly from the box.
The slips drawn or selected will constitute the random sample.
(ii) Tables of Random Numbers : Under this method, the desired random sample is
obtained by using Tables of Random Numbers prepared by different statisticians.
Tippett’s Random Numbers are popularly used. The procedure adopted is as follows :
(a) All the units of the population are allotted separate numbers in a serial order.
(b) Take up any page from the random number table and pick up, therefrom, the required
number of ‘Random Numbers’ in an orderly manner (row-wise or column-wise).
(c) Select those units of the population which bears the number picked up from the table.
These numbers will constitute the desired sample.

142.Write any three methods of sampling. Write in brief about one of these methods. 4

Ans : Methods of Sampling are :

(i) Purposive or Deliberate Sampling
(ii) Systematic Sampling
(iii) Stratified Sampling
Purposive or Deliberate Sampling : In this, no specific procedure is used for selecting a
sample. Investigator himself selects the units of universe as sample according to his
desire and needs, considering it the best the representative of the universe. Quality of the
sample depends on the good knowledge and experience of the investigator.

143.What is a sample in statistics ? What are the essentials of a good sample ? 4

Ans : A sample is that part of universe or population which is selected for the purpose of
investigation.
A sample represent the characteristics of the universe.
Essentials of a good sample : A sample must have the following qualities in order to at
unbiased and right conclusions :
(i) Representative : All characteristics of the universe must be represented by sample. It
is possible only when each unit of the universe stands equal chance of being selected in
the sample.
(ii) Independence : All units of sample must be independent of each other, i.e., one item
of the sample should not be dependent upon the other item of the universe.
(iii) Homogeneity : All selected samples should be homogeneous to each other and not
contradictory.
(iv) Adequacy : The number of items selected as sample should be fairly adequate so
that some reliable conclusions are drawn for the universe as a whole.

144.In which year will the next census be held in India? How is census carried out ? 4

Ans : The next census will be held in the year 2021 in India. It is carried out every ten years.
After every ten years, a house to house survey is carried out, covering all households in
India. Demographic data on birth and death rates, literacy, workforce, life expectancy,
size and composition of population etc. are collected. The collected data is published by
the Registrar General of India in the report ‘Census of India’.
The last census was held in February 2011.

145.What is frequency distribution ? How does it differ from frequency array? 4

Ans : When observed data are grouped according to class intervals and frequencies of various
classes are shown against them, then this presentation of data is called frequency
distribution.
Main differences are :

Frequency Distribution Frequency Array

(i) It shows different values

(i) It shows how the different values of
of the variables aongwith
a variable are distributed in different
their corresponding
classes alongwith their corresponding
frequencies.
class frequencies.
(ii) It is technique of
(ii) It is a technique of classifying data
classifying the data for a
for a continuous variable.
discrete variable.

146.Differentiate between chronological and spatial classification. Construct an imaginary table 4

based on spatial classification.

Ans : When the data is classified on the basis of time, then it is known as chronological
classification. For example, we may present population on the basis of number of years.
When the data is classified on the basis of place such as country, state, area etc., it is
called spatial classification.
For example, production of wheat in different States of India.

State Yield of wheat in Million Tonnes

Punjab 34
Uttar Pradesh 42
Maharashtra 18

147.Explain the exclusive and inclusive methods used in classification of data. 4

Ans : There are two methods of classifying the data according to class intervals : (i) Exclusive
method and (ii) Inclusive method.
(i) Exclusive method : Under this method, upper limits of the classes are excluded. The
upper limit of class intervals is the lower limit of the next class, e.g.,

Marks 0 – 10 10 – 20 20 – 30
No. of Students 2 5 2

We include those students in first group whose marks are 0 or more but less than 10. If
the marks of a student are 10, he is not included in the first group but in the second
group, i.e., 10 – 20.
(ii) Inclusive method : Under this method, upper class limits of classes are included in the
respective classes, e.g.,

Marks 0–9 10 – 19 20 – 29
No. of Students 2 5 2

We include students in the first group whose marks are between 0 and 9. If the marks of
a student are 10, he is included in the next group, i.e., 10 – 19.

148.What is a variable ? Distinguish between a discrete and continuous variable. 4

Ans : The characteristic, which is capable of direct quantitative measurement is called a
variable or variate. Height, weight, production, consumption, marks etc. are all variables.
A variable may be either discrete or continuous.
(i) Discrete variable : A discrete variable is the one which takes only isolated or
discontinuous values.
There are jumps in case of a discrete variable, e.g., number of goals scored in a match.
Intermediate values between 1 and 2 or between 2 and 3 are not possible as there
cannot be 1.4 or 2.5 goals in a match. Similarly, the number of children in a family,
number of students in a class, fans produced in a factory in a particular year etc. are
examples of discrete variables.
(ii) Continuous variable : A continuous variable is the one which can take any value in a
specified interval. Temperature recorded of patients in a hospital, heights of all BBA
students of Kurukshetra University, wages of all workers in a factory are examples of
continuous variables.

149.What is a class interval ? How do the magnitude of the class interval and class limits 4
determined ?

Ans : Class interval : When the whole range of variable values is classified in some groups in
the form of intervals, then each such interval is known as class interval. For example, we
may want to classify a group of people according to same age groups. Here, the class
intervals may be :
15 – 19 years, 20 – 24 years, 25 – 29 years etc.
Magnitude of the Class interval : The difference between the upper and lower boundaries
of a class interval is called the magnitude of the class interval.
Class Limits : The numerical figures used to specify the lower and upper limits of a ‘class
interval’ are called class limits. For example, if the class interval is 15 – 19 years, the
lower class limit is 15 and the upper limit is 19 in this case.

150.State which of the following represent discrete variable and which represent continuous 4
variable.
(i) Heights of the students of class XI in a school.
(ii) Number of children in a family.
(iii) Number of goals scored in a match.
(iv) Weights of the students of class XI in a school.

Ans : (i) Continuous (ii) Discrete (iii) Discrete (iv) Continuous

151.Describe the procedure of drawing a histogram when class intervals are (i) equal and (ii) 4
unequal.

Ans : (i) Histogram in Case of Equal Class Intervals :

(a) We take the class intervals on the x-axis.
(b) The frequencies are taken on the y-axis.
(c) We construct rectangles on all class intervals such that the area of each rectangle is
proportional
to the frequency in the corresponding frequency class interval.
(ii) Histogram in Case of Unequal Class Intervals :
(a) Take the class intervals on the x-axis.
(b) Adjust the given frequencies according to the size of the class interval. Adjusted
frequencies
are obtained by using the formula :
Adjusted Frequency = × Frequency Given

(c) Take the adjusted frequency on the y-axis.

(d) Construct rectangles on all class intervals.
The only difference between the two procedures is that in case of equal class intervals,
histogram
is made on the basis of the frequencies given originally whereas, in case of unequal
class intervals,
histogram is made on the basis of adjusted frequencies.

152.Explain the advantages and disadvantages of textual presentation of data. 4

Ans : Advantages :
(i) The reporter can draw attention of the reader to highlight particular points which he
considers
to be of special importance.
(ii) This mode of presentation of data is easy to understand as well as appealing to
literate people.
(iii) Detailed information can be provided to the reader regarding any problem.
Disadvantages :
(i) In most cases, the textual presentation of statistical information is monotonous and
boring.
(ii) It is not appropriate for presenting a large volume of statistical information.
(iii) If it becomes necessary to make large number of comparisons, this method may not
work.

153.Define mode. What are its uses ? 4

Ans : Mode is defined as the value which occurs the maximum number of times in a series, or
the value around which most of the values tend to concentrate. Uses of mode are :
(i) Value of mode is applied in our day-to-day life. For example, if we talk of average size
of shoes, we mean the most frequently demanded or used size.
(ii) It is the dominant value which is used as a reliable guide to business enterprises.
Modal output, sales etc. are determined with the help of mode.

154.How is arithmetic mean of a grouped frequency distribution calculated ? Explain with the help of 4
direct and indirect methods.

Ans :

155.Why standard deviation is regarded as the best measure of dispersion ? 4

Or
Which measure of dispersion is the best and how ?
Or
What is Standard deviation ? What are its advantages and disadvantages ?

Ans : Standard deviation is the best measure of dispersion because it possesses most of the
characteristics of a good measure of dispersion. Its superiority over the other measures
of dispersion is as follows :
(i) It is based on all the values of the data.
(ii) It is rigidly defined, i.e., there is no vagueness in its definition.
(iii) It is capable of further algebraic treatment, i.e., we can find the combined standard
deviation given the standard deviation of two or more groups.
(iv) It is not very much affected by fluctuations of sampling.
Its demerits are as follows :
(i) As compared to other measures, it is difficult to compute.
(ii) It gives more importance to extreme observations.

156.What is mean deviation ? Write merits and demerits of mean deviation. 4

Ans : Mean deviation is the arithmetic average of the absolute deviation taken from a measure
of central tendency (mean, median or mode).
Merits :
(i) It is based on all the values of the series.
(ii) It is simple to understand and easy to compute.
(iii) It is least affected by extreme values.
Demerits :
(i) Mean deviation is non-algebraic method because it ignores the ± signs.
(ii) Mean deviation is not well-defined measure because it is calculated from different
averages (mean, median and mode).
(iii) It cannot be computed with open-ended classes.

157.Explain two merits and demerits of Lorenz curve. 4

Ans : Merits :
(i) Lorenz Curve has great utility in the study of degree of inequality in the distribution of
income and wealth.
(ii) It is also useful for comparing the distribution of wages, profits, etc. of different
business groups.
Demerits :
(i) It has a major disadvantage of not showing the exact values of the distribution.
(ii) It is difficult to calculate because percentage of frequency is combined with the
percentage of other items such as income, wages, etc.

158.What is correlation ? Distinguish between positive and negative correlation. 4

Or
Define positive and negative correlation.

Ans : Correlation studies and measures the direction and intensity of relationship among
variables.
Positive correlation : If the two variables X and Y move in the same direction, i.e., with an
increase in one variable, the other variable also increases or with the fall in one variable,
the other variable also falls, the correlation is said to be positive. When the income rises,
consumption also rises. There is a positive correlation between them.
Negative correlation : If the two variables X and Y move in the opposite direction, i.e.,
with the increase in one variable, the other variable falls or with the fall in one variable,
the other variable rises, the correlation is said to be negative. When the price of a
commodity rises, its demand falls. There is a negative correlation between them.

159.Explain Spearman's Rank Correlation method. 4

Ans : Rank correlation method was developed by Charles Spearman. It is based on the ranking
of the various values of the variables. This method is specially useful in cases where
quantitative measurement of certain variables such as intelligence, beauty, honesty etc.
is not possible but such variables can be assigned ranks. The following formulae used
for the computation of rank correlation coefficient :

160.What is an Index Number ? What considerations are taken into account while selecting the base 4
year for the preparation of an Index Number ?

Ans : An index number is a statistical device for measuring relative change in the prices of a
group of related variables over two or more different times. In other words, an index
number is defined as specialised type of average which measures changes in the prices
of commodities, industrial production, cost of living index etc.
Desirable Properties of the Base Period : The following are the basic properties (or
considerations) underlying the selection of base period :
(i) The base period should be a normal period. It should be free from all sorts of
abnormalities or irregular fluctuations. Abnormal periods like period of wars or floods
etc. should not be selected as the base period.
(ii) The base period should neither be too short nor too long.
(iii) It should not be an year of distant past. It should be an year of recent past.
(iv) It should not be the period for which actual data is not available.

161.Why do we need to use consumer price index number and wholesale price index numbers ? 4

Ans : (i) Consumer Price Index (CPI) are helpful in the wage negotiations, formulation of
income policy, price policy, rent control, taxation and general economic policy
formulation. CPIs are also used in calculating the purchasing power of money and real
wages.
(ii) Wholesale Price Index (WPI) is used to eliminate the effect of changes in general
price level on aggregates such as national income, capital formation etc. It is widely
used to measure the rate of inflation. If the WPI rises, the inflation rate rises.

162.Explain the concept of production possibility curve with the help of a diagram. 4
 A production possibility curve depicts
Ans : different combinations of two
commodities that an economy can
produce with fuller and efficient
utilisation of given scarce resources.
On the basis of the given diagram, as
we move downwards from point A to
B, B to C, and so on, (assuming full
and efficient employment of
resources), the PPC must be concave,
because the marginal rate of
transformation (MRT) increases
continuously as more and more of
one good is produced at the cost of
reducing the amount of the other
good.

163.State the assumptions of Production Possibility Curve. 4

Ans : Production possibility curve is based on the following assumptions:

(a) The economy is producing only two goods.
(b) The resources available with the economy are given and fixed.
(c) Resources are not equally suitable for production of both the goods but can be
shifted from production of one good to the other.
(d) All the available resources are fully and efficiently employed and there is no wastage.
(e) Technology available with the economy is also given and fixed.

164.Explain the meaning of opportunity cost with the help of production possibility schedule. 4

Ans : On PPC, an economy is operating at full employment, therefore some units of one good
have to be given up to get more units of the other good. Opportunity cost in terms of PPC
is defined as the quantity of one commodity that must be sacrificed in order to produce a
given quantity of the commodity. Hence, PPC is based on the concept of opportunity
cost. That is why, PPC is also called opportunity cost curve.
For example:

Production Possibility Wheat (Qtls.) Cloth

A 0 15
B 1 13
C 2 10
D 3 6
E 4 0

Explanation: In the schedule, to produce a unit of wheat, 2 units (15 – 13 = 2) units of

cloth are sacrificed. Therefore, opportunity cost of 1 Qtl of wheat is equal to 2 units of
cloth. When producing at combination–B.

165.Define Marginal Opportunity Cost. Explain the concept with a hypothetical numerical example. 4

Ans : MOC or MRT is defined as the addition made to the cost in terms of number of units of a
good sacrificed to produce one more unit of the other goods.

Schedule

Combination Good X (units) Good Y (units) MOC

A 0 10 —
B 1 9 1Y : 1X
C 2 7 2Y : 1X
D 3 4 3Y : 1X
E 4 0 4Y : 1X

In the given schedule, there are five combinations. Combination A depicts none of X and
all of Y and combination E denotes nothing of Y is produced and all resources are
utilised to produce Y. In combination B, to produce 1 unit of X, one unit of Y is sacrificed.
In this way we observe that to have one more unit of X, 1Y, 2Y’s, 3Y’s and 4Y’s are
sacrificed respectively. This shows the increasing rate of sacrifice or MOC.
166.Explain the relationship between total utility and marginal utility with the help of a schedule and 4
diagram.

Or

How does total utility change with the change in marginal utility of a commodity? Explain.

Or

Show that total utility is maximum and constant when marginal utility is zero.

Ans : Utility is the want satisfying power of a commodity. The relationship between MU and TU
is as follows:
(a) When MU is positive TU rises at diminishing rate.
(b) When MU is zero, TU is maximum and constant.
(c) When MU is negative, TU falls.
The following utility schedule and diagram illustrates the relationship:

167.Explain the conditions of consumer equilibrium with the help of utility analysis. 4

Ans : A consumer is said to be in equilibrium, when he is spending his given income on various
goods in such a way that maximises his satisfaction.
Condition of consumer’s equilibrium in case of a single commodity. Consumer’s
equilibrium in case of a single commodity is attained when the marginal utility of the
commodity measured in terms of money is equal to its price. Symbolically,
(a) MUX = PX
(b) MU decreases with increase in quantity consumed.
Condition of consumer’s equilibrium in case of two commodities. Consumer’s
equilibrium in case of two commodities is attained when the ratio of the marginal utilities
of two goods and their prices is equal.
(a)
(b) MU decreases with increase in quantity consumed.
This is, however, subject to the budget constraint that the money spent just equals
income, i.e., Px. Qx + Py. Qy = M.

168.Given the price of a good, how does a consumer decide as to how much of that good to buy. 4

Or

Explain the condition of determining how many units of a good consumer will buy at a given price.

Or

Explain why the price a consumer is willing to pay for a good equals the marginal utility of X when
in equilibrium.

Or

Explain why consumer's equilibrium is attained when the utility of a product in terms of money is
equal to its price.
Ans : Factors determining how many units of a good the consumer will buy are:
(a) Its Marginal Utility (b) Its Price
Consumer compares its marginal utility with its price. If marginal utility is more than
price, he will continue to buy more, till the point is reached where marginal utility
becomes equal to the price.
Following conditions must be satisfied for a consumer to be in equilibrium (getting
maximum satisfaction)
(a) MU of a commodity = Price of the commodity, i.e., MUX = PX
(b) MU should decrease with increase in consumption.

169.A consumer consumes only two goods X and Y. At a consumption level of these two goods, he 3
finds that the ratio of marginal utility to price in case of X is higher than in case of Y. Explain the
reaction of the consumer through utility analysis.

Or

A consumer consumes only two goods X and Y and is in equilibrium, price of X falls. Explain the
reaction of the consumer through utility analysis.

Or

By spending his entire income only on two goods X and Y, a consumer finds that
Explain how will the consumer react.

Ans : A consumer will be in equilibrium when ratio of marginal utility of a commodity (X) to its
price becomes equal to the ratio of marginal utility of the other commodity (Y) to its
price.
Condition for consumer equilibrium is

If price of X falls then becomes greater MUYPY i.e. a consumer

will buy more of quantity X because X becomes cheaper in relation to Y.

He will continue substituting X for Y. The Consumption of X rises while that of Y falls. As
a result MUX falls and MUY rises. This will continue. till the point becomes equal to

170.What are monotonic preferences? Explain why an indifference curve to the right shows higher 4
utility level?

Ans : The assumption ‘more goods more utility’ means that utility is an increasing function of
consumption. It is to be noted that when a function is always increasing, it is called
monotonic function. It is the preferences based on the monotonic function which are
known as “monotonic preferences”. Simply they imply that as consumption increases
total utility also increases alongwith.
An IC to the right, is placed higher and thus has a higher utility level. The reason being
that, a higher IC represents more quantity of both the goods taken together. This, as per
the assumptions of IC Analysis, implies higher utility level.

171.Explain the meaning of budget line. What can cause a change in it? Explain. 4

Or

Define a budget line. When can it shift to the right?

Ans : Budget line is the graphical presentation of the different combinations of good X and Y
which can be purchased with the given money income.
Budget line can shift to the right in case of:
(a) there is a rise in income, with prices remaining unchanged.
(b) Fall in PX, with no change in income and Price of Y.
(c) Fall in PY, with no change in income and Price of X. (due to any one)

172.Explain the meaning of substitute and complementary goods with the help of suitable 4
examples.
Ans : Substitute goods. Substitutes are those goods which can be used in place of each other
to satisfy a given want, e.g., Tea and Coffee, Ghee and Refined oil. In case of substitute
goods, an increase in the price of one good causes an increase in the demand of the
other good. For example, an increase in the price of coffee, causes an increase in the
demand for tea. Thus, there is a positive relation between price of a substitute and the
demand for the given good.
Complementary goods. Complementary goods are those goods which are used together
to satisfy a given want. They are demanded jointly, e.g., car and petrol, pen and ink. In
case of complementary goods, an increase in the price of one good causes a decrease in
the demand of the other good. For example, an increase in the price of petrol, causes a
decrease in the demand for car. Thus, there is an inverse relation between the price of a
complementary good and demand for the given good.

173.Explain the effect of rise in the price of related goods on the demand of a good X. Use 4
diagrams.

Or

How is the demand for a good affected by a rise in price of other goods? Explain.

Ans : Related goods are of two types:

(a) Substitute goods. These are

directly related to each other.
Suppose X (say tea) and y (say
coffee) are substitutes.
With the rise in price of good Y
(say coffee), the demand for
good Y falls but the demand of
its substitute X (say tea) rises
and as a result the demand
curve of the commodity X (tea)
will shift to the right.
(b) Complimentary goods.
Suppose X (say car) and Y (say
petrol) are complementary.
With the rise in price of good Y
(say petrol) demand for Y will
fall. Which will cause the
demand for X (say) car to fall
and as a result the demand
curve of car will shift to left.

174.Explain how rise in income of a consumer affects the demand of a good. Give example. 4

Or

Explain the effect of rise in a income of a consumer on his demand for a good. Use diagram.

Or

Explain the effects of increase in the income of the buyer of the good ‘X’ on the demand of X. Use
diagram.
Ans : The rise in income of the consumer influences the demand for a good in the following
manner.

(a) Normal goods. In case of normal any goods, like wheat, rice, any increase in the income of the
buyer increases his demand for that commodity – causing demand curve to shift towards right.
There exists direct relationship between income and demand for normal good.

(b) Inferior goods. In case of inferior goods, there is inverse relationship between the income of
the buyer and his demand for inferior goods. With the increase in income the demand curve of
bajra shifts towards left.

175.Explain the law of demand with the help of a demand schedule and demand curve. 4

Ans : Law of demand states that ‘‘there is an inverse relation between the price of a
commodity and its quantity demanded, assuming all other factors affecting demand
remain constant”. It means that when the price of a good falls, the quantity demanded
for the good rises and when price rises, its quantity demanded falls.

Law of demand may be explained with the help of the following demand schedule and
demand curve:

Demand Schedule

Px ( ) Dx
5 100
4 200
3 300
2 400
1 500

The given table and diagram show that as the price of the good falls from
5 to 4, the quantity demanded for a good increases from 100 to 200 units
and so on.
The law of demand is valid only when all other factors determining demand like
income of the buyer, price of related goods, tastes and preference of the buyer
etc. remain constant.

176.Distinguish between 4

(a) Elastic and inelastic demand

(b) Perfectly elastic and perfectly inelastic demand.

Ans : (a) When the percentage change in quantity demanded is more than the percentage
change in price, then the demand for the commodity is said to be elastic. The coefficient
of price elasticity of demand in this case is greater than unity, i.e., eD > 1, whereas when
the percentage change in quantity demanded is less than the percentage change in price,
then the demand for the commodity is said to be inelastic. The coefficient of price
elasticity is less than unity, i.e., eD < 1.
(b) When the demand for a commodity rises or falls to any extent, without any change in
its price, the demand for the commodity is said to be perfectly elastic. The coefficient of
price elasticity of demand in this case is infinity, i.e., eD = . Whereas when the demand
for a commodity does not change as a result of change in its price, the demand is said to
be perfectly inelastic. It is also called zero elastic demand. The coefficient of price
elasticity of demand in this case is zero, i.e., eD = 0.

177.Explain the relation between AC and MC. 4

MC affects AC. The relationship

Ans : between MC and AC is as follows:
(a) When MC < AC, then AC falls.
(b) When MC = AC, then AC is
constant and minimum.  
(c) When MC > AC, then AC rises
(d) MC curve always intersect AC
curve at its minimum point from
below:
The given diagram shows that so long
as MC curve lies below AC curve, AC
curve is falling. This is up to point M.
When AC = MC, AC is minimum. MC
curve always intersect AC at its
minimum point, which is M in the
diagram. When MC curve lies above
the AC curve, AC starts rising. This is
after point M.

178.Define cost. State the relation between marginal cost and average variable cost. 4

Or

Explain the relation between AC and MC.

Ans : Cost refers to the total expenses incurred in the production of a commodity.

MC affects AC. The relationship between MC and AC is as follows:

(a) When MC < AC, then AC falls.

(b) When MC = AC, then AC is constant and minimum.

(c) When MC > AC, then AC rises.

(d) MC curve always intersects AC curve at its minimum point from below.

The given diagram shows that so long as MC curve lies below AC curve, AC curve  is
falling. This is up to point M. When
AC = MC, AC is minimum. MC curve always intersects AC at its minimum point, which is
M in the diagram. When MC curve lies above the AC curve, AC starts rising. This is after
point M.
179.What is the behaviour of (a) Average Fixed Cost and (b) Average Variable Cost as more and 4
more units of a good are produced?

Ans :
(a) Average Fixed Cost =

TFC is always constant. Therefore, when units of goods produced increases, Average
fixed cost always falls.
(b) Average Variable Cost =

TVC first increases at decreasing rate and gradually increases at an increasing rate.
Therefore, average variable cost first decreases, reaches its minimum and after reaching
its minimum starts rising as more and more units of goods are produced.

180.Define production function. State the relation between marginal product and average product. 4

Or

Explain the relationship between marginal product and average product.

Ans :  A production function expresses the technical relationship between inputs and output
of a firm. It tells the maximum quantity of output that can be produced with any given
quantity of inputs. If there are two factor inputs, labour (L) and capital (K), then the
production function can be written as

O = f(L, K)

where O is the quantity of output and L, K are the units of labour and capital, i.e., inputs.

MP determines the behaviour of AP. The relationship between MP and AP is as follows:

(a)    When MP > AP, then AP is rising.

(b)    When MP = AP, then AP is constant and maximum.

(c)   When MP < AP, then AP falls.

181.Explain the effects of ‘maximum price ceiling’ on the market of a good. Use diagram. 4

Ans : Maximum price the producers are allowed to charge refers to maximum price ceiling.
Government resorts to such a ceiling when the equilibrium price of an essential
commodity is unusually high and beyond the reach of a common man. The government
then intervenes especially in times of shortages of essential food items like wheat,
sugar, rice etc. on account of bad weather. In this situation, the government imposes a
price ceiling.

In the given diagram, we observe

that the equilibrium price is OP.
Suppose government imposes
price ceiling at OP0. At this level
of price, the producers are willing
to supply only ‘‘P0a’’ amount,
whereas the consumers demand
P0b. This in turn will lead to a
shortage situation to the tune of
‘ab’. Now if the government
imposes only ceiling and nothing
else, then it may lead to black
marketing which means illegally
charging a higher price.

182.What is maximum price ceiling? On what type of goods is it normally imposed? Use diagram. 4
 Maximum price ceiling refers to
Ans : the imposed upper limit on the
price of a good charged by the
government. Since price ceiling
is lower than the equilibrium
price OP, it leads to excess
demand or shortage to the tune
of AB as shown in the diagram.
Maximum price ceiling is
normally imposed on essential
items needed by the masses
like foodgrains, medicines,
wheat, sugar, rice etc.

183.What is revenue in microeconomics? State the relation between marginal revenue and average 4
revenue under perfect competition, using suitable diagram or schedule.

Ans : ‘Revenue’ in microeconomics refers to the market value of output.

Relation between Marginal Revenue (MR) and Average Revenue (AR) under perfect
competition can be explained with the help of a suitable schedule given below:

MRn 
Units Sold (Q) Price/AR (P) TR (P × Q)
(TRn – TRn–1)

1 10 10 10

2 10 20 10

3 10 30 10

4 10 40 10

On the basis of the above schedule, we infer under perfect competition P = AR = MR at

all levels of output.

The relationship between MR and AR under perfect competition can be shown with the
help of a suitable diagram given below:

In the above diagram we observe that the AR curve is parallel to the OX axis and it
coincides with the MR curve.

AR always equals MR under the market condition that a firm can sell more at the given
price. This happens under the market form ‘‘perfect competition’’, where P = AR = MR
throughout.

AR remains constant/unchanged throughout the perfectly competitive market. So as per

the average–marginal relationship, when AR is constant MR = AR throughout.

Note: The relation between MR and AR under perfect competition can be stated by using
either the above schedule or the above diagram.

184.Distinguish between primary and secondary data on the basis of the followings : 6
(i) Originality (ii) Accuracy (iii) Suitability of objective
Ans : (i) Originality : Primary data is collected by the investigator himself. It is original and first
hand information. On the other hand, secondary data is already available in published or
unpublished form. It is not original in character.
(ii) Accuracy : The information obtained through primary data is more reliable and
accurate whereas the information obtained through secondary data is not perfectly
accurate and relative.
(iii) Suitability of objective : Primary data is always collected according to specific
objective. It does not need any adjustment or modifications. On the other hand,
secondary data is the data which has already been collected for some objectives. So, it
need to be adjusted and modified to suit the objective of the study.

185.State merits and demerits of mailing questionnaire method of collecting data. 6

Ans : Under mailing questionnaire method, a list of questions (called questionnaire) pertaining
to the investigation is prepared and sent to each informant by mail with a request to
complete and return it by a given data. The informants write the answers against the
questions and return the completed questionnaire to the investigator.
Merits :
(i) Less expensive : It is relatively less expensive than other methods.
(ii) Wider area : It is the only method where the field of investigation is very vast and the
informations are spread over a wide geographical area.
(iii) No possibility of personal bias : There is no room for personal bias and prejudice on
the part of the investigators.
(iv) Originality : This method is original and fairly reliable, because the information is
supplied by the concerned persons themselves.
Demerits :
(i) Limited use : This method cannot be used when the informants are illiterate or
uneducated.
(ii) Low response rate : It involves some uncertainty about the response. In many cases,
the respondents do not return the questionnaire.
(iii) Lack of flexibility : This method lacks flexibility because, when questions are not
properly replied, these cannot be changed to obtain the required information.
(iv) Not accurate data : The information supplied by the informants may not be correct
and it may be very difficult to verify the accuracy.

186.What are the merits and demerits of telephonic interview? 6

Or
What are the merits and demerits of collecting primary data by telephonic interview?

Ans : Under telephonic interview method, the investigator asks questions to the informants
over the telephone and collects data pertaining to the field of investigation.
Merits :
(i) Less expensive : It is relatively less expensive as the telephone costs are much lower
than the cost of personal interviews.
(ii) High response rate : The response rate is relatively very high under this method.
(iii) Better method : This method is better in cases where the respondents are reluctant
to answer certain questions in personal interviews.
(iv) Less personal influence : Under this method, there is relatively less influence of the
investigators on the respondents.
Demerits :
(i) Limited use : The demerit of this method is limited access to people, as many people
may not prefer to give information on telephones.
(ii) Obstruct visual reactions : Telephone interviewers can not see visual reactions of the
informants towards sensitive questions, due to lack of face to face contact.

187.What are the qualities of a good questionnaire? 6

Ans : A questionnaire is  list of questions relating to the field of enquiry. It may be defined as
an instrument of collecting primary data from a large number of people. A good
questionnaire must possess the following qualities :
(i) The number of questions should be as minimum as possible. Long questionnaire
discourages people from completing them. Questions should be related to the purpose
of enquiry.
(ii) The questions should be simple, clear and unambiguous to enable the respondents to
answer them quickly and correctly.
(iii) The questions should be arranged in a proper order, i.e., sub-divided into groups and
sub-groups.
(iv) As far as possible, undesirable questions or personal questions should be avoided.
The questions should not offend the informants.
(v) Before giving final shape to the questionnaire, it should be pre-tested by conducting a
preliminary survey on a sample basis.

188.Which of the following methods give better results and why ? (i) Census (ii) Sample. 6
Or
Give the advantages of sample method over census method.
Or
Explain briefly, why a sample survey is usually preferred over to a census survey.

Ans : Sample method has the following merits (or advantages) over the census method :
(i) Less time-consuming : Since the sample is a study of the part of the population,
considerable time is saved when a sample survey is carried out. Time is saved not only in
collecting data but also in processing it.
(ii) Less cost : Under sample method, lot of expenses are saved in terms of money and
labour not only in the collection of data but also in the administration, transport and
training etc. This is because in sample method, a part of the population is studied and
examined to arrive at the desired conclusion.
(iii) Greater Scope : In certain types of enquiry, highly trained personnel or specific
equipments are needed to obtain and analyse the data. In such cases, sampling methods
are more suitable.
(iv) More detailed information : Since the sample method saves time and money, it is
possible to collect more detailed information in a sample survey.

189.What are the general guidelines for the construction of a frequency distribution ? 6

Ans : Following are the general guidelines for the construction of a frequency distribution :
(i) The number of classes should neither be too small nor too large, preferably between 5
to 15.
(ii) All class intervals should be of equal size.
(iii) The lower limit of the first class should either be 0, 5 or multiple of 5.
(iv) Open-end classes should be avoided.
(v) We should preferably classify the data into exclusive series (if it is not specified
otherwise).
(vi) We should avoid odd sized class intervals.

190.Can there be any advantage in classifying things ? Explain with an example. 6

Ans : Classification is the process of arranging things in groups or classes according to their
resemblances and affinities. Two important features of classification are :
(i) Data are divided into different groups i.e., on the basis of education, persons may be
classified as educated and uneducated.
(ii) Data are grouped on the basis of their similarities i.e., all similar units are put in one
class.
Advantages of classifying data are as follows :
(a) Classification present data in a form that appears to be brief and simple.
(b) Classification enhances utility of the data by grouping similarities together.
(c) Classification shows obvious differences among the data more distinctly.
(d) Classificaion makes comparison easier.
(e) Classification facilitates arrangement of data in a scientific manner which increases
their reliability.
(f) Classification makes data more attractive and effective.
Example for Classification Data : Suppose there are 20 families in an area, we collected
stastics regarding thier income expenditure, education relegion, member of member etc.
But this date will be of little use unless we know how many families are educated and
how many are uneducated. How many families earn an income exceeding 5 thousand
per month and so on.
191.Describe the major parts of a statistical table. Draw a format of a table showing all these parts. 6
Or
What is a table ? Describe the essential parts of a table.

Ans : A systematic organisation of data in columns and rows is known as table. The major
parts of a statistical
table are : (i) Table number, (ii) Title, (iii) Head note, (iv) Caption, (v) Stubs, (vi) Body of the
table,
(vii) Footnote and (viii) Source.
A brief explanation is given below :
Table Number : Numbering of table is essential for using tables for reference and for
proper identification.
Title : Title of the table should be complete explaining the nature of data, time period
covered and
field to which data is related.
Head note : Head note is a statement below the title which clarifies the contents of the
table (e.g.,
all data in lakhs).
Captions : Captions are the title given to columns of a table.
Stubs : Stubs are the titles of the rows of a table. Stub head and stub entries label the
horizontal
rows of the table.
Body/field of the Table : It contains numerical information.
Footnote : It clarifies a specific part of the table.
Source : It indicates place of publication, edition, page and publisher.
Format of a table
Table No. ..........................
Title of the table

Footnote___________
Source _____________
Example
Table No. ............1..............
(Title of the table) Production of Food grains in India in 2010–2011

Footnote : In ‘others’, all remaining food grains are included.

Source : _______________
 

192.What is a measure of central tendency ? Name atleast four merits of mean. 6

Ans : A measure of central tendency is a value which is typical or representative of a set of

data. They tend to lie centrally, within a set of data arranged according to magnitude.
Merits of mean :
(i) It is easy to calculate and simple to understand.
(ii) It is rigidly defined.
(iii) It is a calculated value and not a positional value.
(iv) It is based on all observations.

193.Compare mean, median and mode as measures of central tendency. 6

Ans : Comparision between  , M and Z.

Basis M Z
The value which
occurs most
(i) Meaning
frequently in a
series.
(ii) Effect of
Greatest effect Not effected Not effected
extreme items
(iii) Applicability
to open-ended No Yes Yes
clases
(iv) Graphically
No Yes (Ogive) Yes (Histogram)
located
Marks obtained Size of shoes sold
Qualitative
(v) Suitability in the in a large number
phenomenon etc.
examination etc. of shops etc.

194.(i) What is measure of central tendency ? Name some of the measures. (At least three) 6
(ii) Define mode. Give two applications of mode in our daily life.

Ans : (i) The measure of central tendency is that value of the data which describes the
characteristics of the frequency distribution i.e., it is the representative of the entire
distribution. There are five measures of central tendency.
(a) A.M. or Mean
(b) Median
(c) Mode
(ii) Mode is the value of the data which occurs maximum number of times in the date. In
a frequency distribution, mode is defined as the value of the data with the highest
frequency.
Mode is the most appropriate average in our daily life for
(a) determining the average size of readymade garments.
(b) determining the average size of agricultural holdings.

195.Give merits and demerits of mean. 6

Ans : Merits
(i) It is simple to understand and easy to calculate.
(ii) It is based on all the observations of the series. Therefore, it is the most
representative measure.
(iii) It is regedly defined and not affected by personal bias.
(iv) It is least affected by fluctuations of sampling and ensures stability in calculations.
Demerits
(i) It gets distorted by extreme values of the series.
(ii) The mean value may sometimes be that value which does not figure in the series at
all.
(iii) It is not a suitable measure in case of percentage or proportionate values.
(iv) Arithmetic mean sometimes offers misleading conclusions.

196.A measure of dispersion is a good supplement to the central value in understanding a frequency 6
distribution. Comment.
Ans : A central value (or an average) condenses the data into a single representative value.
However, that value does not reveal the variability present in the data. In many cases,
series (or data) may have the same average or central value but still the values in one
may be widely dispersed and the values in the others may be close to one another.
Measures of dispersion help us in studying the variability present in the data.
It can be more clarified with the help of following example :
Scores of two players in five innings

A’s Score B’s Score

12 46
130 53
70 48
14 52
24 51
= 50 = 50

In the data given on previous page, average score is 50 but a close examination of the
two data reveal that although average score is the same, yet there are difference of
variations in the individual scores. In the first case, no value represents the average score
and there are large variations among the values. In the second case, all the values with
small variations revolves around the average score. So, there is small variation. To have
the proper understanding of the data, we need some measures that summarises the
variation of a frequency as distribution. Thus, measure of dispersion is a good
supplement to the central value in understanding properly a frequency distribution.

197.(i) What is measure of Central Tendency ? Name some of the measures. (At least three) 6
(ii) Define mode. Give two applications of mode in our daily life.

Ans : (i) The measure of central tendency is that value of the data which describes the
characteristics of the frequency distribution i.e., it is the representative of the entire
distribution. There are three measures of central tendency.
(a) A.M. or Mean
(b) Median
(c) Mode
(ii) Mode is the value of the data which occurs maximum number of times in the date. In
a frequency distribution, mode is defined as the value of the data with the highest
frequency.
Mode is the most appropriate average in our daily life for
(a) determining the average size of readymade garments.
(b) determining the average size of agricultural holdings.

198.Name various methods of studying correlation. Describe any one. 6

Ans : Various methods of studying correlation are :

(i) Scatter diagram
(ii) Karl Pearson's coefficient of correlation
(iii) Spearman's Rank Correlation
Spearman's Rank Correlation : Prof. Charles Spearman's (British psychologist), developed
this method as computing coefficient of correlation in 1904. It is based on the ranking of
various values in the variables. This method is known as Spearman's Rank Difference
method. It is useful in cases when quantilative measures for certain factors such as,
intelligence, beauty, honesty, etc. is not posssible. The process of calculating the rank
correlation is as follow :
(i) Give ranks to various items of the two series (if ranks are not given)
(ii) Find differences of the rank and denote them by D
(iii) Square that differences and denote them by D2 to obtaine ΣD2.
(iv) Apply the following formula :

Here, N stands for number of pairs of observations.

199.Explain the concept of correlation. What is the basic difference between (a) linear and non- 6
linear correlation (b) negative and positive correlation and what are the limits of correlation
coefficient ?
Ans : Meaning of Correlation : Correlation studies and measures the intensity of relationship
between two or more variables. If the two variables X and Y change (vary) in such a way
that with a change in the value of one variable, the values of the other variables also
change, then they are said to be correlated. Correlation studies and measures the
direction and intensity of relationship among variables.
(i) Linear correlation : When the amount of change in one variable tends to bear a
constant ratio to the amount of change in the other variables, the correlation is said to be
linear. Observe the following example :

X 110 120 130 140 150

Y 20 22 24 26 28

In this example, the ratio of change is the same in both the variables. Values of X

and Y when plotted on a graph paper will give us a straight line.

Non-linear correlation : When the amount of change in one variable does not tend to bear
a constant ratio to the amount of change in the other variable, then correlation is said to
be nonlinear curvi-linear. Observe the following example :

X 110 120 130 140 150

Y 20 22 26 32 40

In this example, the ratio of change is not the same in both the variables. Values

of X and Y when plotted an a graph paper will give us a curve and not a straight line.
(ii) Positive correlation : If the two variables X and Y move in the same direction, i.e., with
an increase in one variable, the other variable also increases or with the fall in one
variable, the other variable also falls, the correlation is said to be positive. When the
income rises, consumption also rises. There is a positive correlation between them.
Negative correlation : If the two variables X and Y move in the opposite direction, i.e.,
with the increase in one variable, the other variable falls or with the fall in one variable,
the other variable rises, the correlation is said to be negative. When the price of a
commodity rises, its demand falls. There is a negative correlation between them.

200.“The degree of closeness of scatter points and their overall direction gives us an idea of the 6
nature of the relationship between variables.” Explain.

Ans : Scatter diagram is a graphic (or visual) method of studying correlation. To construct a
scatter diagram, X variable is taken on x-axis and Y variable is taken on y-axis. The
cluster of points, so plotted is referred to as a scatter diagram. In a scatter diagram, the
degree of closeness of scatter points and their overall direction gives us an idea of the
nature of the relationship :
(i) If the dots move from left the right upwards, correlation is said to be positive whereas
the movement of dots from left to right downwards indicates negative correlation.
(ii) Dots in a straight line indicate perfect correlation.
(iii) Dots falling close to each other in a straight line indicate high degree of correlation.
(iv) Scattered dots indicate no correlation. The following diagrams illustrate the idea :

201.What is an Index Number ? Describe the main problems which are faced in the construction of 6
it.
Or
What are index numbers ? Discuss the main problems faced in their construction.
Or
What are index numbers ? Mention any two of their features and explain at least three problems in
 the construction of Index numbers.
Or
State any four difficulties in constructing index numbers.

Ans : Meaning of an Index Number : An index number is a statistical device for measuring
relative change in a group of related variables like prices, production etc. over two or
more different time periods. In other words, an index number is defined as a specialised
type of average which measures changes in the price of commodity, industrial
production, cost of living etc.
Problems (or issues) in construction of Index Number : Many problems are faced while
constructing an index number. These are as follows :
(i) Purpose of the Index : Calculation of a volume index will be appropriate when one
needs a value index. The selection of items, their prices etc. depend on the purpose of
index numbers.
(ii) Selecting of the Items : The total number of items selected for the index should be
neither too small nor too large. Items should be relevant to the purpose of the index. The
items should be standardised and representative of the whole group for which index
number is to be constructed.
(iii) Price Quotation : We know that prices of many commodities vary from place to place
and even from shop to shop in the same market. A selection must also be made as to
whether the wholesale price or retail price are required. The choice would depend upon
the purpose of index number.
(iv) Selection of Base Year : Base year is the reference year from which comparisons are
made. The base year should be a normal year. It should be free from abnormalities like
wars, earthquake etc. Moreover, it should not be too distinct in the past. It should be a
year of recent past. It should not be too long nor too short.
(v) Selection of Weights : In fact, all commodities included do not have equal importance.
Therefore, to have accurate results, commodities are assigned weights according to their
importance. There are two ways of assigning weights : (a) Quantity Weight and (b) Value
Weights.
(vi) Choice of an Average : Mostly choice is to be made between arithmetic mean and
geometric mean. Though geometric mean is considered best in theory as this is the
most suitable average for measuring relative changes, yet arithmetic mean is more
popularly used while constructing index numbers.
(vii) Choice of an Appropriate Formula : Various formulae can be used in the construction
of index numbers but it is very essential to select the most suitable out of them. The
selection of the formulae depends upon the purpose of index number and availability of
data.
Features of Index numbers :
(i) They are expressed in percentages.
(ii) They are special types of averages.

202.What is Consumer Price Index ? Write down the uses of it. 6

Or
Explain the importance of Consumer Price Index.
Or
What is meant by consumer price index ? Explain any two uses of consumer price index.

Ans : A consumer price index also called cost of living index, measures changes in the retail
prices paid by the ultimate consumers for a specified basket of goods and services over
two different time periods.
Uses of Consumer Price Index : Following are the uses of consumer price index :
(i) They are useful in wage negotiations. The government grants additional dearness
allowance (DA) to its employee on the basis of increase in CPI from time to time.
(ii) They are helpful in the formation of wage policy, income policy, price policy, taxation
and general economic policy formulation.
(iii) They are used to calculate the purchasing power of money. Symbolically, purchasing
power of one rupee =
(iv) With the help of CPI, we can calculate the real wages or real income of a particular
group. The formula used is : Real Wages = 
(v) CPIs are good indicator of movement of retail prices of most of essential
commodities of daily use. Moreover, they are also used for analysing markets for
particular kinds of goods and services.

203.Explain the various steps in the construction of CPI. 6

Ans : The construction of consumer price index involves the following steps :
(i) Decision about the Class of People : First of all, it should be made clear for which
class of consumers,
the index number is to be constructed, i.e., whether the index is related to industrial
workers, agricultural workers, urban non-manual workers etc. At the same time, the
scope of the index should also be defined.
(ii) Conducting Family Budget Survey : A family budget enquiry is to be conducted for a
sample of families to collect the data about the items of income-expenditure, quantities
of commodities etc. Items of consumption are mainly divided into five categories :
(a) Food (b) Clothing (c) Fuel and Lighting (d) House rent and (e) Miscellaneous
(iii) Price Quotations : After selecting the commodities, their retail prices are obtained.
Retail prices of the selected commodities are collected from the reliable sources and
from those places where the most of the consumers buy their goods.
(iv) To Decide Weight : To indicate the relative importance of the items of consumption,
weights are assigned to them. Weights can be given in two ways : (a) quantity weights
(either q0 or q1) and (b) weights in the proportion of expenditure made on each
commodity in the base year.
(v) Methods of Construction : There are two methods of constructing CPI. These are :
(a) Aggregate Expenditure Method :

(b) Family Budget Method :

204.What is Wholesale Price Index ? What are the uses of Wholesale Price Index ? 6

Ans : Wholesale price index is one of the most important price index for a government in all
countries of the world.
Uses of WPI : Some of the important uses of WPI are as follow :
(i) Basis for calculating rate of inflation : In India, two rates of inflation i.e., point to point
and 52 week average are calculated. WPI helps in calculating both ratios of inflation. The
‘52 week average’ is the percentage increase in WPI during the year. Whereas, point to
point rate of inflation is based on weekly movement of prices.
Government of India uses rate of inflation to revise the annual cost of projects
undertaken. We can also know the real value of our income, savings, wealth etc. with the
help of this.
(ii) Basis for calculating real national income : WPI is used for calculating real national
income i.e., the national income at constant prices. A change in real national income
indicates the change in physical output in the country.
(iii) Indicator of business conditions in the country : Movements or changes in aggregate
demand and supply in the country is indicated by the movement or changes in WPI.
Accordingly, business class can plan their activity. It also guides them regarding their
future production costs, pricing of products, marketing and sales policies.
(iv) Useful for planning : WPI helps government in future economic planning in the
country. It helps in determining allocation of funds for various schemes and sectors of
the economy.

205.What is the meaning of an index number ? What are the uses of Index numbers ? 6

Ans : Meaning of Index Number : An index number is a statistical device for measuring relative
change in the prices of a group of related variables over two or more different times. In
other words, an index number is defined as specialised type of average which measure
changes in the prices of commodities, industrial production, cost of living index etc.
Following are the general uses of index numbers :
(i) Index numbers are used to measure the changes in some quantity which we cannot
measure directly.
(ii) Index numbers especially CPIs are useful in the fixation of salary and dearness
allowances.
(iii) Index numbers are economic barometers. On the basis of changes which have
occurred in the past, predictions about the future are made.
(iv) By index numbers, we can measure the changes in the purchasing power of money.
(v) Index numbers are useful in calculating real wages and real income, i.e., they act as
good deflators of income and wages.

206.Define Consumer Price Index Number. How is it constructed ? Write its importance. 6
Ans : Consumer Price Index (CPI), also known as the cost of living index, measures the
average change in retail prices paid by the ultimate consumers for a specified basket of
goods and services.
The methods of constructing CPI are :
(i) Aggregate Expenditure Method :

(ii) Family Budget Method : 

W = Total Expenses = p0 q0 = Fixed weights of items

(iii) When Group Indices and Weights are given :

Importance of Consumer Price Index (CPI) :

(i) It is used in calculating purchasing power of money and real wages.
(ii) It is used for grant of dearness allowance to central government employees due to
change in price conditions.
(iii) It is used as guidelines by government for deciding wage policy, price policy or
income policy.
(iv) It is used as price deflator of income.
(v) It is an indicator of movement of retail prices of most of the essential commodities.

207.Discuss the general method of constructing an index number. 6

Ans : The general method of constructing an index number is the calculation by simple index
number.
In simple index number, all items are given equal weightage. There are two unweights
methods for it.
(i) Simple Aggregative Index
(ii) Simple Average of Price Relatives
(i) Simple Aggregative Method : In this method, the average price of all items in the
current year is expressed as a percentage of the same in the base year.
Index Number is determined by using the formula :

Here, ‘0’ stands for the base year and ‘1’ stands for the current year.
ΣP1 = Sum of prices of different commodities for the current year.
ΣP0 = Sum of prices of different commodities for the base year.
(ii) Simple Average of Price Relative Method : In this method price relatives are
calculated as below :

Arrange of price relatives is obtained by the formula :

Hence, ΣR = Number of commodities

P1 = Price of current year
P0 = Price of base year

208.Explain the precautions that are to be taken while constructing index numbers. 6
Ans : Following precautions are to be taken while constructing index numbers :
(i) Purpose of the index : The first precaution which is to be taken while constructing
index number is the purpose of index number. Calculation of a volume index will be
appropriate when one needs a value index. The selection of items, their prices etc.
depend on the purpose of index numbers.
(ii) Selecting of the items : The second precaution which is to be taken while
constructing index number is the selection of the items. The total number of items
selected for the index should be neither too small nor too large. Items should be relevant
to the purpose of the index. The items should be standardised and representative of the
whole group for which index number is to be constructed.
(iii) Price quotation : The next precaution is to obtain the price quotations for the
commodities selected. We know that prices of many commodities vary from place to
place and even from shop to shop in the same market. A selection must also be made as
to whether the wholesale price or retail price are required. The choice would depend
upon the purpose of index number.
(iv) Selection of base year : Another precaution in the construction of index number is the
selection of a proper base year. Base year is the reference year from which comparisons
are made. The base year should be a normal year. It should be free from abnormalities
like wars, earthquake etc. Moreover, it should not be too distinct in the past. It should be
a year of recent past. It should not be too long nor too short.

209.Why do central problems of an economy arise? Explain the central problem of "for whom to 6
produce"?

Ans : The central problems are the basic problems faced by an economy. They arise because:
(a) Human wants are unlimited
(b) Resources are limited
(c) Resources have alternative uses
For whom to produce refers to the distribution of income among income earners or
factor owners in the form of wages, rent, interest and profit. The share of each factor will
be determined by its relative contribution in national income, i.e., the factor which
contributes relatively more will be entitled to a larger chunk of the cake of national
income and vice-versa.

210.Explain consumer's equilibrium in case of single commodity with the help of utility schedule. 6

Or

How does a consumer reach equilibrium position when he is buying only one commodity? Explain
with the help of marginal utility schedule.

Or

How may units of a commodity should a consumer buy to get maximum utility? Explain with the
help of a numerical example.

Or

Given the market price of good, how does a consumer decide as to how many units of that good to
buy? Explain.
Ans : Consumer’s equilibrium with respect to purchase of one good is attained when

(a) the marginal utility of the good is equal to its of the good price.

(b) MU should decrease with increase in consumption.

Example: Suppose a consumer is buying oranges and the price of each unit of orange is
4. Hypothetical marginal utility schedule of orange is given as:

It is evident from the schedule that the consumer will purchase 4 units of oranges and
reaches an equilibrium position. In this situation, the condition of consumer’s equilibrium
MUX (in ) = P is satisfied. At this level of consumption, the marginal utility is equal to
the price of orange, i.e., 4 = 4.

211.Explain the equilibrium of a consumer in case of two commodities with the help of utility 6
analysis.

Or

How does a consumer reach equilibrium in case of two commodities under the cardinal utility
theory?
Ans : Under the utility approach, a consumer attains equilibrium in case of two commodities
when the consumer spends his income in such a way that the ratio of the marginal utility
of a commodity to its price is equal to the ratio of the marginal utility of the other
commodity to its price. Mathematically, the condition is expressed as:

(a)

(b) MU should decrease with increase in consumption.

Example: Suppose a consumer's income is 30 which he wants to spend on two goods

X and Y. The price of each unit of X and Y is 4 and 2. Marginal utility schedule of X
and Y is given as:

Note: (Schedule given is for understanding purpose only.)

It is evident from the table that in order to have maximum utility, consumer will purchase
4 units of X and 7 units of Y because this combination of goods satisfies the following
two conditions:

At 4 units of X = = 14

At 7 units of Y = = 14

Further, Expenditure on X + Expenditure on Y = Total Income

i.e., PX ⋅ QX + PY ⋅ QY = M

4×4+2×7= 30

212.Define indifference curve. Explain the three properties of indifference curves. 6

Or

Explain the three properties of indifference curve.

Or

State and explain the characteristics of an indifference curve.

Ans : Indifference curve is defined as the curve which represents all combinations of two
commodities which give same level of satisfaction to the consumer so that the
consumer becomes indifferent towards these combinations.

Following are the main properties of Indifference Curve:

(a) An Indifference Curve is always downward sloping. The indifference curve is

negatively sloped or downward sloping from left to right which represents that in order to
increase the consumption of commodity X, the consumer has to sacrifice commodity Y
in order to remain at the same scale of preference or same level of satisfaction
represented by the Indifference curve.

(b) An Indifference Curve is convex to origin. The nature and shape of indifference curve
is based on the concept of diminishing marginal rate of substitution. According to which
the rate of sacrifice in terms of commodity Y in order to increase the consumption of
commodity X decreases with every increase in unit of commodity X due to which an
indifference curve is always made convex to origin. The marginal rate of substitution
depends on relative marginal utilities derived from X and Y. When the consumer
consumes more of X after sacrificing Y, then it leads to decrease in MU for X and
increase in MU for Y due to which the consumer becomes willing to sacrifice lesser units
of Y with every increase in consumption of X due to which MRS decreases and IC is
convex to origin.

(c) Higher Indifference Curve represents higher scale of preference. Indifference curve
analysis is based on the assumption of monotonic preferences which represents that
higher consumption of a commodity gives higher level of satisfaction to the consumer. A
higher indifference curve represents that the consumer is able to consume more units of
the commodity and hence represents higher scale of preference to the consumer.

213.Explain the conditions of consumer’s equilibrium using indifference curve analysis. 6

Or

A consumer consumes only two goods. Explain the conditions of consumer equilibrium with the
help of indifference curve analysis. Use Diagram.

Or

Explain the conditions of consumer equilibrium with the help of indifference curve analysis. Use
diagram.

Or

Use indifference curve approach, explain the conditions of consumer’s equilibrium.

Or

What are the conditions of consumer’s equilibrium under indifference curve approach? What
changes will take place if the conditions are not fulfilled to reach equilibrium?

Or

Explain the conditions of consumer's equilibrium using indifference curve analysis.

 Consumer equilibrium is defined as
Ans : the level of consumption where the
consumer derives maximum
satisfaction from the consumption
of commodities and does not have
any desire to change from that level
of consumption.
The consumer will continue to
substitute Y for X as long as the
marginal rate of substitution is
greater than or equal to the price
ratio of both the commodities.

The necessity of this condition can be explained with the help of the given diagram.
In the given diagram IC1, IC2 and IC3 represent the indifference map for the consumer
representing the consumer’s scale of preferences. AB represents the budget line which
shows various combinations of the two commodities that a consumer can purchase
from his given income and price of the commodities. Consumer equilibrium is achieved
at point E where the budget line is tangential to the indifference curve.

(a) If Marginal Rate of Substitution is greater than the price ratio or market rate of
exchange. This is represented by point D in the given diagram. When the marginal rate of
substitution is greater than the market rate of exchange then it would represent that the
consumer is willing to sacrifice in a higher proportion as compared to the price ratio or
market rate of exchange. Hence, the consumer becomes ready to consume more of X by
sacrificing Y. Due to increase in consumption of X, the MRS between X and Y will fall.
This process continues till the level where the marginal rate of substitution becomes
equal to the market rate of exchange.

(b) Similarly, if MRS is less than the price ratio, then the consumer will become ready to
consume less of X. Due to decrease in consumption of X, the MRS between X and Y will
increase. This process continues till the level where MRS becomes equal to the market
rate of exchange. Hence, the consumer will be at equilibrium, i.e., the consumer's
behaviour will be stable only if the marginal rate of substitution becomes equal to market
rate of exchange.

No, the equality of MRS to price ratio or market rate of exchange is not enough to
achieve equilibrium. The diminishing marginal rate of substitution or convexity of
indifference curve is also a necessary condition to achieve equilibrium. In fact it is a
necessary condition in order to achieve a unique equilibrium point for the consumer.

214.What are monotonic preferences? Explain why is an indifference curve (i) Downward sloping 6
from left to right and (ii) Convex to the origin.

Ans : Monotonic preference means that as consumption increases, total utility also increases
alongwith.

(i) Indifference curve slopes downwards from left to right because whenever a consumer
wants to have more units of one commodity he will have to sacrifice some units of the
other commodity. If the consumer can have more of both the commodities, his level of
satisfaction will change which is not possible. Thus, there exists a negative relationship
between quantity of X and quantity of Y.

(ii) Indifference curve is convex to origin due to diminishing marginal rate of

transformation. Marginal rate of substitution of X for Y refers to the number of units of
good Y that the consumer is willing to forego for an additional unit of good X, so as to
maintain the same level of satisfaction.

MRS =

215.Explain the concepts of (a) Marginal rate of substitution, (b) Budget line equation with the help 6
of an example.
Ans : (a) Marginal Rate of Substitution. MRS of X for Y refers to the number of units of good Y
that the consumer is willing to forego for an additional unit of good X, so as to maintain
the same level of satisfaction.

MRS =

The concept of MRS can be understood with the help of following table:

When consumer moves from combination A to B he sacrifices 4 units of trousers (Y) for
an additional unit of shirt (X) to maintain the same level of satisfaction. Therefore, MRS
at this stage is 4. When consumer moves from B to C, from C to D and from D to E, MRS
diminishes as the consumer increases the units of shirts (X) and decreases the units of
trouser (Y). In other words, he acquires constant quantity of shirts (X) (increase in X by 1
unit each time) and gives up a smaller and smaller quantity of trousers (Y).

(b) Suppose a consumer has 20

as his income and he spends on
goods X and Y. Price of good X and
good Y are 5 and 4 per unit
respectively. If he decides to spend
his entire money income of 20 on
the purchase of good X (no
purchase of good Y), then he can
buy ( 20/ 5) 4 units of X.

This is shown by point M in the figure given. On the other hand if he spends his entire
income on purchase of good Y, he can buy ( 20/ 4) 5 units of Y. This is shown by point
L. By joining points L and M, we get a line known as Budget Line, which shows different
combinations of good X and good Y which can be purchased with given money income
(here 20).

Slope of Budget Line = Ratio of prices of two commodities = .

Equation of Budget Line, PX⋅X + PY⋅Y = m

where, m = Money income
PX and PY are per unit price of good X and good Y respectively.
X and Y are quantity of good X and good Y respectively.

216.Explain the concept of marginal rate of substitution. Explain the reaction of the consumer when 6
marginal rate of substitution is higher than the ratio of prices.

MRS > .
Ans : Marginal Rate of Substitution. MRS of X for Y refers to the number of units of good Y that
the consumer is willing to forego for an additional unit of good X, so as to maintain the
same level of satisfaction.

MRS =

As the given consumer moves downwards along the indifference curve, we observe that
MRS (i.e. the slope of the Indifference curve) continuously declines. This implies that the
indifference curve, is convex’.

When,                                 MRS > .

This means to get one more unit of commodity X consumer is willing to sacrifice more
units of commodity, Y then the market requires. It shows that consumer is willing to pay
higher price of commodity X than the market requires. Consumer will now buy more of
commodity X and buy less of commodity Y. This will bring down MRS till it becomes
equal to PX/PY and the equilibrium is thus restored.

217.Distinguish between inferior good and normal good. Explain the effect of change in income on 6
the demand curve of each good. Use diagram.

(a) Inferior good. Inferior

Ans : goods are those goods
whose demand decrease
when the income of the
consumer increases and
vice versa. In other words, in
case of inferior good, there
is an inverse relationship
between demand and
income of the consumer,
e.g., the demand for bajra
will fall with the rise in the
income of the consumer.
Hence, bajra becomes
inferior good at a higher
level of income.

In case of inferior good, with increase in income, demand curve shifts to the left from DD
to D0D0, whereas it shifts to the right from DD to D2D2 with decrease in income.

(b) Normal good. Normal good is the

good for which the demand rises with
increase in the income of the consumer.
In other words, in case of normal good,
there is a direct relationship between
income of a consumer and his demand
for normal good, e.g., the demand for
rice and wheat will increase with every
increase in income. Thus, rice and wheat
are normal goods.
In case of normal good, with increase in
income demand curve shifts to the right
from DD to D1D1, whereas it shifts to the
left from DD to D0D0 with decrease in
income.

218.Explain with the help of diagram the effect of the following changes on the demand of a 6
commodity.

(a) A rise in the price of a complementary good.

(b) A rise in the price of substitute good.

Ans : (a) The demand of a commodity and price of its
complementary good are inversely related to each
other. When the price of complementary good (say
petrol) rises, not only its demand falls but the
demand for the commodity (say car) also falls and as
a result the demand curve of the commodity (car)
shifts to the left. The given diagram shows the effect.

In the diagram, demand curve of X (say car) is shown

by DD curve. With the rise in the price of
complementary good (say petrol), the demand of
good X falls from OQ to OQ0 at the same price OP.
The demand curve shifts leftward to D0D0.

(b) The demand of a commodity and price of its

substitute good are directly related to each other.
When the price of substitute good (say coffee) rises,
its demand falls and the demand for the commodity
(say tea) rises and as a result, the demand curve of
the commodity (tea) shifts to the right. The given
diagram shows the effect.

In the diagram, demand curve of X (say tea) is shown

by DD curve. With the rise in the price of substitute
good (say coffee), the quantity demanded of good X
rises from OQ to OQ1 at the same price OP. The
demand curve shifts rightward to D1D1.

219.Define price elasticity of demand. Explain its various degrees. Use diagrams. 6
Ans : Price elasticity of demand is the degree of responsiveness of the quantity demanded of
a good to a change in its price. Following are the factors affecting price elasticity of
demand. 
There are five degrees of price elasticity of demand which are given as:

(a) Perfectly Elastic Demand (eD = ∞). When the demand of a commodity rises or
falls to any extent at the prevailing price, it is said to be perfectly elastic demand.
Here coefficient of elasticity of demand = ∞ (infinity). See Fig. (a). 

(b) Perfectly Inelastic Demand (eD = 0). When the demand of a commodity does
not change at all irrespective of any change in its price, it is said to be perfectly
inelastic demand. Here coefficient of elasticity of demand = 0 (zero). See Fig.
(b).  

  

   

  (c) Unit Elastic Demand (eD = 1). When percentage change in the demand of a
commodity is equal to the percentage change in its price, it is said to be unit
elastic demand. Here coefficient of elasticity of demand = 1. See Fig. (c). 

   
 

  (d) More Elastic Demand (eD > 1). When percentage change in demand of a
commodity is more than the percentage change in its price, it is called greater
than unitary elastic demand. Here coefficient of elasticity of demand > 1. See Fig.
(d). 

 
 
  
220.Define price elasticity of demand. Explain any three factors affecting price elasticity of demand. 6

Ans : Price elasticity of demand is the degree of responsiveness of the quantity demanded of
a good to a change in its price. Following are the factors affecting price elasticity of
demand:
(a) Availability of close substitutes for the commodity. A commodity will have elastic
demand if there are close substitutes available, e.g., Pepsi, Coca-Cola, Frooti. A
commodity
  (e) Lesshaving
than no substitutes,
Unitary Elastic e.g., salt will
Demand (eDhave inelastic
< 1). When demand.
percentage change in
(b) Nature of good. Generally, the demand for necessaries is inelastic and that for
luxuries elastic. This is so because certain goods which are essentialinfor
demand of a commodity is less than the percentage change itslife
price, it is
willcalled less thanatunitary
be demanded elastic
any price, demand
whereas goodsor less elastic can
as luxuries demand. Here coefficient
be dispensed easily if they
of elasticity of demand < 1. See Fig. (e) 
appear to be costly.
(c)  Uses of the commodity. If a commodity has only a few uses, e.g., butter, its demand is
likely to be inelastic. If on the other hand, a commodity has many uses, its demand is
likely
  to be elastic, e.g., milk.
(d) Share in total expenditure on the commodity. The demand for such commodities
where
  a small part of the income spent is generally inelastic such as commodities like
needle, match box, button etc. On the other hand, the demand for such commodities  
  a significant part of income is spent, is very elastic, such as demand for woollen
where
suit, other luxuries etc.
(e) Tastes and Preferences/Habits. If the consumers are habitual of some commodities,
the demand for such commodities will be usually inelastic, because they will use them
even if their prices go up. A smoker generally does not smoke less when the price of
cigarettes goes up.
 
(any three)

221.Explain the conditions of consumer's equilibrium under utility analysis. 6

Or
Explain the conditions of consumer's equilibrium using marginal utility analysis.

Ans : Assuming that the given consumer consumes only two goods X and Y. Further the
income of the consumer and the prices of the two goods, are also assumed to be given.
Now for the given consumer to be in equilibrium under the utility analysis two conditions
must be fulfilled:
(a) MU of last unit of money (rupee) spent on each good is the same.
(b) MU of a good falls as more of it is consumed.
(i) Let the two goods be X and Y, their prices be PX and PY and their MU's as MUX and
MUY. The equilibrium condition is:

= MU of the last unit of money (rupee) spent on each good.

In case this implies that MU from the last rupee spent on X is greater

than MU of the last rupee spent on Y. This will induce the given consumer to transfer
expenditure from Y to X, i.e., consumption of X rises and Y's falls. As a result, MUX falls

and MUY rises. This transfer of expenditure continues till and the given

consumer gets the same MU per rupee.

(ii) MU of a good falls as more of it is consumed. This condition is nothing but the
assumption that the Law of Diminishing MU is in operation.
Suppose the given consumer will continue to transfer expenditure

from Y to X till expenditure on Y is reduced to zero, and the entire income of the given
consumer is spent on X. This implies that the given consumer consumes only one good,
which is highly unrealistic. As a matter of fact, he spends his income on many goods.
Thus, for the fulfillment of the first condition, it is also necessary to that the law of
Diminishing MU is in operation.

222.A consumer consumes only two goods. Why is the consumer said to be in equilibrium when he 6
buys only that combination of the two goods which lies at that point on the indifference curve
where the budget line is tangent to the indifference curve? Explain. Use diagram.
Or
Using indifference curve analysis, explain the concept of consumer’s equilibrium.
Ans : Consumer equilibrium is defined as the level of consumption where the consumer is able
to achieve maximum level of satisfaction from his given money income and price of the
commodities.
Indifference curves represent different scale of preferences or levels of satisfaction
which are available from different combinations of two commodities which a consumer
wants to consume. On the other hand, a budget line represents all the combinations that
a consumer is able to consume by spending his entire money income on both the
commodities. The consumer will consume only that combination for which he has both
preference and ability to consume, the consumer equilibrium must lie on both
indifference curve and the budget line.
Graphical representation: The concept of consumer equilibrium can be explained with
the help of given diagram.

In the given diagram IC1, IC2 and IC3 represent the indifference map for the consumer
representing the consumer’s scale of preferences. AB represents the budget line which
shows various combinations of the two commodities that a consumer can purchase
from his given income and price of the commodities.
According to the given conditions, the consumer will not be able to purchase W
combination or any combination which lies on IC3 as it lies outside the budget line. The
consumer will be able to consume either C or D or E combinations, which lie on both
indifference curve as well as the budget line. Since combination E lies on a higher
indifference curve IC2, it will represent a higher level of satisfaction to the consumer as
compared to C and D. Hence, the consumer equilibrium will be achieved at E where the
budget line is tangential to the indifference curve according to which the consumer will
consume OX units of commodity X and OY units of commodity Y.
Conditions:
(a) The budget line should be tangential to the indifference curve, i.e., the slope of budget
line should be equal to the slope of budget line.
(b) IC should be strictly convex to origin, i.e., MRS should continuously decrease.

223.Explain the concept of marginal rate of substitution (MRS) by giving an example. What happens 6
to MRS when a consumer moves downwards along the indifference curve? Give reasons for your
answer.
Ans : Marginal Rate of Substitution: MRS of X for Y refers to the number of units of good Y that
the consumer is willing to forego for an additional unit of good X, so as to maintain the
same level of satisfaction.

MRS =

The concept of MRS can be understood with the help of following table:

At combination A, consumer has 1 unit of shirt and 20 trousers which represents that
MU of shirts is higher than that of trousers due to which consumer becomes willing to
sacrifice 4 trousers in order to gain one shirt when he moves from A to B. As soon as
consumer sacrifices trousers to gain shirt, his MU for trousers increases and hence he
becomes ready to sacrifice lesser trousers (3) in order to gain one more shirt when he
moves from combination B to combination C.
Hence with changes in relative MU for shirts and trousers, MRS keeps on falling with
every increase in quality of shirts.

224.Explain the difference between decrease in demand and decrease in quantity demanded. Give 6
two causes of decrease in demand.

Ans : Decrease in demand. Decrease in demand is due to change in factors other than price of
the given good, e.g., decrease in income, unfavourable change in tastes etc.
Decrease in quantity demanded. Decrease in quantity demanded is due to rise in own
price of the given commodity.
Two causes of decrease in demand are:
(a) Fall in the price of substitute goods. The demand for a good falls with the fall in the
price of its substitute good. As a result the demand curve for the commodity shifts to the
left with the fall in the price of its substitute good.
(b) Rise in the price of the complementary good.

As a result, there is a decrease in the demand.

225.Distinguish between: 6
(a) Fixed Costs and Variable Costs
(b) Average Cost and Marginal Cost
Ans :

226.Distinguish between explicit cost and implicit cost. 6

Ans : Explicit Cost Implicit Cost

(a) Explicit costs are the costs which are incurred by (a) Implicit costs are the costs which are estimated
making payments to the factors hired or purchased. value of inputs provided by the owners themselves.

(b) It is ‘paid-out’ cost. (b) It is ‘paid-in’ cost.

(c) Examples: Payment of wages, payment of rent, (c) Examples: rent of the owner occupied building,
purchases of raw materials. salary for own labour supplied.

227.Explain briefly the following determinants of supply. 6

(a) increase in the price of inputs
(b) decrease in the Tax on goods.
(c) an improvement in technology.
(d) an increase in the price of other goods.

Ans : (a) If the price of inputs (wages of labour, cost of raw materials and fuel etc.) goes up,
the cost of production will rise and as a result the supply of the commodity decreases.
(b) If the rate of excise duty is reduced, the unit cost of production is also reduced and
consequently supply increases.
(c) If there is an improvement in the technology used by the firm, the cost of production
declines. Lower cost of production increases the supply of a commodity.
(d) The effect on supply of a commodity of an increase in the price of the other good can
be explained with the help of an example. Suppose a farmer is growing wheat and rice. If
the price of wheat rises, probably the farmer will grow more wheat. The farmer would
withdraw some land and other resources from the production of rice and devote them to
the production of wheat. This will cause a decrease in the supply of rice, the price of
which has not changed. The supply curve of rice shifts to the left.

228.Define oligopoly. Explain the features of oligopoly. 6

Ans : Oligopoly is a market structure characterised by the presence of a few large firms
(producing homogeneous or differentiated products) intensely competing against each
other and recognising interdependence in their decision-making. In India, oligopoly is
seen in industries such as automobiles, computers, A.C., photocopiers, etc.
The features of Oligopoly are:
(a) Few firms. There are few sellers of the commodity and each sells a substantial
portion of the output of the industry. Each firm is aware that it possesses a large degree
of monopoly power.
(b) Homogeneous or differentiated product. Some oligopoly firms may sell
homogeneous products (such as cement, steel, aluminium, LPG cylinders) or
differentiated products (such as cars). Former one's are known as perfect oligopoly and
the latter one is known as imperfect oligopoly.
(c) Interdependence of decisions. There is interdependence of firms, as business
decision of a single seller will have a substantial impact on the product price, output and
profits of the rival firms, e.g., there is interdependence of decision between Pepsi and
Coke, Hindustan Times and Times of India. Since the number of sellers is small, each
firm has to take into consideration the possible reaction of rivals, when making business
decisions.
(d) Heavy selling and advertising costs. Due to cut-throat competition, firms incur heavy
selling and advertising costs to counter the rival firm’s action, to ensure their survival and
growth in the industry.
(e) Price rigidity. Normally firms are afraid of competing with each other by lowering the
price. It may start a price war and the firm who starts the price war may ultimately loose.
Each rival firm reacts immediately to the changed price, due to which the price remains
rigid in this market.
(f) Group behaviour. Normally group behaviour is observed in the form of collective
decisions and mutual cooperation by the firms.
(g) Barriers to entry. This market is characterised by the presence of substantial barriers
to entry of new firms in the industry. These barriers can be natural like requirements of
huge capital or operating at minimum average cost due to economies of scale) or
artificial (like patent rights, product differentiation barriers) which prevents entry of new
firms in the industry and therefore enables the oligopolistic firms to earn profit in the
long run.
(h) Indeterminate demand curve. Due to high degree of interdependence and uncertainty
among oligopolistic firms, sales and profits of the firm are affected by the rivals' firms'
actions. The firm does not sometimes know how his rival firm will react to its decision
regarding change in its variables. The demand curve facing an oligopoly firm keeps on
shifting as rival firms react to changes made by this firm. Therefore, demand curve
facing an oligopoly firm is indeterminate (i.e., not possible to determine).

(any five)
 

229.(a) What is meant by price rigidity, under oligopoly? 6

(b) Elaborate the implication of the conditions of equilibrium of a firm.

Ans : (a) Price rigidity refers to product price fixed by the oligopolist after negotiating and
deliberating with co-sellers. They usually stick to the price fixed in order to avoid any
price war among them.
(b) The firm’s or producer’s equilibrium conditions are:
(i) MR = MC
(ii) MC must be rising after the MR = MC output level.
First condition MR = MC is a necessary condition but not a sufficient condition to ensure
firm’s equilibrium. This is because MR = MC at two output levels. But out of these, only
that output beyond which MC becomes greater than MR is the equilibrium output. This is
because MC is greater than MR. If the firm produces beyond MC = MR output, it will
reduce its profits.

230.Explain the relation between: 6

(a) Marginal Revenue and Total Revenue

(b) Marginal Revenue and Average Revenue

Ans : (a) Relationship between TR and MR. MR represents addition to TR.

(i) When MR is positive, TR rises.

(ii) When MR = 0, TR is maximum.

(iii) When MR is negative, TR falls.

(iv) In case when MR becomes constant TR increases at a constant Rate.

(b) Relationship between MR and AR

(i) When a firm is able to sell more quantity of output at the same price (i.e., under perfect competition)
then AR
and MR are equal and AR and MR curves take the shape of a straight line parallel to x-
axis.

(ii) When a firm is able to sell more quantity of output only by lowering the price, then AR
and MR both will be
falling, i.e., sloping downwards and MR will be less than AR. The rate of decline in MR is
twice the rate of decline in AR.

Arrange the following raw data in an array and determine the range : 3
19, 47, 40, 29, 8, 50, 13, 59, 36, 24
Ans : Ascending order : 8, 13, 19, 24, 29, 36, 40, 47, 50, 59
Descending order : 59, 50, 47, 40, 36, 29, 24, 19, 13, 8
Range = 59 – 8 = 51