Sub.

code 3041
NEB –
GRADE-XII
2080(2023)
Model
Question with
Solutions
Economics
The candidates are required to give their answers in their own words
as far as practicable. The figures in the margin indicate full marks.
(Time): 3 Hrs.
(Full Marks): 75
(Attempt All Questions)

Group A

Very Short Answer Type Questions) 11×1 = 11

1. Write any two advantages of division of labour.
Ans. The advantages of division of labour are:
i. Right person at right place.
ii. Increase in quality of production.
=
2. A seller earns Rs. 700 from the sale of 10 units of a good. If
s/he sells 1 more unit, her/his total revenue becomes Rs 750,
then find marginal revenue by using formula.
Ans. Here,
TR1 = 700 Q1 = 10
TR2 = 750 Q2 = 11
TR = 750 – 700 Q = 11-10
TR = 50 Q = 1
Now, Marginal Revenue = TR/Q
= 50/1

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 Marginal Revenue (MR) = 50

3. What is the policy applied by central bank to control the

money supply and credit called?
Ans. The policy that is applied by central bank to control the
money supply and credit is called monetary policy.

4. Write any one difference between fixed exchange rate and

flexible exchange rate.
Ans. The difference between fixed exchange rate and flexible
exchange rate are:
Fixed Exchange Rate Flexible Exchange Rate
i. The type of exchange rate i. The type of exchange rate
in which rate of currency or in which rate of currency
exchanging rate are exchanging changes time to
fixed/constant is called fixed time is called flexible
exchange rate. exchange rate.

5. What is ‘structural unemployment’?

Ans. If unemployment occurs due to a mismatch of skills or
geographical location, it will be called structural
unemployment.

6. When did Nepal become the member of WTO?

Ans. Nepal became the member of WTO in 23rd April 2004
A.D.

7. Write down any two policies aimed at reducing the size of

population below poverty line in the current plan of Nepal.
Ans. The two policies aimed at reducing the size of
population below poverty line are:

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i. Rural Transformation Program
ii. Social Security Allowance Program

8. There is gender inequality in you community. More

priority is given to boys as compared to girls either at
home or in school. In this regard, state any two roles that
you can play to achieve the goal of gender equality in
education by 2030 in Nepal?
Ans. The two roles to achieve the goal of gender equality in
education by 2030 in Nepal are:
i. Women empowering special policies and programs should
be initiated by government.
ii. Awareness through different medium should be generated
in local level.

9. Write any two pre-requisites of primary data collection.

Ans. The two pre-requisites of primary data collection are:
i. Appropriate selection of data collection tools.
ii. Clear about objective of data collection.

10. The sources of primary data collection are book,

newspaper, radio, etc. But there are various problems in
data collection from such sources. In this regard, point out
any two problems while using the data from secondary
sources.
Ans. The two problems while using the data from secondary
sources are:
i. There may be the lack of relevancy of data.
ii. There may not be the proper availability of required data.

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11. If the difference and sum of first quartile (Q1) and
third quartile (Q3) are 45 and 75 respectively. Find the
coefficient of quartile-deviation and interpret it.
Ans. Here,
Q3 - Q1= 45
Q3 + Q1= 75
Now,
Coefficient of Q.D= Q3-Q1/Q3+Q1
= 45/75
Coefficient of Q.D = 0.6

समहू 'ख' (Group 'B’)

(संक्षिप्त उत्तरात्मक प्रश्नहरु / Short answer questions) ८x५=४०

12. What is the meaning of allocation of resources?

Identify and describe the three major issues that may
arise while allocating resources.
Ans. The scientific and appropriate utilization of scarce
productive resource to meet the unlimited wants of the
consumers is known as allocation of resources.
The major issues that may arise while allocating resources
are:
i. What to produce:
The first problem related with resource allocation is "what
goods and services to produce, and by how much or in what
quantities?" Because of scarcity of productive resources,
production of all goods and services needed by a society or a
nation are beyond its capacity. So, a firm and a society must
choose from among various alternatives.
ii. How to produce:
The second problem related to allocation of resources is
concerned with the methods of production. If more labors are
used in production, it is called labor-intensive technology. On
the other hand, when more capital at in the production
process, it is called capital-intensive technology.
iii. For wham to produce:
Due to the scarcity of resources, we cannot satisfy all wants
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of all the population So, decisions have to be taken
concerning how many of each person's wants are to be
satisfied. In other words, before producing goods and
services, the targeted consumer group should be identified.

Or
What is Market Economy? Explain any four features of
market economy. 1+4

Ans. An economic system in which all economic activities like

production, distribution, consumption, exchange etc. are
organized by private sectors and guided by profit motives
through market forces (demand and supply) is called market
economy. It is also known as capitalist economy, open
economy or free enterprise economy.
The four features of market economy are:
1. Economic activities are carried by the private sector: In a
market economy, all the economic activities are organized by
private sector. Firms decide what to produce, how to produce
and whom to produce. However, they are guided by the
market forces-demand and supply.
2. Existence of market mechanism: In a market economy,
there is the presence of market mechanism. In this economy,
equilibrium prices of goods and services are determined by
the two market forces demand and supply. People respond to
incentives.
3. Limited role of government: In a market economy, there is
no government intervention in the market. Government
functions as a facilitator. The role of the government is to
manage the public utilities, maintain law and order, and
secure peace and security.
4. Right of private property: In a market economy, individuals
have the right to organize their economic activities, earn
income and accumulate wealth in various forms including
cash, land, share, etc. So, there is perfect right of private
property.

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12. Describe the Uncertainty Bearing Theory of Profit.
Point-out its’ any four weaknesses. 3+2
Ans. This theory was first propounded by the American
economist Prof. Knight in 1921. According to Prof. Knight,
profit is the reward of uncertainty bearing in business. An
entrepreneur receives profit because he bears uncertainty in
business.
The four weakness of Uncertainty bearing theory of profit are:
(i) No relation with uncertainty: According to the uncertainty
bearing theory of profit, there is direct relationship between
profit and uncertainty bearing. However, this is not always
true. During depression phase of business cycle, an
entrepreneur earns no profit although he/she is ready to bear
uncertainty.
(ii) Uncertainty-bearing, not the sole determinant:
Uncertainty-bearing is not the sole determinant of profit.
There are also other causes of profit in addition to uncertainty
bearing, such as co-ordination, organization, innovations, etc.
(iii) Causes of scarcity: As per this theory, scarcity of
entrepreneurs arises in the country when people are not ready
to take/bear uncertainty. In reality, scarcity of entrepreneurs
arises due to the lack of capital, technical know how, peace
and security, etc.
(iv) Monopoly gain: A monopolist may earn abnormal profit
without any uncertainty. Therefore, profit may also arise due
to monopoly power rather than uncertainty.

13. Give the answer of following questions on the basis of given

table.2+3
Output 1 2 3 4 5 6
TC 8 14 18 28 45 72
AC 7 9
MC 10 27
i. Complete the above table.
ii. Draw AC and MC curves from the completed table.
Ans.
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i.
Output 1 2 3 4 5 6
TC 8 14 18 28 45 72
AC 8 7 6 7 9 12
MC 8 6 4 10 17 27

ii.

30

25

20
Costs

15

10

0
1 2 3 4 5 6
Output

MC AC

15. ‘A monopoly firm can sell as many goods as it wants to sell

by decreasing prices’. Based on this information, prepare a table
showing the firm’s total revenue, average revenue and marginal
revenue. Draw the curves of average revenue and marginal
revenue based on the table.
Ans. Monopoly market is the market structure in which there is
single seller of products and many buyers. The price of goods are
changed according to the intension of seller. Under monopoly, seller
in order to sell more goods, reduces the price.
The relationship between TR, AR and MR under monopoly market
can be explained with the table and figure below:

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Quantity Price TR AR MR
(Rs.)
1 10 10 10 10
2 9 18 9 8
3 8 24 8 6
4 7 28 7 4
5 6 30 6 2
6 5 30 5 0
7 4 28 4 -2

35

30

25

20
Price

15

10

0
0 1 2 3 4 5 6 7 8
-5
Quantity

In the above figure, X- axis represents the quantity sold and Y-axis
represents the TR, AR and MR. In 1 unit of quantity sold the price of
all TR, AR and MR are 10 dollars. Initially TR curve increases,
reaches maximum and start to fall. It is bell- shaped. AR and MR
curve start to decrease but MR curve lies below of AR curve because
the decreasing rate of MR is higher than of AR. MR curves becomes
zero and then negative but AR curve never becomes zero. When MR
is zero, the TR curve is at its maximum.
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16. Define Money Market and describe any four features of it.
1+4
Ans. The money market refers to the entire areas where money is
brought and sold. The transaction may take place between different
persons by telephone, fax, e-mail, internet, etc. without meeting. The
short-term loan is available in money market.
The four features of money market are:
i. Maturity: The maturity period of instruments in money market
is less than one year.
ii. Risk: Risk is low in money market because there is less
possibility of default of credit due to short-term nature.
iii. Instruments: The main instruments of money market are
Treasury bill, commercial papers, certificate of deposits, etc.
iv. Institutions: Different financial institutions related to short-
term credit participate in money market. But, there is predominance
of commercial banks.
v. Finance: Money market receives short-term deposits and provides
short-term loan of small/medium amount.

17. Currently, increasing economic inequality situation in Nepal

has adversely affected the social, political and whole economic
sectors of the country. Suggest any five practical measures to
reduce this situation.
Ans. The five measures to reduce the situation are:
1. Public Education
On of the major causes of economic inequality is difference in
education and experience. So, in order to minimize the inequality,
there must be the provision of public education at free with proper
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and quality of education. It helps all to find jobs, earn more and
reduce inequality.
2.Minimum wage system
Due to the unequal and low wage policy in the nation, inequality is
increase. So, government should determine the minimum wage for
the all workers in order to fill economic gaps.
3. Introducing tax and benefits system
In order to minimize the economic inequality, the government
should introduce the tax and benefits system. Progressive tax should
be implemented to the rich or wealthy person. Similarly, government
should provide different types of benefits like allowance to the
needy people.
4. Widening the social securities
Government should provide social security to the needy people in
order to minimize the inequality and they could properly get the
basic needs. It can provide old age allowance, disable allowance etc.
It increases the amount of income for recipients, thereby reduces
inequality.
5. Entrepreneurship
Government should encourage entrepreneurship by providing
funding, training, and mentorship and create jobs and reduce
unemployment.

18. Nepal has a long history of formulation and

implementation of development plan. But there is no sufficient
development. In this regard, suggest the steps to formulate an
effective development plan in Nepal.
Ans. The steps to formulate an effective development plan in
Nepal are:

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1. Identify your goals: First, identify what you want to achieve. This
will help you focus your development efforts on the areas that are
most important to you.
2. Assess your current skills and knowledge: Once you've identified
your goals, take stock of your current skills and knowledge. This
will help you identify the areas in which you need to improve.
3. Develop a plan: Based on your goals and current skills and
knowledge, develop a plan that outlines the steps you need to take to
achieve your objectives. This plan should be specific, measurable,
achievable, relevant, and time-bound (SMART).
4. Set priorities: Prioritize the areas in which you need to develop
your skills and knowledge. Focus on the areas that will have the
greatest impact on your ability to achieve your goals.
5. Identify resources: Identify the resources you will need to develop
your skills and knowledge. This could include training courses,
books, mentors, or other resources.
6. Take action: Once you have a plan and the resources you need, take
action. Start working on your development goals and monitor your
progress regularly.

19. Find the standard deviation from the given data and
interpret the result. 4+1

(Wages Rs.) (No. of Labour)

45 8
55 7
65 3
75 2
80 4

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Ans.
Let A= 45

x f d= x-A fd fd2
45 8 0 0 0
55 7 10 70 700
65 3 20 60 1200
75 2 30 60 1800
80 4 35 140 4900
N =24 Σfd =330 Σfd2= 8600

𝛴𝑓𝑑2 𝛴𝑓𝑑 2
Now, Standard Deviation(σ) =√ −( )
𝑁 𝑁

8600 330 2
= √ −( )
24 24

= √358.33 − 189.06

= √169.27

 Standard Deviation(σ) = 13.01

or

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Find Price Index using Laspeyre’s formula and interpret the

result. 4+1

(Types (Base year) (Current year)

of goods)
(Price) (Quantity) (Price) (Quantity)
(Rice) 70 15 80 20
(Flour) 40 5 45 7
(Potato) 30 10 35 12
(Oil) 200 7 250 5
(Milk) 30 5 35 4

Ans.
Soln:

Types of Base year Current year P1Q0 P0Q0

goods
P0 Q0 P1 Q1
Rice 70 15 80 20 1200 1050
Flour 40 5 45 7 225 200
Potato 30 10 35 12 350 300
Oil 200 7 250 5 1750 1400
Milk 30 5 35 4 175 150
Σ P1Q0= Σ P0Q0=
3700 3100
Now, Laspeyre’s method,

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= (Σ P1Q0/ Σ P0Q0) *100

= (3700/3100) *100
= 119.35

Group- ‘C’
20. Illustrate the price and output determination process
under perfect competition and show the situations of short-run
equilibrium of the firm by MR-MC approach.
Ans: Meaning
Perfect competition is a market structure where there are
large number of buyers and sellers in the market. In this market all
the firms sell the homogenous product at market determined price.
Features of perfect competition market
The various features of perfect competition market are explained
as follows:
1) Large number of sellers and buyers
In a perfect competition market, there are large number of sellers
and buyers so that an individual firm cannot change the market
price because the share of an individual firm in the market is very
small.
2) Homogenous products:
All the firms in a perfect competition market produce and sell
identical products because there are large number of sellers. Since
the goods sold in market are identical, anything that makes buyers
prefer one seller to other is its personality, reputation etc.
3) Firms are “price takers”
Since there are large number of buyers and sellers in a perfect
competition market, the firms cannot decide the price of the goods
and services by their own. The market forces i.e., demand and

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supply determine the price of goods. Hence, firms are “price

takers” not price markets.
4) Free entry and exist
In a perfect competition market, the firms can enter and exist
from the market as per their wish. There is no obligation for entry
and exist of the firm from their market.
5)Little government intervention
There is little government intervention in this market. There are
no extra taxes and other barriers in the market. Two market forces
‘demand’ and ‘supply’ determine the equilibrium price and output
in the market.

Price and Output Determination

In perfect competition market, industry determines the
equilibrium price and output with the help of market forces-D and
S all the firms follow the same price.

Equilibrium of firm
For the equilibrium of firm under perfect competition the
following two conditions must be fulfilled:-
i) First order condition: MR=MC
ii) Second order condition: MC must be cut MR from below
Short-run Equilibrium
Due to different cost structure the firms maybe equilibrium in
short-run with:
i) Excess profit if AR > AC
ii) Normal profit if AR = AC
iii) Loss if AC>AR

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The short-run equilibrium of industry and firms under perfect

competition are given below.

Figure (a) shows the equilibrium of industry at point E.

The equilibrium price and output are P and Q respectively.
Figure (b) shows short-run equilibrium of firm with excess
profit. The equilibrium point is E1 from figure,
Per unit revenue (AR) = E1Q1
Per unit cost (AC) = BQ1
Per unit profit = E1B\
Total excess profit = shaded are (PABE1)
Figure (c) shows the equilibrium of firm with normal profit due
to AC = AR = E1 Q2 .
Figure (d) shows the equilibrium of firm with loss. Here,
Per unit revenue (AR) = e3Q3
Per unit cost (AC) = B1Q3
Per unit loss = B1 e3
Total loss = shaded area (PA1B1e3)
Conclusion
In the long-run all the firms under perfect competition earn
just normal profit.

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21. The Comparative Advantage theory of international

trade is related to the need of international trade. Every
country imports the goods if their cost of production is high in
the country. Explain with a suitable example.
Ans. Comparative Cost Theory of International Trade
David Ricardo (1772 − 1823) first propounded this theory.
According to comparative cost theory of trade, a country will
export those commodities in which its comparative advantage is
the greatest and import those commodities in which its
comparative advantage is the least.

Assumptions
This theory is based on the following assumptions:
(i)There are only two countries, say England and Portugal.
(ii)They produce the same two commodities, say cloth and wine.
(iii)Only labor is the factor of production.
(iv)Prices of two commodities are determined by labor cost.
(v)There is free trade between the two countries.
(vi)All labor units are homogeneous.
(vii)Trade between the two countries takes place on the basis of
the barter system.

This theory can be explained with the help of following table:

Table: Comparative cost theory of international trade

Domestic
Country Wine Cloth
exchange rate

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100 cloth : 120 wine

England 120 100
1 : 0.83
80 wine : 90 cloth
Portugal 80 90
1 : 0.89

The adjoining table shows that the production of a unit of wine in

England requires 120 men, while a unit of cloth requires 100 men.
On the other hand, the production of same quantities of wine and
cloth in Portugal requires 80 men and 90 men respectively.

Thus, England uses more labor than Portugal in producing both

wine and cloth. In other words, the Portuguese laborers are more
efficient than the English laborers.

In this case, England should produce only cloth and exports to

Portugal. Similarly, Portugal should produce only wine and exports
to England.
Gains from Trade
The table also shows that the exchange rate in England is 1 unit
of cloth = 0.83 unit of wine and in Portugal 1 unit of wine = 0.89
unit of cloth. If we assume the exchange rate between the countries
to be 1 unit of cloth = 1 unit of wine, England would gain 0.17 (1 -
0.83) unit of wine by exporting 1 unit of cloth to Portugal.
Similarly, the gain to Portugal by exporting 1 unit of wine to
England will be 0.11 (1 - 0.89) unit of cloth. Thus, trade is
beneficial for both countries.
Criticisms
This theory has following criticisms:
(i) Unrealistic assumption of labor cost: This theory assumes that
the price of two commodities is determined by labor cost alone.
This assumption is unrealistic because it neglects non-labor cost
involved in the production.
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(ii) Unrealistic assumption of free trade: Another serious

weakness of this theory is that it assumes perfect and free world
trade. In reality, world trade is not perfect and free.
(iii) Neglects the role of technology: This theory neglects the role
of technology and innovation in the international trade. The
technology and innovation play important role in the international
trade.
(iv) One-sided theory: This theory is one-sided because it
considers only the supply side of international trade and neglects
demand side.
(v) Two country and two-commodity model is unrealistic: This
theory is related to the trade between two countries on the basis of
two commodities. This is unrealistic because international trade is
among countries trading many commodities in reality.
(vi) Ignores transport cost: Ricardo ignores transport cost in
determining comparative advantage of trade. This is highly
unrealistic because transport cost plays an important role in
determining the pattern of world trade.

22. Foreign employment is a way to solve the unemployment

problem for developing countries like Nepal. However, from
this, such countries will have to face various problems in
future. Considering such possible problems, explain your ideas
in four points for each. 4+ 4
Ans. Foreign employment, also known as overseas employment,
is the practice of working in a foreign country, typically for a
temporary period of time. It involves individuals leaving their
home country and traveling to another country to work and earn
money.
Sure, here are four potential benefits and four potential
drawbacks of foreign employment for developing countries like
Nepal:

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Benefits:
1. Boost in economic growth: Foreign employment can bring in a
substantial amount of foreign currency through remittances, which
can have a positive impact on the country's balance of payments
and overall economic growth.
2. Reduction in poverty: Remittances from foreign employment can
also help reduce poverty by providing families with a steady
source of income, improving their standard of living, and enabling
them to invest in education and healthcare.
3. Skills development: Foreign employment can provide Nepalese
workers with access to training and development opportunities that
may not be available in their home country, enabling them to
develop new skills and knowledge that can be applied upon their
return.
4. Social and cultural exchange: Working in foreign countries can
broaden workers' perspectives and expose them to new cultures,
languages, and ways of life, potentially leading to increased
tolerance, understanding, and cross-cultural exchange.
Drawbacks:
1. Brain drain: The emigration of skilled workers from Nepal can
have negative effects on the country's development and progress,
as it reduces the pool of talent and expertise available to address
key issues and advance economic growth.
2. Exploitation and abuse: Migrant workers are often vulnerable to
exploitation and abuse, including wage theft, poor working
conditions, and human trafficking, which can have serious negative
impacts on their physical and mental health.
3. Social fragmentation: The absence of a significant portion of the
working-age population from their home country can lead to social
fragmentation and the breakdown of traditional family structures
and social networks.

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4. Dependence on remittances: While remittances from foreign

employment can help alleviate poverty, there is a risk that the
country becomes overly dependent on these funds, potentially
leading to economic instability and vulnerability to external
shocks.

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