(Download) CBSE Class-12 Marking Scheme (Economics) 

Section A: Microeconomics

1. c)

2. - Give subsidies to reduce price. - Undertake health campaigns to promote the positive effects of milk consumption.
(Any 1)

3. c)

4. If the river Kosi causes widespread floods in Bihar, it will lead to destruction of resources in Bihar. This will shift the PPC leftward.

5. The central problems of an economy are:

(i) What to produce and in what quantity?
(ii) How to produce?
(iii) For whom to produce?

6. (a) False: Average product rises as long as marginal product is greater than average product. Here marginal product could be rising or falling. (1½)
(b) False: Total cost rises at a diminishing rate when marginal cost falls and total cost rises at an increasing rate when marginal cost increases. (1½)

7. 'Price ceiling' is the maximum price that sellers can legally charge for a product or a service.  Since this price is below equilibrium price, there is excess demand in the market. With shortages, sellers tend to hoard the product. It could also lead to black marketing.

OR

‘Price floor’ is the minimum price fixed by the government at which sellers can legally sell their product. Since this price is above equilibrium price, there is excess supply in the market. Since there is surplus, sellers can attempt to sell their product at a price below the floor price.

8. Freedom of entry and exit of firms under perfect competition means that there are no costs or barriers a firm faces to enter or exit the market. The implication of this is that in the long run each firm earns only normal profit. Suppose in the short run, existing firms are earning super normal profits, new firms enter the industry as they are attracted by profits. This raises the market supply and reduces the market price. As firms accept the lower market price, profits reduces. This process continues till profits reduce to normal levels in the long run. The opposite occurs if firms are earning losses as firms leave the industry. This reduces
market supply and raises market price till losses get wiped out and firms earn only normal profit in the long run.

9. Yes, the same good can be inferior for one person and normal for another. Whether a good is normal or inferior is determined by the income level of the consumer. A good which is a normal good for a consumer with a lower income, may become an inferior good for a consumer with higher income.

For example, coarse cloth may be a normal good for a low income consumer, but for a high income consumer it may be an inferior good as she can afford a better quality cloth.

Thus, when a consumer moves to a higher income level, she may consider coarse cloth as being below their income status, and has the ability to buy more expensive fine cloth, thus considering coarse cloth as being inferior.

10. An indifference curve is convex to the origin due to diminishing marginal rate of substitution (MRS). Diminishing MRS means that the number of units of 'Good Y' that a consumer wants to substitute for one extra unit of 'Good X' goes on decreasing as the consumption of Good X increases. As consumption of Good X increases, the willingness to pay for it diminishes (due to the law of diminishing marginal utility). This payment is in terms of the units of Good Y sacrificed. Thus, MRS diminishes along an indifference curve, which makes it convex to the origin.

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