Term End Answer Key – Economics – Class XI
1. Change in quantity demanded.
2. Income effect: greater purchasing power will increase real
increase his demand of this commodity.
income which induces him to
Substitution effect; when the relative price of this commodity falls , this commodity becomes
more attractive to the consumer than other commodities, which increases the demand.
3. Giffen goods are such inferior goods the demand for which decreases with a decline in their
prices. On the other hand if the demand for some good decreases with increase in real income
of the consumer such goods are treated as inferior goods.
4. Average cost will increase so a firm will supply less of the commodity than before at given price.
A graph with leftward shift of supply curve.
5. If the percentage change in quantity supplied is greater than the percentage change in the price
of the commodity, it means that the supply of that commodity is relatively price elastic. If the
percentage change in quantity supplied is less than the percentage change in the price of the
commodity, the supply is said to be relatively price inelastic.
6. Supply will be inelastic .so with a change in demand (either fall or rise), only the equilibrium
price changes not quantity.
7. A process through which the prices of different commodities are determined in the market
based on the free inter play of demand and supply.
8. Efficient utilization of fixed factor, Division of labour, optimum proportion, then
mismanagement problem, overcrowding of variable factors etc.
9. .Under perfect competition. Each firm sells its product at a given (same) price. So additional
revenue from additional sale is the price.
10. .This help to attain equilibrium in the long run. Excess profit is taken away by the entry of new
firms and excess losses can be removed by exiting from the market.
Section B
Question 2
1. Meaning of price elasticity of demand. Diagram showing a straight line demand curve indicating
perfect elastic, elastic, unitary elastic, inelastic, perfectly inelastic.( Formula for geometric
method= lower segment/upper segment should be mentioned).
2. State the law of DMU. Exceptions are change in taste and preference, if successive units are not
consumed within a given time period, if a commodity is not divisible difficult to determine MU,
Addiction.
3. Consumer’s equilibrium in a single commodity case. Assumptions have to be mentioned.
Equilibrium condition Mu= P. Why MU>P or MU<P is not in equilibrium. This can be explained
with a schedule.
QUESTION 3
1. Meaning. Negatively sloped, convex to the origin, two IC cannot cut each other ( Any 3
properties with simple explanations).
2. Law of supply, ceteris paribus, backward sloping supply curve.
3. Factors are price, prices of inputs, technology, goals of the firm, Government policy, Number of
firms. Each point has to be explained with right reasoning.
Question 4
1. Market price may reach at higher level which affects poorer section of the people. Meaning
of price ceiling. Graph with explanation
2. Draw the diagram (showing demand shifts rightward or leftward) with perfect elastic supply
curve. Equilibrium quantity rises.
3. Ceteris paribus assumption of demand and supply should be mentioned. Meaning of
equilibrium price or market clearing price. Show the diagram where the price is above than
EQB price and below than the EQB price. Market situation (excess supply or excess demand)
should be mentioned. Movement of price. Behavior of buyers and sellers and how
equilibrium is restored.
Question 5
1. Increasing returns to a variable factor (MP>AP). Constant returns to a variable factor MP=AP or
increasing, decreasing, negative returns to a factor. Reasons with simple explanations.
2. When Ac is falling AC>MC, when AC is minimum then AC=MC, when AC is rising MC >AC.
3. Production function means the functional relationship or interdependence between the output
and some other factors of production which are needed to produce that output. Average
production means output per unit. Total product means the total product produced by using
fixed and variable factors of production. Change in total output is called marginal output. draw
the diagram.
Question 6
1. AC curve becomes you shaped because of Law of variable proportions. which means when AP
rises first .it will lead to the reduction of cost(reasons for increasing returns) reaches minimum
then rises( reasons for decreasing returns ). AFC is asymptotic to the origin. TFC is constant at all
levels , so with gradual increase in Q, there will be a continuous fall in AFC and will be much
closer to zero.
2. TR increases when output increases then remains unchanged and then it falls. When demand is
inelastic because at higher prices demand is inelastic. Draw the curve.
3. 3. Define OC. Explain any two applications. Making production functions, Making consumption
decisions, Making production decisions.
Question 7
1. Under monopolistic competition they sell products which are substitutes but belongs to same
class.(toilet soaps) this is to make products unique. Price discrimination means they sell
homogenous product to different people at different prices (monopoly).
2. Each firm produces homogenous products. Perfect knowledge about the market. Each firm faces
a perfectly elastic demand curve i.e., it can sell more at given price.
3. Conditions for profit maximization- break -even point –shut down point, diagram with
explanations.
Question 8
1. Perfect competitive market (AR is perfectly elastic) Monopolistic (slightly flatter down sloping
curve) monopoly (steep downward sloping curve) Oligopoly (indeterminate in the case of non
collusive). Explain with respective to market power. Monopolistic is slightly flatter because of
the presence of substitutes. Oligopoly we cannot determine the demand curve because its
highly responsive to the reaction of other firms.
2. It is a necessary condition but not sufficient because at the profit maximizing level MC should be
rising.
3. Conditions, diagram. SAC should be marked.
Question 9
1. Number of buyers and sellers, nature of demand curve, nature of profits, nature of products.
2. Meaning. At shut down point firm incur losses whereas at breakeven point no loss no profit. Can
show even with diagram.
3. Monopolistic, monopoly and collusive Oligopoly (Two is fine).Explain in terms of market power
.homogenous products, differentiated products (monopolistic). No knowledge about the
market, no substitutes (monopoly).