NEB Class 12 · Past paper
The complete NEB Class 12 2071 exam paper for Economics, all 25 questions with solved model answers.
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What is shift in demand curve? What are its cause of rightward shift in demand curve? [5 + 5]
A shift in the demand curve occurs when the whole demand curve moves to a new position because of a change in factors other than the price of the commodity itself, such as income, tastes, the prices of related goods, population and expec...
What is efficiency of labour? What are its determinants? [3 + 7]
Efficiency of labour means the productive capacity of a worker, that is, the quantity and quality of work a worker can perform in a given time. A worker is more efficient when he produces more and better output in the same time and at th...
Explain with diagrams, the three stages of law of variable proportions. [10]
The law of variable proportions, also called the law of returns to a variable factor, states that as more and more units of a variable factor are combined with a fixed factor, the total product first increases at an increasing rate, then...
Explain the nature and relationship of Average Variable Cost (AVC), Average Cost (AC) and Marginal Cost (MC) in the short-run. [10]
Average variable cost (AVC) is variable cost per unit ($AVC = TVC/Q$), average cost (AC) is total cost per unit ($AC = TC/Q = AFC + AVC$), and marginal cost (MC) is the addition to total cost from producing one more unit (
What is interest? Critically explain the classical theory of interest. [2 + 8] (Or of Q4)
Interest is the reward paid for the use of capital, or the price paid for the use of borrowed money, usually expressed as a percentage per annum. The classical theory of interest, associated with economists such as Marshall and Pigou, ho...
What are the determinants of elasticity of demand?
The main determinants of the price elasticity of demand are: - Nature of the commodity: demand for necessities is inelastic, while demand for luxuries and comforts is elastic. - Availability of substitutes: goods with many close substitu...
Discuss the limitations of law of diminishing marginal utility.
The law of diminishing marginal utility is subject to the following limitations (exceptions):
What are the characteristics of capital?
Capital is that part of wealth which is used to produce further wealth, that is, the man-made means of production such as machines, tools and buildings. Its main characteristics are that it is a man-made (produced) factor of production, ...
Explain the nature of Average Revenue (AR) curve and Marginal Revenue (MR) curve under monopoly.
Under monopoly (and other imperfect markets) the firm faces a downward sloping demand curve, so it can sell more only by lowering the price. As a result the average revenue (AR) curve slopes downward from left to right, and the marginal ...
How is price determined under perfect competition?
Under perfect competition there are a very large number of buyers and sellers dealing in a homogeneous product, with free entry and exit and perfect knowledge, so no single firm can influence the price. Each firm is a price taker. The pr...
What is market economy?
A market economy (capitalist economy) is an economic system in which the central problems of what, how and for whom to produce are solved by the free play of the market forces of demand and supply through the price mechanism, with private ownership of the means of production and freedom of enterprise, and the government playing only a limited role.
Define cross elasticity of demand.
Cross elasticity of demand measures the responsiveness of the quantity demanded of one commodity to a change in the price of a related commodity, and is measured as the percentage change in the quantity demanded of good X divided by the ...
What is constant return to scales?
Constant returns to scale is a situation in the long run in which an increase in all the factors of production in a given proportion leads to an increase in output in exactly the same proportion. For example, if all inputs are doubled an...
Mention two conditions for the equilibrium of a firm.
A firm is in equilibrium when it produces the level of output that gives it maximum profit and has no tendency to change its output. Two conditions must be satisfied: marginal cost must equal marginal revenue ($MC = MR$), and the MC curv...
What is consumer's surplus?
Consumer's surplus is the difference between the maximum price a consumer is willing to pay for a commodity and the price he actually pays. It measures the extra satisfaction a consumer enjoys because the market price is lower than what he was prepared to pay.
$$\text{Consumer's surplus} = \text{Total utility (what a buyer is willing to pay)} - \text{Total amount actually paid}$$
For example, if a person is willing to pay Rs 50 for a book but buys it for Rs 30, the consumer's surplus is Rs 20.
What is direct tax? Explain its merits and demerits. [2 + 8 = 10]
A direct tax is a tax whose money burden and real burden fall on the same person, so it cannot be shifted to another; examples are income tax, property tax and interest tax. Merits (features/advantages): - Equity: direct taxes are usuall...
Explain the comparative cost theory of international trade. [10] (Or of Q7)
The theory of comparative cost (comparative advantage) was given by David Ricardo. It states that a country should specialise in producing and exporting those goods in which it has a comparative advantage (a lower opportunity cost) and import goods in which it has a comparative disadvantage. Trade is beneficial even when one country is more efficient in producing all goods, so long as the degree of superiority differs between goods.
| Country | Cloth (labour units) | Wine (labour units) |
|---|---|---|
| Country A | 10 | 12 |
| Country B | 20 | 15 |
Country A is more efficient in both goods, but its advantage is comparatively greater in cloth, while Country B's disadvantage is comparatively smaller in wine. Therefore Country A specialises in cloth and Country B in wine, and both gain from trade because world output rises and each obtains the other good at a lower real cost than producing it at home.
Assumptions: two countries, two goods, labour is the only factor, labour is homogeneous, constant returns, no transport cost, and free trade.
Criticism: the labour theory of value is unrealistic, factors are not perfectly mobile within a country, transport costs are ignored, and the assumption of full employment does not always hold.
Discuss the primary and secondary functions of money.
Money is anything that is generally accepted as a medium of exchange and a measure of value. Its functions are classified as primary, secondary and contingent. Primary functions: - Medium of exchange: money is accepted in exchange for go...
How does banking system help in economic development?
The banking system contributes to economic development in the following ways: - Mobilisation of savings: banks collect scattered small savings of the people through deposits and make them available for investment. - Capital formation: by...
What is the importance of government expenditure?
The importance of government (public) expenditure lies in the many functions it performs in a modern and developing economy: - Provision of public goods and services such as defence, administration, law and order, roads, education and he...
What are the steps in index number construction?
The construction of an index number involves the following steps: - Purpose and scope: clearly define the object of the index and the group of items it will cover. - Selection of the base year: choose a normal year (free from abnormal ev...
What is capital market?
The capital market is the market for long-term funds, where funds are borrowed and lent for periods of more than one year. Long-term instruments such as shares, debentures and government bonds are traded in it, and its institutions include the stock exchange (in Nepal, NEPSE), development banks and specialised finance companies. It provides long-term finance for investment and industrialisation.
List the sources of government borrowing.
The main sources of government borrowing (public debt) are: - Internal sources: loans raised within the country from the public, commercial banks, the central bank and financial institutions through treasury bills and development bonds. ...
What is balance of trade?
The balance of trade is the difference between the money value of a country's visible exports and its visible imports of goods during a year. It records only physical (visible) goods. If the value of exports exceeds imports the balance o...
Why central bank is called the advisor of government?
The central bank is called the adviser to the government because, being the apex monetary authority with expert knowledge of the economy, it advises the government on all important economic and financial matters such as monetary and fisc...
Average variable cost (AVC) is variable cost per unit (), average cost (AC) is total cost per unit (), and marginal cost (MC) is the addition to total cost from producing one more unit (
A firm is in equilibrium when it produces the level of output that gives it maximum profit and has no tendency to change its output. Two conditions must be satisfied: marginal cost must equal marginal revenue (), and the MC curv...
Consumer's surplus is the difference between the maximum price a consumer is willing to pay for a commodity and the price he actually pays. It measures the extra satisfaction a consumer enjoys because the market price is lower than what he was prepared to pay.
For example, if a person is willing to pay Rs 50 for a book but buys it for Rs 30, the consumer's surplus is Rs 20.