NEB Class 12 · Past paper
The complete NEB Class 12 2073 exam paper for Economics, all 25 questions with solved model answers.
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What is price elasticity of demand? Explain its types. [2+8]
Price elasticity of demand measures the degree of responsiveness of the quantity demanded of a commodity to a change in its own price. It is measured as the ratio of the percentage change in quantity demanded to the percentage change in ...
Explain the Malthusian theory of population with criticism. [10]
The Malthusian theory of population was put forward by Thomas Robert Malthus in his Essay on the Principle of Population (1798).
Its main propositions are:
Criticism: the theory ignored the great advances in agricultural technology and productivity; it ignored improvements in transport that move food from surplus to deficit areas; the arithmetic and geometric ratios were only assumptions not borne out by facts; and it overlooked that a rising standard of living and family planning tend to reduce the birth rate.
Explain the law of variable proportion. [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 Ricardian theory of rent with criticism. [10]
Rent is the reward paid for the use of land. According to David Ricardo, rent is the payment made for the use of the original and indestructible powers of the soil.
Ricardo explained rent as arising from differences in the fertility and situation of land. As population grows, the most fertile land (grade A) is cultivated first; when its produce is not enough, less fertile land (grades B, C) is brought under cultivation. The surplus that superior land yields over the least fertile or marginal land determines rent.
| Grade of land | Produce (quintals) | Rent (over marginal land) |
|---|---|---|
| A (best) | 30 | 20 |
| B | 20 | 10 |
| C (marginal) | 10 | 0 |
The marginal land (grade C) just covers its cost and pays no rent (it is no-rent land), while superior lands earn rent equal to their surplus over the marginal land. Rent thus arises because of the scarcity and differential fertility of land, and it is price-determined, not price-determining.
Criticism: land has no special powers that are original and indestructible, since fertility can be created and destroyed; rent is not peculiar to land but is earned by every factor in short supply (modern economic rent); and no-rent land is difficult to find in practice.
What is monopoly? How is price and output determined under it? [2+8] (Or of Q4)
Monopoly is a market situation in which there is a single seller of a commodity that has no close substitutes, entry of new firms is blocked, and the firm is itself the industry, so it is a price maker.
Because the monopolist faces the downward sloping market demand (AR) curve, it can sell more only by lowering the price, and its marginal revenue (MR) lies below AR. Like every firm, it maximises profit where marginal cost equals marginal revenue.
$$MC = MR$$
The monopolist selects the output $OQ$ at which MC equals MR, and then charges the price $OP$ read off the demand (AR) curve for that output. Since AR is greater than MR at that output, the price is greater than marginal cost, and the monopolist can earn supernormal profit when price (AR) exceeds average cost. Because entry is barred, this supernormal profit is not competed away even in the long run. Thus under monopoly output is smaller and price higher than under perfect competition.
Explain shift in demand curve with diagram.
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...
Explain the advantages of joint stock company.
The main advantages of a joint stock company are: - Large capital: by issuing shares and debentures to the public it can raise very large amounts of capital needed for big enterprises. - Limited liability: the liability of shareholders i...
Explain the concept of 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 ...
Explain the short-run total cost curves.
In the short run the total cost of a firm is made up of total fixed cost and total variable cost. $$TC = TFC + TVC$$ Total fixed cost (TFC) does not change with output (rent, interest, salaries of permanent staff); it remains constant ev...
Explain the wage fund theory of wage.
The wage fund theory of wages, associated with J.S. Mill, holds that wages are paid out of a fixed fund of capital (the wage fund) set aside by employers for the payment of labour. The wage rate is determined by dividing this fund by the number of workers seeking employment.
$$\text{Wage rate} = \frac{\text{Wage fund}}{\text{Number of workers}}$$
Wages can rise only if the wage fund increases or the number of workers falls. Criticism: the wage fund is not a fixed, pre-determined amount; wages are actually paid out of current production, not a rigid fund; and the theory is used wrongly to oppose trade unions.
What is law of supply?
The law of supply states that, other things remaining the same, the quantity supplied of a commodity varies directly with its price; when price rises supply rises, and when price falls supply falls. Hence the supply curve slopes upward f...
Mention four characteristics of market economy.
Four characteristics of a market (capitalist) economy are: private ownership of the means of production; freedom of enterprise and choice for producers and consumers; the profit motive as the driving force; and the solving of the central...
Write any four features of land.
Land in economics means all the free gifts of nature such as soil, water, minerals, forests and climate. Its main characteristics (features) are that it is a free gift of nature, its supply is fixed and cannot be increased or decreased b...
What is marginal revenue?
Marginal revenue is the addition made to total revenue by selling one more unit of output. It is the change in total revenue divided by the change in quantity sold. $MR = \dfrac{\Delta TR}{\Delta Q}$.
Define marginal utility.
Marginal utility is the additional utility (satisfaction) derived from the consumption of one more unit of a commodity. It is the change in total utility resulting from a one-unit change in consumption. $MU = \dfrac{\Delta TU}{\Delta Q}$.
What is commercial bank? Explain its functions. [2+8]
A commercial bank is a bank that accepts deposits from the public and lends to trade, industry and commerce with the object of earning profit. Its functions are grouped into primary and secondary functions. Primary functions: - Accepting...
Explain the comparative cost theory of international trade with criticism. [6+4] (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 i...
Explain the 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...
Explain the merits of direct tax.
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 sources of public 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 deflation?
Deflation is a sustained fall in the general price level of goods and services in an economy over a period of time, accompanied by a rise in the value (purchasing power) of money. It usually occurs when the supply of money and credit fal...
Define 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.
What is progressive tax?
A progressive tax is a tax in which the rate of tax increases as the income (or the base) of the taxpayer increases, so that higher incomes pay not only a larger amount but also a larger proportion of their income in tax. It is based on the ability-to-pay principle, helps to reduce inequality of income, and income tax with rising slab rates is a common example.
Define index number.
An index number is a statistical measure that shows the relative change in a variable or a group of variables over time, place or some other characteristic, expressed as a percentage of a base period whose value is taken as 100. Price in...
What are the objectives of WTO?
The main objectives of the World Trade Organisation (WTO) are: to liberalise international trade by reducing tariffs and other trade barriers; to ensure non-discrimination among trading partners through the most-favoured-nation and natio...
Monopoly is a market situation in which there is a single seller of a commodity that has no close substitutes, entry of new firms is blocked, and the firm is itself the industry, so it is a price maker.
Because the monopolist faces the downward sloping market demand (AR) curve, it can sell more only by lowering the price, and its marginal revenue (MR) lies below AR. Like every firm, it maximises profit where marginal cost equals marginal revenue.
The monopolist selects the output at which MC equals MR, and then charges the price read off the demand (AR) curve for that output. Since AR is greater than MR at that output, the price is greater than marginal cost, and the monopolist can earn supernormal profit when price (AR) exceeds average cost. Because entry is barred, this supernormal profit is not competed away even in the long run. Thus under monopoly output is smaller and price higher than under perfect competition.
In the short run the total cost of a firm is made up of total fixed cost and total variable cost. Total fixed cost (TFC) does not change with output (rent, interest, salaries of permanent staff); it remains constant ev...
The wage fund theory of wages, associated with J.S. Mill, holds that wages are paid out of a fixed fund of capital (the wage fund) set aside by employers for the payment of labour. The wage rate is determined by dividing this fund by the number of workers seeking employment.
Wages can rise only if the wage fund increases or the number of workers falls. Criticism: the wage fund is not a fixed, pre-determined amount; wages are actually paid out of current production, not a rigid fund; and the theory is used wrongly to oppose trade unions.
Marginal revenue is the addition made to total revenue by selling one more unit of output. It is the change in total revenue divided by the change in quantity sold. .
Marginal utility is the additional utility (satisfaction) derived from the consumption of one more unit of a commodity. It is the change in total utility resulting from a one-unit change in consumption. .