CBSE Sample Papers for Class 11 Economics with Solutions 2023-2024

Output (Units)	MC	TVC	AVC
1	24	24	24
2	20	44	22
3	16	60	20
4	12	72	18
5	18	90	18
6	30	120	20

OR

Distinguish between positive economics and normative economics. Give an example of each.

Positive economics and normative economics represent two fundamental approaches within the field of economics, focusing on what is and what ought to be, respectively. Here’s a distinction between them, along with examples for each:

Positive Economics:

• Definition: Positive economics deals with objective analysis and describes economic behavior and phenomena as they actually are. It focuses on facts and cause-and-effect relationships and avoids value judgments. The statements in positive economics can be tested and validated through observation.
• Nature: Empirical and factual.
• Purpose: To establish scientific explanations for economic behavior that can inform predictions about the consequences of economic actions.
• Example: “A rise in consumer taxes will decrease disposable income.” This statement is based on observation and can be tested by analyzing data on taxes and consumer spending.

Normative Economics:

• Definition: Normative economics involves subjective analysis and focuses on what should be. It incorporates value judgments and opinions about what is desirable in the economy, based on personal or societal preferences.
• Nature: Subjective and value-based.
• Purpose: To recommend economic policies and actions based on ethical, moral, or political criteria rather than purely objective analysis.
• Example: “The government should increase taxes on the wealthy to reduce income inequality.” This statement reflects a value judgment about fairness and the role of government in redistributing income.

Key Distinctions:

• Objectivity vs. Subjectivity: Positive economics is objective and seeks to describe how the economy works without making judgments. Normative economics is subjective and focuses on how the economy should work according to specific ideals or goals.
• Testability: Statements in positive economics can be tested and validated through empirical observation, whereas normative economic statements are based on values and cannot be empirically tested in the same way.
• Role in Policy: Positive economics provides the data and analysis necessary to understand economic outcomes, while normative economics guides policy decisions based on societal goals and values.

32. Explain the change that will take place in the market when market price of goods is greater than its equilibrium price. Use diagram. [4]

When the market price of a good is greater than its equilibrium price, it leads to a surplus in the market. This situation is described and analyzed below, along with a diagrammatic representation:

Explanation:

1. Surplus: A surplus occurs when the quantity supplied of a good exceeds the quantity demanded at the current price level. This happens because producers are willing and able to supply more of the good at the higher price than consumers are willing to buy.
2. Price Adjustment: In response to the surplus, producers may start lowering their prices to stimulate demand and reduce their excess inventory. This price reduction continues until the market price reaches the equilibrium level.
3. Restoration of Equilibrium: As the price decreases, the quantity demanded by consumers increases, and the quantity supplied by producers decreases. This adjustment process continues until the quantity supplied equals the quantity demanded, restoring the market to its equilibrium condition.
4. Market Forces: The process of adjustment demonstrates the self-correcting nature of markets. The forces of supply and demand automatically adjust the price and quantity to eliminate the surplus and return the market to equilibrium.

Diagrammatic Representation:

The diagram will show a supply curve (S) and a demand curve (D), with the initial market price (P1) set above the equilibrium price (Pe). This creates a surplus represented by the distance between the quantity supplied (Qs) and the quantity demanded (Qd) at P1. The adjustment process will be illustrated by a movement along the supply and demand curves towards the equilibrium price (Pe) and quantity (Qe).

33. (a) Distinguish between a centrally planned economy and a market economy.

Key Distinctions:

• Control and Ownership: The main difference lies in who makes the economic decisions and owns the means of production— the government in a centrally planned economy versus private individuals and businesses in a market economy.
• Price Mechanism: In centrally planned economies, prices are often set by the government, while in market economies, prices emerge from the interaction of supply and demand.
• Economic Efficiency: Market economies tend to be more efficient in allocating resources and responding to consumer demands, thanks to the price mechanism and competition. Centrally planned economies, due to the lack of these mechanisms, often struggle with inefficiencies and misallocations of resources.

Each system has its advantages and disadvantages, and in practice, many economies exhibit characteristics of both systems to varying degrees, known as mixed economies.

(b) What do you understand by positive economic analysis?

Positive economic analysis refers to the branch of economics that deals with the objective description and explanation of economic phenomena. It focuses on factual statements about the world that can be tested against real data, thus aiming to establish cause-and-effect relationships without resorting to value judgments about what ought to be. Positive economics strives to understand how the economy works by analyzing data, using models, and applying statistical tests to infer patterns, trends, and causal links.

Key Features of Positive Economic Analysis:

1. Empirical and Testable: Positive economic statements are based on empirical evidence that can be observed and measured. These statements can be tested for validity by comparing them against real-world data.
2. Objective: Positive economics seeks to remain neutral and objective, avoiding any bias or subjective opinions. It deals with “what is” rather than “what should be.”
3. Descriptive and Explanatory: It involves describing economic realities and explaining how different aspects of the economy function. For example, it might analyze the impact of interest rate changes on consumer spending or the relationship between inflation and unemployment.
4. Predictive: Although primarily descriptive, positive economic analysis often aims to predict future economic outcomes based on current trends and historical data.
5. Policy Evaluation: While it does not prescribe policies, positive economic analysis is crucial for evaluating the potential and actual impacts of economic policies and interventions, based on objective criteria.

(a) What do you mean by the production possibilities of an economy?

The production possibilities of an economy refer to the different combinations of goods and services that can be produced in a given time period, given the available resources and technology. This concept is often illustrated through a production possibilities frontier (PPF) or curve, which shows the maximum potential output combinations of two goods or services that an economy can achieve when all resources are fully and efficiently utilized.

Key Aspects of Production Possibilities:

1. Resource Utilization: It assumes that the economy’s resources (land, labor, capital, and entrepreneurship) are used efficiently. Any point on the PPF represents full employment and efficient allocation of resources.
2. Trade-offs: The concept highlights the trade-offs in production. Producing more of one good requires producing less of another because resources are limited. This is represented by the negative slope of the PPF.
3. Opportunity Cost: Moving along the PPF illustrates the concept of opportunity cost, which is the cost of foregone alternatives. When an economy decides to increase production of one good, the opportunity cost is the amount of the other good that must be given up.
4. Economic Growth: Shifts in the PPF represent changes in an economy’s ability to produce goods and services. Outward shifts of the PPF indicate economic growth, which can occur due to increases in resource quantity or quality, or improvements in technology.
5. Efficiency and Feasibility: Points on the PPF are efficient and feasible given the current resources and technology. Points inside the PPF are feasible but inefficient (not all resources are being used), while points outside the PPF are not feasible with the current resources and technology.

(b) Differentiate between Cardinal Utility and Ordinal Utility.

Key Differences:

• Measurement: Cardinal utility measures utility in numerical terms, whereas ordinal utility involves ranking preferences without assigning specific numbers.
• Comparison of Utility: Cardinal utility allows for exact comparisons of utility amounts, while ordinal utility only allows for ranking preferences without quantifying the differences in satisfaction.
• Economic Theories: Cardinal utility is foundational to classical utility theory, whereas ordinal utility underpins modern consumer theory, particularly through the use of indifference curves.

In summary, while cardinal utility provides a more precise but less realistic approach to measuring consumer satisfaction, ordinal utility offers a more realistic but less precise approach that focuses on the ranking of consumer preferences.

34. Read the passage given below and answer the questions that are followed: [6]

A price floor is the lowest legal price that can be paid in a market for goods and services, labour, or financial capital. Perhaps the best-known example of a price floor is the minimum wage, which is based on the normative view that
someone working full time ought to be able to afford a basic standard of living.

(a) Define Price Floor. What is the common purpose of fixation of floor price by the government? Explain any one likely consequence of this nature of intervention by the government. [3]

(b) Discuss “surplus amount of production as a direct consequence of price flooring”.

A price floor is a government-imposed minimum price that can be charged for a good or service in the market. This regulatory intervention sets a limit below which the price of a good cannot legally fall. The most common examples of price floors include minimum wages (the minimum price for labor) and agricultural price supports.

Common Purpose of Fixation of Floor Price by the Government:

The primary purpose of establishing a price floor is to ensure that producers receive a minimum price that covers their costs and sustains their livelihood. This is particularly important in markets where there is a concern that market forces alone would drive prices too low for producers to maintain viable operations. In the case of agriculture, price floors aim to stabilize farmers’ incomes, which can be highly volatile due to factors like weather conditions and changes in global supply and demand. For labor markets, the minimum wage aims to ensure workers earn a living wage.

Likely Consequence of Price Floor Intervention:

One likely consequence of implementing a price floor is the creation of a surplus. When the government sets the price floor above the equilibrium price (the price at which the quantity supplied equals the quantity demanded), it leads to excess supply. Producers are willing and able to supply more of the good at the higher price, but consumers are not willing to buy as much at this price, resulting in unsold goods.

Surplus Example:

In the case of agricultural products, a price floor set above the market equilibrium can lead to overproduction of crops such as wheat or corn. Farmers increase production to take advantage of the higher guaranteed prices, but consumption does not increase correspondingly because the price is too high for consumers. The government may then have to purchase the surplus production to maintain the price floor, leading to inefficiencies and potentially significant costs to taxpayers. Additionally, the surplus goods may be stored or destroyed, or sold at lower prices on the international market, which can disrupt global trade patterns.

This type of intervention can protect producers’ incomes but also leads to inefficiencies in the market, misallocation of resources, and additional costs for governments and, ultimately, taxpayers.

(b) Discuss “surplus amount of production as a direct consequence of price flooring”.

The implementation of a price floor, when set above the market equilibrium price, can lead to a surplus amount of production. This surplus occurs because the minimum price established by the government encourages producers to increase their output, anticipating higher returns, while simultaneously, the higher price decreases the quantity of the good that consumers are willing to buy. This discrepancy between the quantity supplied and the quantity demanded at the price floor results in an excess supply, or surplus, of the product.

Mechanics of Surplus Due to Price Flooring:

1. Increased Production: Producers are incentivized by the higher price to produce more of the good. This is because the price floor ensures that they will receive a minimum price for their product that is likely above what the market would otherwise offer, covering their costs and potentially offering higher profits.
2. Reduced Consumption: At the same time, the higher price makes the good less attractive to consumers, leading to a decrease in the quantity demanded. Consumers may substitute the more expensive good with cheaper alternatives or simply reduce consumption.
3. Accumulation of Surplus: The natural outcome of increased production and reduced consumption is an accumulation of surplus goods. This surplus represents the difference between the quantity of the good that producers are willing and able to sell at the price floor and the quantity that consumers are willing to buy.

Consequences of Surplus Production:

1. Government Intervention: Often, the government must intervene to purchase the surplus in order to maintain the price floor, leading to significant costs for the government and, ultimately, taxpayers.
2. Storage Costs and Waste: The surplus goods need to be stored, which incurs costs. In the case of perishable goods, such as agricultural products, there might also be significant waste, as not all surplus can be consumed or sold before it spoils.
3. Market Distortions: Price floors can distort market signals that would normally inform producers about consumer preferences and efficient allocation of resources. This can lead to sustained overproduction of certain goods, misallocation of resources, and reduced economic welfare.
4. Impacts on Global Trade: Surpluses generated by price floors in one country can affect global markets if the surplus is exported. This can lead to lower global prices, harming producers in countries without such price supports.
5. Barriers to Market Entry: High price floors can act as a barrier to market entry for new producers who might find the cost of production too high compared to the artificially inflated price. This can reduce competition in the market over time.