CS Foundation Economics & Statistics Paper - 2 Part - A Solution December - 2011 Questions 1.

(a) State with reasons in brief, whether the following statements are true or false :(i) Price elasticity of demand of a commodity is affected by the number of its substitutes. Answer : The statement is true. Price elasticity of demand is the measure of degree of responsiveness. If the commodity has a number of substitutes, then it will be having a greater price elasticity & vice-versa. Commodities having a close substitutes tends to have an elastic demand. Thus it is correct that price elasticity of demand of a commodity is affected by the number of its substitutes. (ii) The law of variable proportions is a long-term phenomenon. Answer : False : The law of variable proportion is a short term phenomenon. It determines the behaviour of a production when an organisation has some fixed factors & some variable factors. Fixed factors occurs in short run only. Thus the law of variable proportion is a short term phenomenon. (iii) Price discrimination is possible in monopoly only. Correct : Please refer to 2000 - Dec [3] (a) under the head Descriptive Questions of Chapter -4 (iv) Primary sector in India no longer provides employment & majority of the work force. Incorrect Primary sector in India still provides employment to majority of the work force. Primary sector is a major source of livelihood for majority population in India. Large population of labour force is still absorbed in agriculture & other primary activities. (v) Monetary policy is formulated and implemented by Government of India. Incorrect : Monetary policy is not formulated and implemented by Government of India. It is formulated and implemented by Reserve Bank of India.

Question 1. (b) Write the most appropriate answer from the given options in respect of the following :(i) Which of the following is not one of the basic micro economics questions :(a) What to produce. (b) For whom to produce. (c) How to make use of labour or machinery. (d) How to maximise social welfare. Answer : (d) How to maximise social welfare. (ii) Utility means :(a) Power to satisfy a want. (b) Quality of a service. (c) Willingness of a person purchase. (d) Desire to have a good. Answer : (a) Power to satisfy a want. (iii) In which market an individual firm cannot influence price :(a) Perfect competition. (b) Monopoly. (c) Monopolistic competition. (d) Oligopoly. Answer : (a) Perfect competition. (iv) The biggest source of domestic savings in India has been :(a) Household savings. (b) Public sector savings. (c) Government revenue surpluses. (d) Corporate savings. Answer : (a) Household savings (v) Fiscal policy is connected with :(a) Issue of currency. (b) Exports and imports. (c) Public revenue and expenditure. (d) All of the above. Answer : (c) Public revenue and expenditure. (vi) Bank rate means :(a) Interest rate payable by RBI on deposits of commercial banks. (b) Interest rate charged by banks on loans and advances. (c) Interest rate payable on bonds. (d) The rate at which RBI discounts the bills of exchange. Answer : (d) The rate at which RBI discounts the bills of exchange. (vii) If marginal utility derived from the consumption of a commodity by the consumers

is Zero, the total utility will be :(a) Minimum (b) Maximum (c) Zero (d) None of the above. Answer : (b) maximum (viii) Which one of the following cost curves always slopes downwards :(a) Total fixed cost curve (b) Short-run average cost curve (c) Average variable cost curve (d) Average fixed cost curve Answer : (d) Average fixed cost curve (ix) Which theory is generally studied in micro economics :(a) Price theory (b) Income theory (c) Employment theory (d) None of the above Answer : (a) Price theory (x) The head quarters of World Trade Organisation (W TO) is located at :(a) New York (b) Doha (c) New Delhi (d) Geneva Answer : (d) Geneva Question 2. (a) Distinguish between any three of the following :(i) Change in supply and Change in quantity supplied with the help of diagrams (S). Answer : Please refer Question No. 10(i) of Topic not yet asked but equally important for examination of chapter - 2 on pg no________. (ii) Internal economies, and External Economies of scale Answer : Please refer to 2008 - Dec [4] (ii) of chapter - 3 production costs and Revenue Analysis. (iii) Balance of trade and Balance of Payment Answer : Please refer to Questions No. 10 of Distinguish Between under the head Topic not yet asked but equally important for examination of chapter - 6 Select Areas of Indian Economy on pg no. __________. Question 2. (b) Rewrite the following sentences after filling in the blank spaces with appropriate word (s) / figure (s) Answer : 2. (b)

(i) Physical (ii) Business (iii) Capitalist economy (iv) Enough/huge (v) 200 (vi) Reserve Bank/Central Bank RBI Question 3. (i) Economics is not an exact science. Comment. Answer : Please refer to 1999 - June [1] {C} (b) under the head Descriptive Questions of Chapter - 2. (ii) Rapid industrialisation is necessary for fast economic development. Comment. Answer : Rapid industrialisation is necessary for fast economic development. Rapid industrialisation leads to increase in GDP at a faster rate. Productivity of labour is much higher in industry than agriculture. Developed economies depends on industry then agriculture. Therefore it is correct that rapid industrialisation is necessary for fast economic development. (iii) Urbanisation is a resource costly phenomenon for an economy like ours. Comment. Answer : Urbanisation is a resource costly phenomenon for an economy like ours. With the increasing urbanisation, there is a need of urbon transport, additional roads, lightening drinking water, disposal of sewage & industrial wastage etc. Urbanisation is required for the development of a country like India. C Urbanisation required additional consumption of productive resources. Thus the above statement is correct. (iv) What is World Trade Organisation . (WTO) ? Discuss its objectives. Answer : Please refer to 2009 - June [4] (iv) under the head Descriptive Questions of Chapter - 8 Question 4. Attempt any three of the following : (i) Examine the factors which influence the quality of the labour force. Answer : There are various factors which affects the quality of the labour force. Quality of labour basically defends on labour productivity which itself is influenced by various physical and psychological factors. Psychological factors which affects labour productivity and in term quality of work includes work culture, working condition, work schedule etc. Physical factors which affects labour productivity includes division of labour, specialisation etc. Question 2. Explain the basic concepts of costs which a firm considers in short run.

Answer : Short run is a functional concept and represent that time internal over which the firm is not able to alter its input. The firm considers the following concepts of cost in decision making : 1. Average fixed cost : It is arrived by dividing total fixed cost by quantity. It declines with increase in the level of output. 2. Average Variable cost : It is arrived by dividing total variable cost by quantity. AVC = 3. Average Cost : It is arrived by dividing total cost with total quantity. Average Cost =
4.

Marginal Cost : Marginal cost is addition to total cost on account of increase in the production of an additional unit.

Fig 1 : Concept of total cost of a firm TVC = Total Variable Cost TFC = Total Fixed Cost TC = Total Cost.

Fig 2 : Concepts of Average and Marginal Cost of a firm MC = Marginal Cost ATC = Average Total Cost AVC = Average Variable Cost AFC = Average Fixed Cost Question 4. (iii) Explain the different components of money supply in India. Answer : The different components of money supply in India are as follows : 1. Currency with the public : The currency with the public is the total currency issued by RBI and circulated in the economy less amount hold by RBI itself, the Government of India and the Banks. The currency in India are issued by two authorities. Government of India issues all coins and printed notes not exceeding the denomination of one rupee. Reserve Bank of India issues all currency notes with denomination exceeding one rupee. 2. Other deposits with Reserve bank of India (O.D) : During the course of its activities, Reserve Bank of India generate some deposits which can be encashed by the depositors at their discretion. These other deposits are also taken into consideration in measure of money supply. 3. Demand Deposit & Time Deposits : Demand deposit & Time deposits are an important source means of payment available to the public. Demand deposits can be encashed at the discretion of the deposit holders. Time deposits withdrawls includes various conditions to be satisfied. 4. Deposits with post office : Post office accepts various kinds of deposits. All these form the part of money supply in India. Question 4. (iv) What are the various components of receipts and expenditure that are included in the preparation of budget of Government of India ? Answer : There are various components of receipts and expenditure that are included in the preparation of budget of Government of India. They are as follows: Receipts : Receipts can be classified into two parts revenue receipts and capital receipts. Revenue receipts can further be classified into tax revenue receipts & non-tax revenue receipts. Tax revenue receipts includes various kind of tax receipts like corporate tax, income tax, wealth tax, gift tax, custom duty, excise duty etc. Non tax revenue receipts includes, interest, dividends, profit from PSUs and external grants. Capital receipts includes recoveries of loan, market borrowings, external assistance, disinvestment of PSU. shares, receipts in provident funds and small savings. Expenditure : Expenditure are also classified into revenue expenditure and capital expenditure. The revenue expenditure includes expenses which do not create any

assets, cover normal activities of departments, service subsides interest, staff pensions, bonus, D.A, repayment of interest, etc. Capital expenditure helps to create an assets and are long term in nature. CS Foundation Paper - 2B Part - B Question 5. (a) (i) True Statistics deals with the aggregate of facts. A single fact is meaningless as no comparison is possible through a single fact. Thus the statement that a single fact, even though numerically expressed can not be called statistics. (ii) False : It is not safe to take the published statistics at their face value. While using published statistics users should ensure its reliability, adequacy, meaning & Limitations. Published data are collected for different purpose & by different agencies. (iii) Correct The above statement is true. Median of given observations depends upon the position & not on the magnitude of items. thus, median is a positional average. (iv) False The above statement is not correct. A relative measure of dispersion is used to compare dispersions of two or more distributions. (v) False The above statement is not correct. Accurate / perfect precision is not the objective of forecasting. Forecasting brings a range of possibilities. Forecasting provides future data but not with perfect precision. Question 5. (b) (i) Horace Secrist Y (c) (ii) All of the above Y (d) (iii) Accuracy is very low Y (c) (iv) Harmonic mean Y (d) (v) Lorenz Curve Y (d) (vi) Both (a) and (b) Y (c)

(vii) Either (a) or (b) or (c) Y (d) (viii) All of the above Y (d) (ix) After classification Y (b) (x) All of the above Y (d) Question 6. Distinguish between any three of the following : (i) Continuous Variable and Discrete Variable. Answer : Please refer to 2005 - June [6] (a) (i) under the head Distinguish between of Chapter - 2 (ii) Exclusive series & Inclusive series. Answer : Please refer to 2005 - June [6] (a) (ii) under the head Distinguish between of Chapter - 2 (iii) Frequency polygon & Frequency curve. Answer : Frequency Polygon : C It may be constructed with or without histogram. C It is made by joining the midpoints of the upper widths of adjacent rectangles of the histogram. C It is drawn with straight lines. Frequency Curve : C It is drawn with freehand curve. C To draw the frequency curve the verticals of a frequency polygon are joined by a smooth freehand curve. (iv) Coefficient of variation and Variance. Answer : Coefficient of Variation : C It is calculated by dividing the absolute measure of dispersion by a measure of central tendency. C It is a relative measure of dispersion. Variance : C It is an absolute measure of dispersion. Question 6. (b) Fill in the Blanks :(i) Classification (ii) Respondent (iii) Equal (iv) Correlation (v) Secondary Data (vi) Area diagram Question 7. (i) Briefly explain the various stages of statistical enquiry. Answer : Please refer to 1999 - Dec [6] (a) (ii) under the head Descriptive Questions of Chapter - 1 Descriptive statistics.

Differentiate between Census investigation and Sample Investigation. State the conditions in which census investigation is suitable. Answer : Please refer to 2004 - June [5] {C} (iii) under the head Distinguish between of Chapter - 2 Collection & Presentation of Statistical data. (iii) Define average what are the characteristics of a good average ? Answer : Please refer to 2006 - June [5] {C} (a) (ii) of Short notes of Chapter - 3 Measures of Control Tendency. (iv) In the above case, their are unequal class intervals. Therefore it requires adjustment of frequencies. Adjustment of frequencies :Wages Workers (F) Adjusted Factor (AF) Adjusted Frequencies 10 - 15 7 5/5 = 1 7/1 = 7 15 - 20 10 5/5 = 1 10/1 = 10 20 - 25 27 5/5 = 1 27/1 = 27 25 - 30 15 5/5 = 1 15/1 = 15 30 - 40 12 10/5 = 2 12/2 = 6 40 - 60 12 20/5 = 4 12/4 = 3 60 - 80 8 20/5 = 4 8/4 = 2 Histogram

(ii)

Questions 8. (a) Class 80 - 90 90 - 100 100 - 110 110 - 120 120 - 130 130 - 140 140 - 150 Mode = l1 + Frequency 9 17 30 44 31 19 10 h

Where l1 = Lower limit of modal class 1 = Difference of frequencies of modal class & Preceding class. 2 = Difference of frequencies of modal class & the following class h = Width of the modal class Mode lies in 110 - 120 Mode = 110 + = 110 + = 110 + 10 10 10

= 110 + 5.18 = 115.18 Questions 8. (b) Class Mid value No of students d = x - 24.5 (x) (f) 10 0-9 4.5 12 -2 10 - 19 14.5 15 -1 20 - 29 24.5 40 0 30 - 39 34.5 22 1 40 - 49 44.5 11 2 N = 100 0 Calculation of Mean :Mean = A + d

fd - 24 - 15 0 22 22 5

fd 2 48 15 0 22 44 129

10

= 24.5 +

10

= 25 Calculation of Standard Deviation :-

F= F= F = 1.134 10 F = 11.34

10

Coefficient of standard deviation = = = 0.45

Questions 8. (c) Here, N = 10 3dx = - 170 3dy = - 20 3dx dy = 3,044 3dx2 = 8,288 3 dy2 = 2,264 Calculation of coefficient of correlation: ry= = = = 0.78

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