CUET UG Economics · Paper 1

Correct option D·some resources are unemployed or used inefficiently

Points on the PPC show the maximum output possible when resources are fully and efficiently employed.

A point outside the PPC cannot be reached with the present resources and technology.

A point inside the PPC means more of both goods could be produced, so some resources are idle (unemployed) or wasted.

An increase in resources shifts the whole PPC outward; it is not shown by a point inside it.

So a point inside the PPC shows unemployment or inefficient use of resources.

Correct option A·1.25

Percentage change in quantity demanded $= \frac{50 - 40}{40} \times 100 = 25\%$.

Percentage change in price $= \frac{8 - 10}{10} \times 100 = -20\%$.

$E_d = \frac{25\%}{-20\%} = -1.25$, so its magnitude is 1.25.

As 1.25 > 1, demand is elastic.

Trap: taking the new values (50 units and ₹8) as the base gives 0.8, which is wrong.

Correct option B·4 units

In the one-commodity case, the consumer is in equilibrium when $\frac{MU_x}{MU_m} = P_x$, that is, when the MU of the last unit, in rupees, equals its price.

MU in rupees $= \frac{MU}{4}$: 9, 7.5, 6, 5 and 3 for units 1 to 5.

Units 1 to 3 are worth more than ₹5 each, so she buys them; the 4th unit is worth exactly ₹5.

The 5th unit is worth only ₹3, less than its price, so she stops at 4.

So she buys 4 units.

Correct option A·₹24 and ₹20

Total fixed cost is the cost at zero output: TFC = ₹30.

MC of the 3rd unit $= TC_3 - TC_2 = 90 - 66 = 24$, that is ₹24.

TVC at 3 units $= TC_3 - TFC = 90 - 30 = 60$, so $AVC = \frac{60}{3} = 20$, that is ₹20.

Trap: $\frac{90}{3} = 30$ is average cost, not average variable cost; ₹60 is TVC, not MC.

So the answer is ₹24 and ₹20.

Correct option C·5 units

With a fixed price, MR = price = ₹10 for every unit.

The producer is in equilibrium where MR = MC and MC is rising, so that MC exceeds MR beyond that output.

MC = ₹10 at 1 unit and at 5 units.

At 1 unit MC is falling: units 2 to 4 cost less than ₹10 each, so producing them adds to profit. This is not equilibrium.

At 5 units MC = MR and MC is rising; the 6th unit costs ₹13 > ₹10, so producing it would cut profit.

So equilibrium output is 5 units.

Correct option D·produce at a loss in the short run, and leave the industry in the long run

Short run: the firm compares price with minimum AVC. At ₹15 the price is above the minimum AVC of ₹12, so the firm covers all its variable cost and part of its fixed cost; producing loses less than shutting down, where the whole fixed cost is lost.

So in the short run it keeps producing, but at a loss, since ₹15 is below the minimum AC of ₹18.

Long run: all costs are variable, and a firm stays only if price covers minimum AC.

Since ₹15 < ₹18, the loss cannot be avoided, so the firm leaves the industry.

So it produces at a loss now and exits in the long run.

Correct option B·a shortage of 20 units

Equilibrium: $100 - 2P = 20 + 2P$, so $4P = 80$, $P = 20$ and $Q = 60$.

The ceiling of ₹15 is below the equilibrium price of ₹20, so it binds.

At ₹15: $Q_d = 100 - 30 = 70$ and $Q_s = 20 + 30 = 50$.

Excess demand $= 70 - 50 = 20$ units, a shortage.

Trap: $70 - 60 = 10$ compares with the old equilibrium quantity, not with what is supplied at ₹15.

Correct option C·stock, public

Money supply is measured at a point of time, so it is a stock variable, not a flow.

It counts only the money held by the public, that is, households, firms and institutions other than the money-creating sector.

Money held by the government, the Reserve Bank of India and the commercial banks themselves is not part of money supply.

So the blanks are 'stock' and 'public'.

Correct option A·GDP = GNP

GNP = GDP + net factor income from abroad (NFIA).

A closed economy has no transactions with the rest of the world, so NFIA = 0.

Hence GNP = GDP.

GDP + GNP = 0 is impossible, since both are positive.

Correct option B·Both the Assertion and the Reason are true, but the Reason does not explain the Assertion.

Assertion: unilateral transfers (gifts, remittances, grants) are one-way receipts or payments that create no claim, and they are recorded in the current account. True.

Reason: the capital account records transactions that change a country's assets or liabilities, such as investment, borrowing and lending. True.

But the Reason describes the capital account; it says nothing about why transfers go to the current account.

So both are true, but the Reason does not explain the Assertion.

Correct option C·40,600

At equilibrium, planned saving = planned investment: $S = I$.

$-60 + 0.1Y = 4{,}000$.

$0.1Y = 4{,}060$, so $Y = 40{,}600$.

Trap: ignoring the -60 gives ₹40,000 crore.

So equilibrium income is ₹40,600 crore.

Correct option D·₹1,150 crore

$GDP_{MP}$ = PFCE + GFCE + GDCF + net exports $= 800 + 200 + 300 - 20 = 1{,}280$.

$NDP_{FC} = GDP_{MP}$ - depreciation - net indirect taxes $= 1{,}280 - 50 - 70 = 1{,}160$ (domestic income).

$NNP_{FC} = NDP_{FC} + NFIA = 1{,}160 + (-10) = 1{,}150$.

Trap: stopping at ₹1,160 crore leaves out NFIA, and adding 10 instead of subtracting it gives ₹1,170 crore.

So National Income is ₹1,150 crore.

Correct option A·₹190 crore

Total expenditure $= 500 + 200 = 700$.

Fiscal deficit = total expenditure - (revenue receipts + non-debt creating capital receipts) $= 700 - (400 + 50) = 250$.

Primary deficit = fiscal deficit - interest payments $= 250 - 60 = 190$.

Trap: ₹250 crore is the fiscal deficit, ₹310 crore adds interest instead of subtracting it, and ₹40 crore is revenue deficit minus interest.

So the primary deficit is ₹190 crore.

Correct option B·I and III only

I is correct: the repo rate is the rate at which the RBI lends to banks, so a higher repo rate raises banks' cost of borrowing.

II is wrong: to control inflation the RBI sells securities, which draws money out of the banks; buying securities adds money.

III is correct: a lower CRR frees reserves, so banks can lend more and create more credit.

IV is wrong: the reverse repo rate is the rate at which the RBI borrows from banks, that is, the rate banks earn on funds parked with the RBI.

So only I and III are correct.

Correct option A·₹200 crore

Investment multiplier $k = \frac{1}{1 - MPC} = \frac{1}{0.2} = 5$.

Income must rise by $5{,}000 - 4{,}000 = 1{,}000$ crore to reach full employment.

The rise in aggregate demand needed $= \frac{\Delta Y}{k} = \frac{1{,}000}{5} = 200$ crore.

So the deflationary gap is ₹200 crore.

Trap: ₹1,000 crore is the gap in output, not the shortfall in aggregate demand.

Correct option C·public and private sector

After independence India chose a mixed economy, combining features of capitalism and socialism.

In a mixed economy the public sector and the private sector work side by side.

The state took charge of heavy and basic industries, while the private sector was allowed in the remaining areas.

So the system implies the coexistence of the public and private sector.

Correct option D·Generally provide collateral-free credit to their members

Formal lenders usually ask for collateral, which poor rural households do not have.

SHGs pool small savings of their members (thrift in small proportions) and lend from this pool.

Their loans are generally given without collateral, at reasonable interest, and repaid in small instalments.

This is how SHGs fill the gap left by the formal credit system.

So they generally provide collateral-free credit to their members.

Correct option B·40

Worker-population ratio $= \frac{\text{number of workers}}{\text{total population}} \times 100$.

$= \frac{800}{2000} \times 100 = 40\%$.

Trap: the 1,200 people willing and able to work form the labour force; $\frac{1200}{2000} = 60\%$ is the labour force participation rate, not the worker-population ratio.

So the ratio is 40%.

Correct option C·III, II, I, IV

III: the Industrial Policy Resolution was adopted in 1956.

II: the New Economic Policy of liberalisation, privatisation and globalisation was launched in 1991.

I: the WTO was founded in 1995 as the successor to GATT.

IV: GST was introduced in July 2017.

So the order is III, II, I, IV.

Correct option D·II, IV, I, III

II. Pakistan was established in 1947.

IV. Pakistan announced its First Five Year Plan in 1956.

I. Capital goods industries were nationalised in the 1970s.

III. Economic reforms were introduced in 1988.

So the order is II, IV, I, III.