CUET UG 2025 Economics Previous Year Solved Paper

wer: 2. What to produce?

The question is about deciding which goods and services to produce—
education and health vs. military services. This relates to the allocation of
scarce resources among competing needs, which is the “What to produce?”
problem in economics.

wer: 3. Production Possibility Set
The Production Possibility Set (PPS) represents all feasible combinations of
goods and services that an economy can produce with available resources and
technology. The Production Possibility Frontier (PPF) is the boundary of this
set, showing the maximum possible output combinations. Since the question
asks for the collection of all possible combinations, the correct term is
Production Possibility Set.

wer: 2. (A), (C), (B), (D)
1. (A) At any given price, demand is less – The demand curve shifts left.
2. (B) Excess supply will be there – Because supply exceeds the reduced
demand.
3. (C) Some producers will decrease the prices of commodity – To clear the
excess supply.
4. (D) At new equilibrium, quantity and price will be less – Market
stabilizes at a lower price and quantity.
Correct Answer: None of the given options exactly match the logical sequence,
but the closest correct sequence is:

wer: 2. (A) - (I), (B) - (III), (C) - (II), (D) - (IV)
• (A) Analysis assumes that level of utility can be expressed in numbers →
(I) Cardinal Utility

• (B) Change in total utility due to consumption of one additional unit of a
commodity → (III) Marginal Utility
• (C) Marginal utility from consuming each additional unit of a commodity
declines as its consumption increases → (II) Law of Diminishing
Marginal Utility
• (D) The amount of mangoes that the consumer has to forego in order to
get an additional banana, her total utility level being the same → (IV)
Marginal rate of substitution

wer: 2. Any bundle as long as it costs less than or equal to the income
A budget set represents all the combinations of goods and services a consumer
can afford given their income and the prices of goods. It includes any bundle
whose total cost is less than or equal to the consumer’s income.

wer: 1. (A) and (C) only
• (A) Correct – Goods consumed together are complementary goods.
• (B) Incorrect ❌ – Market demand curve is derived by horizontal
summation, not vertical.
• (C) Correct – Price elasticity of demand measures responsiveness of
demand to price changes.
• (D) Incorrect ❌ – If consumer preference increases, the demand curve
shifts rightward, not leftward.

wer: 2. Demand Function
The relationship between the quantity of a good a consumer chooses to buy
and its price is described by the demand function. It shows how much of a
good is demanded at different price levels.

wer: 1. (A) - (IV), (B) - (I), (C) - (II), (D) - (III)
• (A) Relationship between the variable input and output → (IV) Total
Product
• (B) Output per unit of variable input → (I) Average Product
• (C) Change in output per unit of change in the input → (II) Marginal
Product
• (D) The marginal product of a factor input initially rises with its
employment level → (III) Law of Variable Proportions

wer: 2. All factors of production can be varied
• In microeconomics, the long run is a period in which all factors of
production are variable.
• In contrast, in the short run, at least one factor is fixed.

wer: 4. Profit
• Profit is defined as the difference between total revenue and total cost.
• Formula: Profit = Total Revenue – Total Cost

wer: 1. Marginal Product
• Marginal Product (MP) of an input measures the additional output
produced by using one more unit of that input, keeping all other inputs
constant.
• Formula: MP = ΔOutput / ΔInput

wer: 3. f(tx1,tx2)<tâ‹…f(x1,x2)
Returns to scale describe how output changes when all inputs are increased
proportionally:

1. Constant returns to scale: f(tx1,tx2)=tâ‹…f(x1,x2) f(x_1, x_2)f(tx1,tx2)=tâ‹…f(x1,x2
)
2. Increasing returns to scale: f(tx1,tx2)>tâ‹…f(x1,x2) f(x_1, x_2)f(tx1,tx2)>tâ‹…f(x1
,x2)
3. Decreasing returns to scale: f(tx1,tx2)<tâ‹…f(x1,x2) f(x_1, x_2)f(tx1,tx2)
<t⋅f(x1,x2) – Output increases less than proportionally.

wer: 4. Short Run Marginal Cost
The change in total cost per unit of change in output refers to Marginal Cost
(MC). In the short run, this is specifically called Short Run Marginal Cost, as it
measures the additional cost incurred for producing one more unit of output
while at least one factor remains fixed.

wer: 3. Rectangular Hyperbola
The Average Fixed Cost (AFC) is calculated as AFC = Total Fixed Cost / Output.
• Since total fixed cost remains constant, as output increases, AFC
continuously decreases.
• This produces a rectangular hyperbola shape.

wer: 2. At minimum point of average cost curve
The Marginal Cost (MC) curve always intersects the Average Cost (AC) curve)
at the minimum point of the AC curve.
• When MC < AC, AC falls.
• When MC > AC, AC rises.
• Therefore, MC = AC at AC’s minimum point.

wer: 1. Break-even point
The point on the supply curve where a firm earns only normal profit (zero
economic profit) is called the Break-even point.
• At this point, total revenue = total cost, and the firm covers all costs,
including opportunity costs.

wer: (A), (B) and (D)
For a firm to maximize profit in the short run:
• (A) Price = Short Run Marginal Cost (MC) – Profit is maximized when
the additional revenue from selling one more unit equals the additional
cost.
• (B) Short Run MC curve is non-decreasing – Ensures the condition of
maximum profit is at a rising portion of the MC curve.
• (C) Price ≤ MC ❌ – This would reduce profit, not maximize it.
• (D) Price ≥ Average Variable Cost (AVC) – To avoid losses, the firm
must cover variable costs.

wer: 1. Shift to the right
Technological progress makes production more efficient, reducing costs for the
same level of output.
• This allows the firm to supply more at each price, causing the supply
curve to shift to the right.

wer: 3. 0.5
Price elasticity of demand (PED) formula:

wer: 1. Minimum Support Price for Foodgrain
A floor price is the minimum price set by the government to protect producers
from selling at too low a price.
• Minimum Support Price (MSP) for foodgrains is a classic example.

wer: 4. John Maynard Keynes
"The General Theory of Employment, Interest and Money" was authored by
John Maynard Keynes in 1936.
• It is a foundational work of Keynesian economics.

wer: 2. Paradox of Thrift
The scenario describes the Paradox of Thrift:
• When everyone tries to save more, overall consumption falls, reducing
income and output.
• As a result, total savings may not increase in the economy.

wer: 2. (A) and (C) only
The Consumer Price Index (CPI) measures the change in the price level of a
fixed basket of goods and services over time.
• To calculate CPI, we compare the cost of the basket in the Current Year
(A) with the cost of the same basket in the Base Year (C).
• Other years like the Preceding Year or Succeeding Year are not used
directly in the CPI calculation.

wer: 1. Consumer Price Index
The Consumer Price Index (CPI) measures the average change in prices of a
fixed basket of goods and services purchased by a representative consumer.
• It reflects the cost of living and is widely used to calculate inflation for
households.

wer: 2. (A) - (III), (B) - (I), (C) - (II), (D) - (IV)
Matching the concepts with their definitions:
• (A) Gross Domestic Product at Market Price (GDPMP) = Total
expenditure approach = C + I + G + (X – M) → (III)
• (B) Net Domestic Product at Factor Cost (NDPFC) = GDP at MP –
depreciation – net product taxes → (I)
• (C) GVA at factor cost = GVA at basic prices – net production taxes → (II)
• (D) Gross National Product at Factor Cost (GNPFC) = GNMP – net
product taxes – net production taxes → (IV)

wer: 4. Real GDP

• Real GDP measures the value of goods and services at constant prices,
i.e., it adjusts for inflation.
• Nominal GDP is measured at current prices without adjusting for
inflation.

wer: 1. (A), (B) and (D) only
The functions of money are:
• Medium of exchange (A): Money is used to buy and sell goods and
services.
• Unit of account (B): Money provides a common measure of value for
pricing goods and services.
• Store of value (D): Money can be saved and used in the future.
Bartering (C) is not a function of money, it is an exchange system without
money.

wer: 3. Liabilities
• Money deposited by customers in banks is owed back to them, so for the
bank, it is a liability.
• Assets of the bank are loans given out or investments made.

wer: 4. (A) - (III), (B) - (IV), (C) - (I), (D) - (II)
• Cash Reserve Ratio (CRR) (A): Percentage of deposits banks must keep
as cash reserves with the Central Bank → III
• Statutory Liquidity Ratio (SLR) (B): Banks must maintain reserves in
liquid form like gold, approved govt. securities → IV
• Lender of last resort (C): Role of Central Bank → I

• Repo Rate (D): Interest rate at which banks borrow from Central Bank
→ II

wer: 1. Fiat Money
• Currency notes and coins issued by the government are legal tender and
not backed by a commodity like gold.
• This type of money is called Fiat Money.

wer: 1. What actually has happened
Ex-post refers to after the event, i.e., it shows what actually happened as
opposed to planned or expected outcomes.

wer: 3. Stabilization Function
• When the government intervenes to influence demand or supply to
stabilize the economy, it is performing a stabilization function.
• This includes measures like subsidies, taxation, or public spending to
control inflation, recession, or unemployment.

wer: 1. Balance of Trade
• The difference between exports and imports of goods is called the
Balance of Trade (BoT).
• If exports > imports → trade surplus; if imports > exports → trade
deficit.

wer: 3. (A), (D), (B), (C)
In the Income Method of National Income estimation, the correct order is:
1. (A) Identify and classify producing firms.

2. (D) Classify different types of factor incomes (wages, rent, interest,
profit).
3. (B) Estimate Net Domestic Product at Factor Cost (NDPFC).
4. (C) Add Net Factor Income from Abroad to get NNPFC (National
Income).

wer: 2. (C), (A), (D), (B)
The order of liquidity (most to least) among the measures of money supply is:
• M1 (C) → Currency + Demand Deposits → Most liquid.
• M2 (A) → M1 + Savings deposits with Post Office → Slightly less liquid.
• M3 (D) → M1 + Net time deposits of commercial banks → Less liquid.
• M4 (B) → M3 + Total deposits with Post Office savings organizations →
Least liquid.

wer: 2. Capital Account
When an Indian company acquires assets abroad (like a steel plant in Europe),
it is an investment abroad — a capital flow.
Such transactions are recorded in the Capital Account of the Balance of
Payments (BoP) because they involve changes in ownership of assets between
countries.

wer: 1. Official reserve sale
When the Balance of Payments (BoP) is in deficit, the central bank sells foreign
exchange (foreign reserves) to stabilize the currency and cover the deficit.
This transaction is recorded as an “Official Reserve Sale” under the official
reserve transactions of the BoP.

wer: 3. Leakages from economy
When an individual buys foreign goods (imports), money flows out of the
domestic economy to another country.
This reduces the circular flow of income within the home country and is
therefore called a leakage from the economy.

wer: 3. (A), (B), (D), (C)
When government spending (G) increases while tax rate (T) remains constant
• (A) Planned aggregate expenditure rises.
• (B) Government may run a deficit if G > T.
• (D) Aggregate demand shifts upward.
• (C) As a result, equilibrium income increases.

wer: 3. (B), (A), (D), (C)
The correct order to calculate National Income is:
1. (B) Estimate the total value of output.
2. (A) Deduct intermediate cost to find value added.
3. (D) Deduct depreciation and Net Indirect Taxes (NIT) to get NDPFC.
4. (C) Add Net Factor Income from Abroad (NFIA) to get National Income
(NNPFC).

wer: 1. Output Equilibrium
The level of employment is determined by the equilibrium level of output,
given the quantities of other factors of production.

wer: 3. all the factors of production are fully employed in the production
process

wer: 4. Equality of Income (Y) with Aggregate Demand (AD)
The equilibrium level of output is determined at the point where income (Y)
equals aggregate demand (AD).

wer: 1. Deficient Demand
When equilibrium output is less than full employment output, it indicates
deficient demand, causing underutilization of resources.
Q.45. 3. Demand is more than output level at full employment level
Answer: Excess demand arises when demand exceeds the output possible at
full employment, leading to upward pressure on prices.

Answer: 3. Demand is more than output level at full employment level
Excess demand arises when aggregate demand exceeds the output available at the full-employment level, which creates inflationary pressure in the economy.

wer: 1. Destination Based Tax

wer: 3. Input Tax Credit(ITC)

wer: 3. Large number of central and state indirect taxes

wer: 4. Tobacco
Certain items like tobacco and petroleum products are kept out of GST and
taxed separately.

wer: 3. Because it brought uniformity in tax rate across the country

GST is called a unified tax system because it provides one tax structure and
uniform rates across India, replacing multiple indirect taxes.