ICSE 2013 Economic Applications Question Paper Solved for Class 10

Solving ICSE Class 10 Economic Applications Previous Year Question Papers ICSE Class 10 Economic Applications Question Paper 2013 is the best way to boost your preparation for the board exams.

ICSE Class 10 Economic Applications Question Paper 2013 Solved

Section – A (40 Marks)
(Attempt All questions from this Section)

Question 1.
(a) With the help of a diagram show how a market demand curve can be obtained from individual demand curves. [10]
(b) Which section of society is worst affected during inflation ? Briefly explain.
(c) Mention one way be which Government policy can ensure social justice.
(d) There are no substitute goods in a Monopoly market. Give a reason to support your answer.
(e) Briefly explain the impact of constructing dams on the ecosystem.
Answers:
(a) The following diagram clearly shows how a market demand curve can be obtained by the horizontal summation of individual demand curves.

INDIVIDUAL AND MARKET DEMAND SCHEDULES

Price of rice (₹/Kg)	Demand of Consumer B (Kg/month)	Demand of Consumer B (Kg/month)	Marker-Demand (kg/month) A+B
50	2	4	6
40	4	6	10
30	6	8	14
20	8	10	18
10	10	12	22

(b) Inflation makes the rich richer and the poor poorer. It hits hard the interests of consumers, creditors, small investors, labourers and the middle class. But the worst affected are the wage and salaried class or the fixed income group, because their income does not rise in the same proportion in which the cost of living rises. Thus, inflation increases the economic burden on this section of the society.

(c) The government in a welfare state like ours, can ensure social justice, with the help of Fiscal Policy. The state can reduce income inequality and achieve the goal of equity through the system of progressive taxation, subsidies and concessions to lower income and middle-income groups.

(d) There are no close substitutes of the product sold by a monopolist. A pure monopoly will exist only when there are no close substitutes of the product sold by the single seller. Thus, the cross-elasticity of demand for the monopolists product is negligible or zero.

(e) The following are two major impacts of constructing dams on the ecosystem.

Soil erosion: Dams hold back the sediment load in a river flow leading to erosion of the river banks. This lowering of the riverbed threatens vegetation and river wildlife.
Extinction of species : Large dams often interfere with the lifecycles of many fish and other marine creatures sometimes even forcing species to extinction.

Question 2.
(a) Briefly explain why labour is considered to be the means and end of production. [10]
(b) Distinguish between Joint demand and Composite demand.
(c) State two reasons for low capital formation in a developing economy.
(d) State one difference between Monopsony and Monopolistic competition.
(e) Classify the following capital goods :
(i) Machines
(ii) Cotton yam
(iii) Oil mill
(iv) Bridge
Answers:
(a) A labourer is both a means of production and the end of it. Labour on one hand is the active factor of production, without whose efforts, production cannot take place.
On the other hand, labourers are also consumers of the produced goods. The demand for goods largely depends upon the level of wages in the country.

(b) When a commodity is jointly demanded along with some other commodity, the demand for it is called joint demand. For example, car and petrol, pen and ink are jointly demanded to satisfy a particular want.
The demand for a commodity which can be put to several uses is known as composite demand. For example, the demand for electricity is composite demand as it used by farmers, households, factories, etc.

Low level of savings due to low level of income which in turn is due to low levels of productivity in the agricultural and industrial sectors.
Lack of an efficient entrepreneurial class in developing economies.

(d) Monopsony refers to a market where there is a single buyer of a commodity or service, but many sellers in the market.
Monopolistic competition on the other hand, is a market situation where there is a large number of buyers and sellers selling closely related goods.

(e)

Machines – Fixed capital
Cotton yam – Circulating capital
Oil mill – Sunk capital
Bridge – Social capital

Question 3.
(a) Indicate the degree of elasticity of demand of the following demand curves: [10]
(b) What is meant by land use pattern?
(c) What are indirect taxes ? Give an example.
(d) Define money. How does it act as a ‘measure of value ’?
(e) What is meant by an overdraft facility?
Answers:
(a) The given figure represents perfectly elastic demand curve and the value of elasticity of demand on such a demand curve is infinity.

The given figure represents relatively inelastic demand curve and the value of elasticity of demand on such a demand curve is less than one.

(b) Land use pattern involves management and modification of natural environment into built environment such as fields pastures and settlements. It refers to the arrangements, activities and inputs people undertake in a certain land cover type to produce, change or maintain it.

(c) Indirect tax, is a tax which is imposed on one person but paid partly or wholly by another. Thus, the impact and the incidence of an indirect tax are on different persons. Example- Import duty as the impact is on the importer who pays the duty to the government but the incidence is on the buyer of goods as the importer realises the tax from the buyer.

(d) Money is anything which is universally accepted as a medium of exchange, measure of value, store of value and standard of deferred payments and has divisibility and transferability. Money is the means of valuation and of payment; as both the unit of account and the generally accepted medium of exchange.
For measuring value of any commodity, money serves as an unit of account. When we express the value of a commodity in terms of money, it is known as price.

(e) Overdraft facility is available to a customer having a current account in a commercial bank. Under this the borrower or customer is allowed to overdraw his current account balance for a temporary period. The bank usually deducts a certain amount as overdraft charges.

Question 4.
(a) The price of milk rises from ₹ 26.00 to ₹ 30.00 per litre and its demand falls from four litres per day to two litres per day. Calculate the elasticity of demand for milk. [10]
(b) Differentiate between an entrepreneur and labour on the basis of:
(i) Nature of work
(ii) Nature of risk involved.
(c) Distinguish between the fiscal and monetary policy of the Government.
(d) What are Public Sector Units ? Mention one problem faced by Public Sector Units in India.
(e) What is meant by Bank Rate? How does it help in controlling the flow of credit in the economy ?
Answers:

(b) (i) Nature of work : An entrepreneur specialises in the task of organisation. He organises production takes important decisions regarding production, hires or purchases factors of production and bears the risks of business.
Labour, on the other hand, includes all human efforts undertaken with a view to earn income. It actively takes part in the production process.

(ii) Nature of risk involved : An entrepreneur has to bear all risks of business and thus his income in the form of profit is uncertain. Labourers are not involved with the risks of business and are sure to get wages.

(c) Fiscal policy means the use of taxation expenditure and borrowing by the government. Its main instruments are taxation policy and expenditure policy. Monetary policy refers to credit control measures adopted by the central bank of a country. The major instruments arc bank rate, open market operations cash reserve ratio, and statutory liquidity ratio.

(d) Public Sector Units are enterprises owned and managed by the government.
One problem faced by Public sector units in India is—

Lack of incentive : Government servants do not find incentive as promotion is awarded based on seniority and not merit. There is lack of responsibility and accountability in these enterprises.

(e) Bank rate is the rate at which the central bank gives credit to member commercial banks against approved securities or eligible bills of exchange. If the bank rate is increased the cost of borrowing by commercial banks increases, thereby increasing their lending rates. This discourages borrowing by the public and volume of credit contract. Vice versa happens if bank rate is decreased. During inflation the cost of capital is increased by increasing the bank rate.

Section – B (60 Marks)|
(Attempt any FOUR questions from this Section)

Question 5.
(a) Define capital and explain three important functions of capital.
(b) ‘Land is the original source of all material wealth ’. In this context, explain four determinants that influence the productivity of land. [7 + 8]
Answers:
(a) Capital refers to all man-made goods used in the production of other goods and services. It is a produced means of production.

Three important functions of capital are –

Important factor of production : Capital is an important factor of production. It is the life blood of modem business. Before starting a business and throughout its lifetime capital is needed invarious forms for purchasing machinery, raw materials, etc.
Payment of wages : Capital, particularly money capital helps in providing subsistence to workers engaged in the production process. Labourers are rewarded for their mental and physical labour in the form of wages.
Capital formation: Capital formation means increase in the stock of real capital in an economy. More capital means more production of goods to be used for further production of goods in the economy.

(b) The following are four determinants that influence productivity of land –

Natural factors : Productivity of land largely depends on natural factors such as fertility, slope of land, climate and chemical and biological properties of the soil.
Human factor : Land cannot produce anything by itself unless human efforts are put into it. Thus, productivity depends on knowledge and training of the farmers.
Organisation : Productivity of land is determined by how labour and capital are organised. Trained workers, modem implements, scientific methods, good seeds, modem methods of irrigation etc., can increase the productivity of land.
Improvements on land: Land development measures like provision of well or tube-well irrigation, proper drainage system, fencing, etc., can substantially increase productivity of land.

Question 6.
(a) Explain the following functions of the Central Bank of a country: [8 + 7]
(i) Acting as a ‘Banker to the Government ’.
(ii) Fixation of margin requirement on secured loans
(iii) Developmental Functions.
(b) What is meant by Ecosystem ? Explain three adverse effects of mining on the ecosystem.
Answers:
(a) (i) Banker to the government: The central bank acts as a bankers to the government in the following ways:

It receives deposits from the government and collects cheques and drafts deposited in the government account.
It makes purchases and sales of government securities.
It makes payments on behalf of the government.
It advances short term loans to the government to meet its budget deficit.
It provides cash to the government as required for payment of salaries and wages to their staff.
It manages account of the government banks across all in the country.

(ii) Fixation of margin requirement : A margin is the difference between the amount of loan and the market value of the security offered by the borrower. By changing the margin requirement, the central bank can encourage as discourage borrowings by the public. Higher margin requirements discourage borrowings for speculative activities.

(iii) Developmental functions : The Central Bank undertakes several developmental and promotional activities, particularly in underdeveloped economics. Some of them are as follows –

It helps in development and expansion of money and capital markets.
It adopts suitable measures to maintain internal price stability by controlling inflationary tendencies.
It helps in maintaining exchange rate stability.
It helps to develop an integrated commercial banking system.
It takes steps to provide cheap finance to agriculture and industry.

(b) Ecosystem refers to a group of living and non-living things, which are interdependent and found in a particular type of environment.

The adverse effects of mining on the ecosystem are as follows-
1. Physical effects : Soil compaction is one of the most severe effects of mining on the ecosystem. It is a result of large machinery moving across the landscape. Compaction minimises the potential for plant establishment, lowering overall fertility of the soil and increasing water movement through the soil and landscape.
2. Chemical effects : Mining operations often contaminate the soil with toxic heavy metals and acids. Acids can lower the pH of the soil, preventing plants and soil micro-organisms from thriving.
3. Other effects : Continuous mining activities can lead to reshaping topography, generation of large quantities of debris, disruption of surface and groundwater circulation soil erosion, land slides and land degradation.

Question 7.
(a) ‘Efficient labour force is an important economic ingredient In this context, define efficiency of labour. Explain three factors that determine the efficiency of labour.
(b) Define a Commercial Bank. Explain three methods adopted by Commercial Banks to mobilise funds from the public. [8 + 7]
Answers:
(a) Efficiency of labour implies the productive capacity of a labourer. It indicates the ability of a worker to do more or better work or both as compared to other, during a given time period.

Three factors that determine the efficiency of labour are-

Education and Training : The efficiency of labour depends on the level of his general and technical education and training. General education makes a labourer more responsible and technical education and training makes him skilled in specialised jobs. Thus, an educated and trained labourer is likely to be more efficient.
Climatic conditions : Hot and tropical climate like that of India reduces the working capacity of labourers. Whereas in countries with cooler and more pleasant climatic conditions, workers can work for longer duration thereby increased efficiency of labour.
Working conditions : Better and healthy working conditions improve the efficiency of labour. Provision of adequate fresh air, light, safe drinking water, etc., boosts up the efficiency of labour. Whereas unhealthy working conditions reduces the efficiency of labour.

(b) According to the Banking Regulation Act, 1949, a commercial bank is a banking company which accepts deposits from the public for the purpose of lending or investment, repayable on demand or otherwise and withdrawable by cheque, draft or otherwise. It deals directly with the public.

The following are three ways by which Commercial Banks mobilise funds from the public :

Demand Deposits : The banks accept demand or current deposits mainly from businessmen and industrialists. These deposits can be withdrawn by cheques any time, and no interest paid on such deposits. Rather, customers have to pay certain charges to the bank for the services rendered.
Savings Deposits : These deposits are meant to mobilise the small savings of households or small investors. These are payable on demand and also with drawable by cheque, but with certain restrictions. A low rate of interest is paid on them.
Fixed Deposits : These deposits are fixed for a certain time period and can be withdrawn only after the maturity period. These deposits carry the highest rate of interest. The longer the period, the higher the rate of interest.

Question 8.
(a) Define Privatisation. Discuss two arguments each in favour and against privatisation.
(b) Read the following extract and answer the questions that follow: [8 + 7]

Economic Times, September 4th 2012

Terming payment of taxes as a ‘mark of civilisation ’. Finance Minister P. Chidambaram has assured that authorities will not “rashly “implement controversial retrospective tax rules while once again promising a non-adversial tax regime for all taxpayers. It is the second time in less than a week that Chidambaram has given assurance of a stable and fair tax regime, after the tax department attracted criticism for ushering in what some have called a “raid raj ” and for introducing a series of measures industry and investors have slammed as retrograde.
(i) Define direct tax. Give two examples.
(ii) State how a direct tax can foster social consciousness.
(iii) What is meant by a progressive direct tax? How does its imposition bring about equity?
(iv) State two demerits of direct tax.
Answers:
(a) Privatisation refers to the process of reducing participation of the public sector in economic activities of a country. The following are two arguments in favour of privatisation—

Poor performance of PSU ’s : PSU’s have continuously given poor performance due to inefficiency, corruption, etc. The public sector steeped in heavy losses, has become an economic burden on the country’s economy.
High Capital Output Ratio : The capital-output ratio in the public sector is high and ever increasing. Privatisation would provide a solution to this problem of high capital output ratio.

The following are two arguments against Privatisation :

Unbalanced Growth : Privatisation does not guarantee balanced regional growth. As the private sector is solely guided by profit motive, hence it is not interested in promoting development of all sections sectors of the economy.
Less emphasis on development of infrastructure: Private sector does not take any initiative for the development of social and economic infrastructure as these sectors are low return sectors. However development of infrastructure has a direct influence on the development of the country’s economy.

(b)

(i) Direct tax is a kind of tax which is actually paid by the person on whom it is imposed. The impact and incidence of a direct tax are on the same person. It is economical as its cost of collection is low. Eg., Income tax, Property tax.

(ii) Direct taxes can foster social consciousness by creating civic awareness and a sense of social responsibility among the tax-payers. As the tax-payer has to directly pay the tax from his own pocket to the government he keenly interested to see that these funds are properly utilised and this minimises wasteful public expenditure.

(iii) A progressive direct tax is one in which the rate of tax increases with increase in the taxpayer’s income. Such a tax is based on the connon of ability to pay. Its burden falls more heavily on the rich than on the poor. Thus, the economic burden of such a tax is equitably distributed on various income groups of the society. Hence, it brings about equity.

(iv) Two demerits of a direct tax are-

Possibility of evasion : The collection of direct taxes is dependent on the honesty and good intentions of the tax-payers. Hence, there is a great possibility of tax-evasion.
Inconvenience: Direct taxes are considered highly inconvenient by the tax-payers. The tax- payers have to maintain accounts and submit statements of their income with other relevant details. This creates inconvenience to the tax-payers.

Question 9.
(a) Define price elasticity of demand. Explain how the following factors determine price elasticity of demand: [7 + 8]
(i) Existence of substitute goods.
(ii) Nature of the commodity.
(iii) Proportion of expenditure incurred in a Household. Budget.
(b) State whether the following statements are true or false. Give reasons for each:
(i) If prices are expected to fall in the future current demand rises.
(ii) Slow growth rate in Indian agriculture has increased mobility of labour from rural to urban areas.
(iii) In a developing country like India public expenditure should not be incurred on infrastructural development.
(iv) An indirect tax can be made progressive by imposing higher tax rates on luxury goods.
Answers:
(a) Price eleasticity of demand is a measurement of percentage change in demand due to percentage change in own price of the commodity.

(i) Existence of substitute goods : Demand for a commodity will be more elastic, if there are close substitutes of the product available in the market, because if there is any increase in its price consumers have the option of switching over to the substitute product. For example, tea has its substitute in coffee. On the other hand, if there are no close substitutes available the product will have inelastic demand. Example – Cigrattes, liquor, etc.

(ii) Nature of the commodity : Elasticity of demand is very low for necessary goods like foodgrains, salt, medicines, textbooks, edible oil, etc., because the consumers have to consume a minimum amount of these goods irrespective of the changes in their prices. The elasticity of demand for luxury goods like care, jewellery, refrigerators etc. is very high as consumers are normally price-sensitive in case of such goods. Again, perishable goods like fruits, vegetables, fish, milk, etc., have inelastic demand whereas durable goods have more elastic demand.

(iii) Proportion of expenditure incurred in a Household Budget : Goods which consume a very small and insignificant proportion of the household budget have inelastic demand as the consumers overall budget is not much affected by changes in their price. For example, matchbox, toothpaste, safety pins, newspapers, etc., have inelastic demand. But goods like clothes, sugar, etc., which occupy a large share of the household budget, have more elastic demand.

(b)

False : If prices are expected to fall in future consumers will postpone their demand till prices have actually lowered. Hence, the current demand will not rise.
True: Indian workers tend to migrate from rural to urban areas in search of livelihood as agricultural activities are limited.
False : Infrastructural development is the backbone of overall growth and development of an economy so it is necessary to incur public expenditure on the development of social and economic infrastructure.
True : Luxury goods are normally purchased by the richer section of the society whose ability to pay is also higher. Hence, if luxury goods have higher taxes imposed on them it will be the higher income group paying the taxes along with the price of the product. In this way they can be made progressive.

Question 10.
(a) Under which type of a market are producers ‘price takers ’? Explain three of its characteristics. [7]
(b) With the help of a diagram state whether supply of a good is directly or inversely related to its price. Explain any four determinants of supply. [8]
Answers:
(a) Producers are ‘Price takers’ in a perfectly competitive market. In such a market condition individual firms or sellers sell a very small and insignificant portion of the total market produce hence they have no control over price. Industry is the price maker and each seller has to accept the price set by the industry, and adjust his sale output according to this price.

Three main characteristics of a perfectly competitive market are –

(i) Large number of buyers and sellers : The number of buyers and sellers in such a market infinite. Thus each buyer and seller buys and sells a very small negligible portion of the total market produce. So individual buyers and sellers cannot influence the market price of the product.

(ii) Homogeneous Products : All sellers in a perfectly competitive market sell completely identical products. There is no difference between the product sold by two sellers in terms of shape, size, colour, quantity, quality, packaging, etc. So there is no season for a buyer to prefer one sellers’s product to the other customers. Thus in such a market, uniform price prevails throughout the market.

(iii) Free entry and exit of firms : Firms are freely allowed to enter or leave the market under perfect competitor. There is no legal restriction on the entry or exit. If existing firms tend to earn abnormal profits, new firms can freely enter the market attracted by the abnormal profits. Thus, the total market supply increases and abnormal profits are wiped out. Similarly if existing firms incur heavy losses, some of them may leave the market thereby reducing the market supply till only normal profits are earned. Thus, in perfect competition firms can earn only normal profits in the long run.

(b) In the below figure SS is the supply curve for a normal curve. As price increases, the supply also increases and vice-versa. Hence, the supply curve is upward rising indicating a direct relation between supply and price.

The following are four determinants of supply-
(i) Price of related goods: If the price of substitute goods increases the supply of the original good will decrease as producers will find it more profitable to produce the substitute good. In case of complementary goods, if the price of the complementary good increases its supply will increase and consequently the supply of the original good will also increase, as the two goods are jointly demanded.

(ii) Prices of factors of production: An increase in the prices of factors of production will increase the cost of production. This in turn will reduce the profit margin for the producers and hence supply will decrease. If, on the other hand, prices of factors of production decrease, the cost of production is lowered and profit margin increases for the producers. Hence, supply also increases.

(iii) Technique of Production : If the technique is complex and needs large stock of capital, then the supply of the commodity will be less elastic, because production cannot be easily increased. On the other hand, goods involving simple technique of production will have more elastic supply.

(iv) Goals of the firm : If the firms goal is profit maximisation, more quantity will be supplied only at higher prices. But if the firm adopts the goal of sales maximisation, it will supply large quantities, even at the same price. Thus, supply will be influenced by the goals of the firm.