ICSE Economic Applications Question Paper 2016 Solved for Class 10

ICSE Economic Applications Previous Year Question Paper 2016 Solved for Class 10

ICSE Paper 2016
ECONOMIC APPLICATIONS

(Two Hours)
Answers to this Paper must be written on the paper provided separately.
You will not be allowed to write during the first 15 minutes.
This time is to be spent in reading the Question Paper.
The time given at the head of this Paper is the time allowed for writing the answers.
Section I is compulsory. Attempt any four questions from Section II.
The intended marks for questions or parts of questions are given in brackets [ ].

SECTION-I  (40 Marks)
(Attempt all questions from this Section)

Question 1:
(a) What is meant by labour in economics? [2]
(b) Construct an imaginary individual supply schedule. [2]
(c) What are complementary goods? Explain its impact on demand. [2]
(d) State two qualities of a successful entrepreneur. [2]
(e) Explain any one disadvantage of division of labour. [2]

Answer:
(a) Meaning of Labour: In economics ‘labour’ means the capacity to exert physical or mental effort in expectation of reward.
(b) Individual Supply Schedule for Apples

Price (Rs./kg)	Qty. Supplied (Kgs)
10	2
20	4
30	6
40	8
50	10

(c) Complementary goods are those goods which are complementary to one another in the sense that they are used jointly or together such as car and petrol, pen and ink etc. There is an inverse relationship between the demand for a good and the price of its complements. For example, an increase in the price of petrol not only causes a decrease in the demand for petrol, but also leads to a decrease in the demand for cars. Thus, in case of complementary goods, an increase in the price of one results in decrease in the quantity demanded of the other, and vice versa.

(d) Two important qualities of a successful entrepreneur:

1. Organizational ability: A successful entrepreneur must be a good organizer. He should have the ability to co-ordinate the effort of the various factors of production. People who are good at their own work but poor organizers cannot make good entrepreneurs.
2. Attitude of Risk taking: An entrepreneur must be a person who is bold and willing to face the risks and uncertainties of business. A person who is always averse to risk-taking, cannot be a good entrepreneur.

(e) One disadvantage of division of Labour:
Retarded personality: Repetition of the same task again and again leads to intellectual dullness. It kills the initiative and weakens the desire to learn. As a result the development of physical and intellactual personality of a worker may be retarded.

Question 2:
(a) What do you understand by bank rate? [2]
(b) Classify the following into fixed and working capital. Give Reasons:

1. A television set in a hotel room.
2. Iron-ore in a steel plant. [2]

(c) Identify the market forms for the items given below:

1. A single selter.
2. Homogeneous goods.
3. Product Differentiation.
4. A single buyer. [2]

(d) Define Real Capital. Give two examples. [2]
(e) When is the demand for a good said to be perfectly inelastic? [2]

Answer:
(a) Bank Rate is the rate at which central bank rediscounts the first class bills of exchange of commercial banks. Simply speaking it is the rate of interest at which central bank lends money to the commercial banks. It is used as an instrument of the credit control policy of the central bank.
(b)

1. Fixed Capital
   Reason: A television set in a hotel room is an asset to the owner and can be used repeatedly.
2. Working Capital
   Reason: Iron-ore in a steel plant can be used once since it is a raw material to the plant.

(c)

1. Monopoly
2. Perfect competition market
3. Monopolistic competition
4. Monopsony market.

(d) Real Capital refers to all those goods which are used for further productions of more goods. Examples—Machines, tools, factory, buildings, transport equipments etc.

(e) Demand for a good is said to be perfectly inelastic when the quantity demanded does not change in response to any change in the price of the commodity. No matter what the price is, the same quantity is demanded.

Question 3:
(a) Briefly explain why direct taxes foster civic consciousness among people. [2]
(b) What is the impact of division of labour on cost of production? [2]
(c) The price of a commodity rises from Rs. 20.00 to Rs. 40.00. Consequently its supply increases from 100 units to 400 units. Calculate the price elasticity of supply. [2]
(d) State two agency functions of a commercial bank. [2]
(e) Give two reasons in favour of privatisation of Public Sector Enterprises [2]

Answer:
(a) Direct taxes inculcate a spirit of civic and social responsibility amongst the taxpayers in the sense that the taxpayers feel that they have contributed to the cause of the society.

(b) Impact of division of labour on cost of production:
Reduction in Cost of Production: The specialised worker with the help of machines, produces more quantity of goods in less time and with minimum wastage. This reduces the cost of production thereby resulting in more profits to the producer.

(c) Given: P₀ = Rs. 20, P₁ = Rs. 40, Q₀ = 100 units, Q₁ = 400 units.
Change in Price ΔP = P₁ – P₀
= 40 – 20 = Rs. 20
Change in Supply ΔQ = Q₁ – Q₀
= 400 – 100 = 300
\(\text{Elasticity of Supply }=\frac{\Delta Q}{\Delta P}\times \frac{{{P}_{0}}}{{{Q}_{0}}}\)
\(=\frac{300}{20}\times \frac{20}{100}=3 \)

(d) Two agency functions of a Commercial Bank:

1. Collection and Making payments for credit Instruments—The bank collects the payment of the bills of exchange, promissory notes, cheques, etc. on behalf of its customers.
2. Collection of Dividend—The bank collects the dividends, and interests on shares and debentures as per instructions of its customers.

(e) Arguments in favour of privatisation

1. Greater flexibility in making decisions: Sometimes PSUs suffer losses just due to inadequate autonomy in the ‘decision making power’ of the management. If the PSUs are privatised then the production and investment decisions of the management would be free from any Government intervention, and they would be purely guided by profit motive.
2. Improvement in Managerial Efficiency: Privatization is a means of improvement in managerial efficiency because the private sector is almost free from political interference.
   When many areas of industrial production are opened up for the private sector enterprises, then their investment in the industrial sector is expected to increase to a large extent. Higher investment would mean creation of greater employment and income opportunities within the economy.

Question 4:
State whether the following statements are true or false Give one reason for your answer.
(a) Construction of dams can have negative impacts on the eco-system. [2]
(b) The demand for inferior goods rises when the income of a consumer increases. [2]
(c) A monopolist can sell the same product at different prices to different customers. [2]
(d) During inflation the debtors gain and creditors lose. [2]
(e) Labour is the beginning and end of production. [2]

Answer:
(a) True: Construction of dams Have submerged large areas of agricultural land and forests surrounding these dams, thereby reducing the area under agriculture and forested land and causing ecological disaster.
(b) False: When a consumer becomes richer he will start consuming more of a superior commodity in place of inferior commodity.
(c) True: Monopoly is a market structure in which there exists only a single seller of the product, which has no close substitutes.
(d) True: Debtors benefit during inflation because they had borrowed money when the purchasing power of money was high and they return it when its purchasing power has fallen due to price rise. While creditors tend to lose during inflation since the loan repaid and interest received would have less real value as a result of rise in prices.
(e) True: Labour is a human factor and human beings serve as both end and means of all economic activities.

SECTION-II  (60 Marks)
(Answer any four questions from this section)

Question 5:
(a) What is demand? Explain how quantity demanded of a commodity X will be affected by:

1. An increase in the price of its substitutes.
2. Consumer credit facility.
3. Government policy. [7]

(b) What do you understand by efficiency of labour? Discuss any two causes of low efficiency of labour and suggest one pleasure to improve it. [8]

Answer:
(a) Demand: Demand for any commodity refers to the quantity of that commodity which consumers are willing to purchase at different prices during a given time of period.

1. Quantity demanded of a commodity X will increase with an increase in the price of its substitutes because they will compete with each other for the same demand in the market.
2. With consumer credit facility the demand for commodity X will increase because consumers would be tempted to purchase commodity X which they could not have purchased otherwise.
3. Demand for commodity X will vary with government policy. If the government imposes taxes on commodity in the form of sales tax, excise duties, VAT etc. the price of this commodity will increase. As a result, demand for this commodity will fall. But, on the other hand, if the government incurs more expenditure on construction of roads, bridges, in setting up industries, etc. the demand for cement, iron and goods needed for these purposes will increase and so of this commodity if it is in the list.

(b) Efficiency of Labour: According to Mehta, “By efficiency of labour is meant the ability of labour by virtue of which it is productive. In simple words, efficiency of labour refers to the quality and quantify of goods and services which can be produced over a given time under certain conditions.
Two causes of low efficiency of Indian Labour:

1. Wages not determined by efficiency—Workers in India are not paid according to their efficiency. The employers do not give to the efficient workers the higher incomes that they deserve.
2. Inadequate training facilities—There is also a lack of training facilities for the workers in India. In the absence of training facilities, the workers are not able to develop their skills thus leading to low efficiency.

Suggestions to improve the quality of labour in India:

1. Productivity linked wage—Wages should be linked to productivity of the workers. Hence more efficient workers should be paid higher wages than compared to their less efficient counterparts.
2. Favourable working conditions—Attention should be paid to the working conditions in the factories. More hygienic conditions and congenial conditions would help in achieving higher levels of efficiency.
3. Adequate training Facilities—Adequate provisions for imparting training to the workers should be made. (any one)

Question 6:
(a) With reference to land as a factor of production:

1. Why is it considered a ‘passive’ and an ‘indestructible’ factor of production?
2. Mention two ways in which land is different from capital.
3. Discuss two important functions of land. [7]

(b) What is meant by an indirect tax? Give two examples. Explain briefly two merits and two demerits of Indirect tax. [8]

Answer:
(a)

1. Land is a passive factor of production, as it itself cannot produce any thing. It is the labour who makes use of land.
   Land is an indestructible factor of production, as land is “never destroyed. It will never be out of use.
2. Two main characteristics of land which distinguish it from other factors of production:
   1. Land is Immobile: Land cannot physically move from one place to another whereas capital, labour and entrepreneur are all mobile factors of production.
   2. Effect of Laws of Returns: Since land is a fixed factor of production, the laws of returns are more effectively applicable on it. Use of capital and labour etc. can be varied over time.
3. Importance of Land as a factor of Production—In every kind of production, we have to use land. Therefore land is a basic factor of production.
   1. In industries, it helps to provide raw material.
   2. It provide space/surface for setting up the sites for industrial infrastructure.
   3. In Agriculture, land is considered as the main factor of production as crops are produced on land.
   4. All sources of power i.e. hydro electricity, thermal power, diesel, coal, oil, etc. emanate from land.

Fundamentally speaking, ‘land’ is the original source of all material wealth and it is of immense rise to mankind. Inspite of being a passive factor, it is an important factor of production. An overall economic prosperity of a country is directly related to the richness of its natural resources.

(b) The tax which is paid by some person but their burden or incidence is borne by some other person, is called an Indirect tax. Taxes which are imposed on expenditure incurred on commodity are regarded as indirect taxes.
For Example—Excise duty, Custom duty, Sales tax etc.
Two merits of indirect taxes:

1. Convenient: They are mostly levied on commodities and are paid by consumers when they buy them in the market. The amount of tax is included in the price of the commodity and the consumer pays the tax without experiencing its pinch.
2. Equitable: Indirect taxes are equitable in the sense that they are paid by all the sections of the community at the time Of making purchases of goods in the market, in the form of sales tax or custom duty.

Two demerits of indirect taxes:

1. Absence of Civic Consciousness: Since the tax payer do not feel that they are paying a tax at the time of purchasing a commodity, these taxes do not promote civic consciousness among the citizens.
2. Uneconomical: The cost of collection is quiet heavy. Every source of production has to be guarded. Large administrative staff is required to administer such taxes. This turns out to be a costly affair.

Question 7:
(a) Define Ecosystem. Explain any two impacts of each of the following on the eco system:

1. Industrialisation
2. Automobiles
3. Dwelling houses. [7]

(b)

1. Define a monopolistically competitive market. Give two examples of this market structure.
2. Explain two important features of this type of market. State one similarity and one difference between monopolistic competition and perfect competition. [8]

Answer:
(a) Ecosystem: An Ecosystem is a complex set of relationship among the living resources habitats and residents of an area but changing global pattern of land use have had a significant negative effect on ecosystem.
There is a biotic balance in an ecosystem, which makes it possible to sustain the various interdependent members (plant and animal life). Ecosystem maintains a very delicate balance. Various human activities have been done to disrupt this balance and destroy the world’s ecosystems.

1. Industrialisation:
   1. Industrialisation has resulted in emission of green house gases into the atmosphere, leading to rise in global temperature.
   2. Industrialisation has led to water pollution due to flow of chemical and industrial effluents into rivers and other water bodies.
2. Automobiles:
   1. Automobiles emmits several million tons of gases each year into the atmosphere which causes air pollution and damage to human heath.
   2. Transptation activities has an adverse impact on hydrological conditions and water quality. Fuel, chemical other hazardous particulate mixed in water and pollute it.
3. Dwelling Houses:
   1. Urban development and rapid construction is continously removing soil nutrients, surface vegetation and trees that filter the air and equalize the carbon cycle.
   2. Urbanization also displaces animals and causes serious migratory obstacles for animals and replaces native plant with impermeable concrete.

(b)

1. Monopolistic competition is a market situation where there is a large numberof buyers and sellers selling closely related goods but surely not homogeneous. For example, take the case of tooth-paste, most commonly used commodity. There are qiany tooth pastes in the market, such as Colgate, Cibaca, Close-up, Pepsodent, etc. These are all closely related goods but there may be difference in quality, colour, size, taste etc. which separate them from one another. Each producer has a monopoly control over his own product but competition exists between them. Thus, we find a combination of monopoly and competitive elements. Similarly, we can take another example of toilet soap. There is a large number of firms producing different brands or varieties of soap, e.g. Hamam; Pears, Lifebuoy, Lux, Nirma etc. Each firm enjoys monopoly over its brand. For instance, Hindustan Lever Ltd. has monopoly over the trademark Lux. But there is a competition among these firms producing soap. Similarly, markets of so many products like tea, shoes, shampoo, watches, clothes, fans, bulbs, T.V. sets, pens, sewing machines, washing machines, etc. are example of monopolistic competition.
2. Two Features of monopolistic market:
   1. Non-price competition: Non-price competition is an essential part of monopolistic competition. Firms under this compete with each other not merely by price cutting, but also on the basis of non-price competition, i.e., by producing differentiated products.
   2. Free entry and exit: There are no restrictions on the entry of the new . firms. There is freedom of entry in the sense that the new firms are free
      to produce close substitutes of any brand of product.

Two dissimilarities between perfect and Monopolistic competition:

Perfect competition	Monopolistic competition
1. No selling costs for promoting sales.	1. Significant selling cost through various forms of advertisements.
2. Products are similar.	2. No similar product.

Two similarities between Perfect and Monopolistic Competition:

1. Large number of buyers and sellers.
2. Perfect mobility of factors of production.

Question 8:
(a) Define money. Explain how money can:

1. Overcome the difficulties of double conicidence of wants.
2. Act as a store of value
3. Help producers employ various factors of production. [7]

(b) Explain clearly four ways by which the State can promote economic growth and development. [8]

Answer:
(a)

1. Money resolves the problem of double coincidence of wants by acting as the Medium of Exchange. Since money has general acceptability and purchasing power, it is used for purchasing various goods and services. Since nobody refuses to accept money in exchange for goods and services, there is no need for double coincidence of wants which was a major problem under the barter system.
2. As a store of value: Wealth is usually kept in the form of money because money is the most liquid form of wealth. Since savings is usually done with a view to use the savings for purchasing some commodities or services. It is often said that ‘Money is a matter of functions four: A medium, a measure, a standard, and a store.’
3. Every producer aims to maximise his/her profit while employing various factors of production. A profit-maximising entrepreneur will equate marginal productivity expressed in value terms of a factor with the remuneration such as wage rate, rate of interest, etc. Since rates of remuneration are expressed in money terms, it is money which helps the producer in arriving at decisions with regard to the units of a factor of production to be employed by him.

(b)

1. Promoting Capital Formation: Capital formation is a fundamental requirement for economic development. Private savings are very low in the underdeveloped countries in view of the low income of the people. Therefore, there is a need for generation of savings by the government. Developing countries have to depend primarily on government to mobilise domestic resources during the early stages of economic development. The government has a major role to play in promoting capital formation.
2. Development of Economic Infrastructure: Provision of economic infrastructure is mostly the responsibility of the government. Key economic services, called infrastructure, like railways, road transport, communication network, roads, bridges, irrigation works, gas, electricity, etc., are very essential for economic development. The absence of infrastructure can retard economic development.
3. Policies of the Welfare State: The government is also required to undertake the responsibility of the welfare state. The welfare state is a society in which the government protects the individuals against various contingencies so as to guarantee people a minimum standard of living. The government provides various types of assistance to the people as part of the policies of a welfare state, Such as pensions, accident insurance, health insurance, etc.
4. Population Policy: Population is growing rapidly in most of the underdeveloped countries. The government can evolve an appropriate population policy to control population growth. All the development efforts will be futile if the growth in number is not checked. To increase the per capita income and to improve the standard of living of the people, the rate of population growth must be checked. The State can evolve an appropriate population policy by giving priority to family planning programme.

Question 9:
(a)

1. What is the impact of the behaviour of cost of production on elasticity of supply?
2. Draw and explain the following degrees of elasticity of supply:
   1. E_P = ∞
   2. E_P = 0
   3. E_P > 1.                [7]

(b) What are commercial Banks l Explain clearly three methods adopted by Commercial Banks to borrow money from the public. [8]

Answer:
(a)

1. Nature of cost of production: Elasticity of supply depends upon change in the cost of producing additional quantity of output. If an increase in output by the firms in an industry causes only a slight increase in their cost per unit or leads to decrease in cost per unit, we would expect supply to be fairly elastic. If, on the other hand, increase in supply leads to a large increase in cost of production, the supply would be relatively inelastic.
   1. 1. E_P = ∞ Le. Perfectly Elastic Supply
         In this figure, PS is perfectly elastic supply curve. It is parallel to X-axis. At price OP supply may OQ₁ or OQ₂ Symbolically, it can be said that E_P = ∞ or elasticity of supply is infinity. It is purely an imagonary concept.
         When a minute change or without any change in price, supply may change to any extent, then the supply is perfectly elastic.
         
   1. E_P = 0 Le. Perfectly Inelastic Supply: The supply of a commodity is said to be perfectly inelastic when quantity supplied does not change at all in response to change in its price. In such a case, supply curve becomes vertical or parallel to Y-axis. The fig. clearly indicates that supply remains fixed at OS, even when price rises to OP₁; or fall to OP₂. The numerical values of elasticity of supply in this case will be zero.
      
   2. E_P > 1 Le. More Elastic Supply
      In this figure, supply curve SS is more elastic as in this case ΔP < ΔQ. Mathematically, more elastic supply can be represented as E_P > 1.
      Supply is said to be more elastic when a small change in the price brings about a large change in quantity supplied.
      

(b) Commercial bank is a financial institution which deals in money i.e. borrowing and lending of money. It performs the functions of accepting deposits from the general public and giving loans for investing to them with the aim of earning profit. The three methods adopted by commercial banks to mobolise funds from the public are as under:

1. Cash Credit: In cash credit, the bank advances a ‘cash loan’ upto a specified limit to the customer against a bond or other security. A borrower is required to open a current account and bank allows the borrowers to withdraw upto the full amount of the loan. The interest is charged only on the amount actually utilized by the borrower and not on the loan sanctioned.
2. Loans: A loan is granted against some kind of security of assets or personal security of the borrower and the interest is charged on the full amount sanctioned as loan, irrespective of the fact whether full amount or part of it has been used. In case of loans, the borrower is provided with the facility to repay the loan in installment or as a lump sum.
3. Overdraft: The overdraft facility is allowed to the depositor maintaining a current account with the bank. According to this facility, a borrower is allowed to withdraw more amount than what he has deposited. The excess amount so withdrawn has to be repaid to the bank in a short period and that too with interest. The rate of interest is usually charged more than that charged in case of loans. However, the overdraft facility is given only against security of some assets or on personal security of the customer.

Question 10:
(a) Read the extract given below and answer the questions that follow:
Aug 17,2015
Mumbai Bankers today said, the sharp fall in inflation to 3.38% for July has raised hopes of another rate cut by RBI at September review of the policy. “Obviously, if more find’more and more positive news on inflating front comes. It’s a reasonable expectation to expect that rules will be out at the September policy”, reported Mr. Aditya Puri the Mangaing Director of HDFC Bank. He said the Governor of RBI, Mr. Raghuram Rajan had earlier said that RBI is actively looking at rate cut.

1. Name the policy implemented by RBI to control and regulate money supply.
2. Define creeping inflation. What is its impact on the economy?
3. Explain how the following measures are adopted by RBI to control inflation:
   1. Change in Reserve Ratio
   2. Credit Rationing.           [7]

(b) Explain four ways by which an entrepreneur can promote economic development. [8]

Answer:
(a)

1. Monetary Policy.
2. Creeping inflation: It occurs when there is a sustained rise in prices over time at a mild rate, say around 2 to 3 percent per year. It is also known as mild inflation. Creeping inflation keeps the economy away from stagnation. But some economists regard it as dangerous for the economy. They say creeping inflation may look simple in the begining but with the passage of time it may acquire alarming proportions.
   1. Cash Reserve Ratio: By regulating CRR, the RBI tries to control inflation. In the time of inflation, the Central Bank raises the CRR. An increase in the CRR leads to reduction in cash reserves with the commercial banks. Therefore, commercial banks will not be in position to create only a smaller amount of credit.
   2. Credit Rationing: Credit rationing aims at fixing the maximum or ceiling of total amount of bank loans and/or fixing the maximum limit of loans for a specific purpose. The central bank may fix the maximum amount of loans for every commercial bank. For instance, during the period of inflation, RBI reduces the maximum amount of loan which the commercial banks can give to the traders so as to prevent hoarding of goods by traders.

(b) Ways by which entrepreneur can promote the economic development of a country:

1. A capable entrepreneur can assess the risk in advance and plan accordingly. He is the one who brings all the factors of production to one platform which can promote economic development of a country.
2. The industrial health of a nation depends on the level of entrepreneurship existing in it, economic development of the economy depends on entrepreneurial talent existing in the nation.
3. Entrepreneurship begets and. also injects entrepreneurship by starting a chain reaction when the entrepreneur continuously tries to improve the quality of existing goods and services and add new ones e.g. when computers came into the market there was continuous improvement in the models.
4. By harnessing the entrepreneurial talent a society comes out of traditional lethargy to modem industrial culture.
5. What to produce, how much to produce and how efficiently it is to be produced depends on the class of entrepreneur who commands it that is why entrepreneur can promote the economic development of a country.

ICSE Class 10 Economic Applications Previous Years Question Papers