ICSE Economics Previous Year Question Paper 2015 Solved for Class 10

ICSE Paper 2015
ECONOMICS

(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) State any two factors that determine the Division of labour. [2]
(b) Mention two ways by which land differs from other factors of production. [2]
(c) Define an Indirect tax with the help of an example. [2]
(d) Which of the following is considered as labour in Economics? Give a reason to support your answer. [2]

1. A professor working in a college.
2. A social worker serving in an orphanage.

(e) What is the significance of Capital in promoting economic growth?  [2]

(a) The two factors that determine the division of labour are:

1. Size of the market: The extent to which division of labour can be adopted, depends upon the size of the market for a particular product. The concept of market includes the area or region, number of buyers and their purchasing power etc.
2. Attitude of workers: Divisions of labour becomes useful and beneficial when the workers have willingness and positive attitude towards it.

(b) Land differs from other factors of production:

1. As it is a free gift of nature and is available free of cost.
2. Supply of land is fixed in quantity. It cannot be increased or decreased like other factors of production.

(c) “An indirect tax is a tax which is demanded from one person in the expectation and intention that he shall indemnify himself at the expense of another.” For example: Excise duty, custom duty, sales tax etc.

(d)

1. A professor working in a college: He is considered as labour in economics. He comes under the category of professional labourer. He is that mental worker, who has undergone advanced study and training.
2. A social worker serving in an orphanage: He is not considered as labour as neither he performs ‘mental’ nor ‘physical’ exertion with a motive to earn money.

(e) Capital is the core of economic development. It is not possible without a sufficient provision of machines, tools, irrigation system, dams, bridges, railways etc. All nations need adequate capital stock for their economic development.

Question 2:
(a) What is meant by Cross elasticity of demand? [2]
(b) Mention any two factors that cause a rightward shift of the demand curve. [2]
(c) Distinguish between Normal goods and Inferior goods. [2]
(d) Draw a perfectly elastic supply curve? [2]
(e) Distinguish between Redeemable debt and Irredeemable debt. [2]

(a) A change in the demand for one goods in response to a change in the price of another goods represents cross elasticity of demand.
$${{\text{E}}_{\text{d}}}=\frac{\text{Proportionate change in the demand for one commodity}}{\text{Proportionate change in the price of another commodity}}$$
(b) Two factors that cause a rightward shift of demand curve are as follows:

1. When income of the consumer increases.
2. When price of complementary good falls.

(c) Normal goods are those in case of which there is a positive relationship between income and quantity demanded.
Inferior goods are those in case of which there is negative (or inverse) relationship between income and quantity demanded.
(d)

(e)

1. Loans which the Government promises to pay off at some future date are called redeemable debts whereas loans for which no promise is made by the Government regarding any date of maturity, but agrees to pay interest regularly for the bonds issued are called irredeemable debts.
2. Irredeemable debts are generally of long duration as compared to redeemable debts.

Questions 3:
(a) Define creeping inflation. [2]
(b) Direct taxes are progressive in nature. Briefly explain. [2]
(c) Define efficiency of labour. [2]
(d) State any two demerits of the Barter system of exchange? [2]
(e) Mention two differences between the Central Bank and a Commercial Bank. [2]

(a) Creeping inflation: It occurs when there is a sustained rise in price at a very slow rate, say around 2 to 3 percent per year. It is also known as mild inflation.
(b) “Direct taxes are progressive in nature.” Taxes in which the rate of tax increases with the rise in tax payers income, are called progressive taxes. The amount of tax paid will increase at a higher rate than the increase in tax base or income.
(c) By ‘efficiency of labour’ we mean the productive capacity of a worker to do more or better work or both dining a specified period of time.
(d) The two demerits of Barter system of exchange are as follows:

1. Need for double coincidence of wants: The barter form of exchange can take place only when the two parties need each other’s goods in the form of exchange.
2. Difficulty in storing value: In the barter system, it is very difficult and inconvenient to store weath for future use goods like food grains, cloth, cattle, sheep etc.

(e)

 Central Bank Commercial Bank The central bank is the apex monetary institution which has been specially empowered to exercise central over the banking system of the country. The commercial banks are the constituent unit of the banking system. The central bank does not deal directly with the public. The commercial banks deal with the public directly.

Question 4:
(a) Explain briefly two differences between Recurring deposits and Fixed deposits. [2]
(b) What is meant by Open market operations? [2]
How does it influence money supply?
(c) Mention two causes of Consumer Exploitation. [2]
(d) What is meant by RTI? [2]
(e) Distinguish between Fixed capital and Circulating capital quoting suitable examples. [2]

(a)

 Recurring Deposits Fixed Deposits In case of such deposits, an accountholder has to deposit certain fixed amount every month for a specified period. In such deposits, the deposits amount can be withdrawn only after the period of time agreed upon by the bank and the depositor. Rate of interest paid by the bank is higher than the savings account but less than the fixed deposit account. The interest rate are higher in case of such deposits. The longer the period, higher is the interest rate.

(b) ‘Open Market Operations’ refers to the purchases or sales of government securities, public securities or trade bills etc: by the central bank in an open market.
In limits the power of commercial bank to create credit, so they will have to reduce their advances and loans. On the other hand, purchase of government securities by the central bank results in an increase in cash reserves of the commercial banks.

(c) Two causes of consumer exploitation are:

1. Low Literacy: Illiteracy leads to exploitation, lack of consumer awareness is the root cause for exploitation.
2. Limited Information: Producers provide incomplete and incorrect information about various products.

(d) (RTI) Right to Information Act, 2005 is a law enacted by the Parliament of India, giving citizens of India access to records of the central and state governments. It includes the right to:

1. Request any information.
2. Take copies of documents.
3. Take certified samples of materials of work.

(e) Fixed capital refers to these producer goods having long life which can be used again and again in productive processes. For example: machinery, plants and factory buildings, transport equipments etc.
Circulating capital includes all those items, which can be used for a specific purpose only once. Cotton and paper are such examples, which are used only once in productive processes of making cloth and printing of books respectively.

SECTION-II  (40 Marks)
(Answer any four questions from this section)

Question 5:
(a) Define Division of labour. Explain three benefits of Division of labour to producers. [5]
(b) Define Capital Formation. Explain three causes of low capital formation in a developing economy. [5]

(a) Division of Labour—“The system of distributing a particular type of job to a particulars type of worker is known as specialization division of labour.”

1. Increase in Production—With the specialization of labour, the workers become more skilled and efficient. They acquire higher speed in work, which ultimately results in moreproduction, quantitatively as well as qualitatively.
2. Improvement in Quality—As the worker acquires greater skill in performing the work, the quality of the commodity produced is better.
3. New Innovations—Consequent to the division of labour, the worker uses only one kind of machine and tool or attends to only one process of the total work continuously for a long period and hence he originates an entirely new idea, which sometimes results in a new invention.

(b) Capital formation—“Formation of capital implies that society uses its present production not only for the satisfaction of its consumption but also uses a part of it on capital goods that is making machinery transport facilities or other production equipments.”
Three causes of low capital formation in a developing economy:

1. Low saving ability—The people in India have the desire to save and possess all those factors, whifh motivate the “will to save’, like old age considerations, family affection, social and political influence, but they have lower per capita income. Lower per capita income leads to low savings which lead to lower rate of capital formation.
2. Habit of Hoarding—Most of the people have very little capacity to save, and are more in the habit of hoarding their savings in their houses, such savings are of no use as far as capital formation is concerned, because these hoarding cannot be utilized for any productive purposes.
3. Taxation Policy: High level of taxes on property in India, affects the savings and accumulation of capital adversely.

Question 6:
(a) Mention five qualities of a good entrepreneur. [5]
(b) Differentiate between Decrease in demand and Contraction of demand. [5]

(a) Five important qualities of an 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.
3. Prudent decision making ability: The ability to take prudent decisions is another quality of a good entrepreneur. He must not take unreasonable risks and bring disaster to a business firm. He should take calculated risks and earn profits through prudent decision making.
4. Innovative ability: A successful entrepreneur must play the role of a pioneer, i.e. he or she must break fresh grounds. New products must be evolved and marketed or some new method of manufacturing an old commodity must be implemented. All these are possible only if the entrepreneur has an innovative ability.
5. Negotiating Skills: An ideal entrepreneur must also have negotiating skills, becausing running of a business firm successfully often involves holding negotiations on various issues with various parties (for instance, the trade unions, the local administration, the Government etc.).
Differentiate between decrease and Contraction of Demand

(b) Differentiate between decrease and Contraction of Demand

Question 7:
(a) What is meant by Shift in supply? Explain three determinants of a leftward shift of the supply curve. [5]
(b) Define Elasticity of demand. Explain briefly three determinants of elasticity of demand. [5]

(a) Shift in supply—Shift in supply curve refer to situations of increase or decrease in supply even when own price of the commodity remains constant. Shifts in supply curve are caused by factors, other than own price of the commodity. These are often studied as:

1. Increase in supply, indicated by forward shift in supply curve.
2. Decrease in supply, indicated by backward shift in supply curve.

Three determinants of leftward shift the supply curve are as follows:

1. Use of outdated technology, causing a fall in efficiency and rise in cost of production.
2. Decrease in number of firms in the industry.
3. Increase in taxation.

(b) Elasticity of Demand: Elasticity of demand means responsiveness of demand due to change in price of the commodity, income of the consumer and price of the related goods.
Three factors/determinants of elasticity of demand are:

1. Own price of commodity—Other things being equal, with a rise in own price of the commodity, its demand contracts, and with a fall in price, its demand extends. This inverse relationship between own price of the commodity andits demand, is called law of demand.
2. Income of the consumer—Change in income of the consumer also influences his demand for different goods, the demand for normal goods tends to increase with increase in income and vice versa. On the other hand, the demand for inferior goods like Coarse grain tends to decrease with increase in income and vice versa.
3. Expectations—If the consumer expects a significant change in the availability of the concerned commodity in the near future, he may decide to change his present demand for the commodity. If he expects a rise in price in future, he will purchase today and if he expects a fall in price in future he postpones his demand.

Question 8:
(a) What is meant by Public Expenditure? Explain three reasons for an increase in public expenditure in India. [5]
(b) Define a tax. Explain briefly three merits of a Direct tax. [5]

(a) Public Expenditure—Public expenditure is the expenditure incurred by the public authorities (central, state and local governments) to satisfy those common wants which the people in their individual capacity are unable to satisfy efficiently.
Three reasons for an increase in public expenditure in India are as under:

1. Development Work—Modem state has also taken up developmental work in addition to their primary functions of administration and defence.
2. Rise in price level—As a result of the rise in price level, the public expenditure has gone up everywhere. The reason is that, the private individuals and also the government have to buy goods and services from the market at higher prices.
3. Increase in Population—As a result, the government has to incur great expenditure to meet the requirements of increasing population. In fact, the public expenditure increases in the same ratio in which the population increases.

(b) “Tax is a compulsory contribution from a person to the government to defray the expenses incurred in the common interest of all, without reference to social benefits incurred.”
Three Merits of a Direct Tax:

1. Equitable—A direct tax is an equitable tax. It is equitable in the sense that, it is levied according to the taxable capacity of the people. The rates of direct taxes, like the income tax, can be fixed in such a way that the higher income of a man, the greater is the rate at which he has to pay the tax.
2. Certainty—The tax-payers know how much they are going to pay and at what time they are going to pay the tax. The authorities also know the amount of revenue they can expect.
3. Elasticity—A direct tax c\$n be varied according to the needs of the government and changes in the income of the people. When the income of the people goes up, the rate of income tax can also be increased. If the income of the people falls, the rate of income tax can be lowered.

Question 9:
(a) Explain the secondary functions of money. [5]
(b) What is meant by Costpush inflation? Briefly explain three of its determinants. [5]

(a) Secondary functions of Money:

1. Standard of Deferred Payments—Deferred payments refer to those payments which are made sometimes in the future. Example: Money has made deferred payments much easier than before. When we sorrow money from somebody, we have to return both the principal as well as interest amount. It is difficult to make such transactions in goods and services.
2. Store of Value—It implies store of wealth storing wealth has become considerably easy with the introduction of money. Wealth can be stored just in terms of paper titles. Stored wealth is a source of future investment and investment is a source of growth and property.
3. Transfer of Value—Money also serves as a convenient mode of transfer of value. By facilitating transfer of value, money has promoted both consumption expenditure as well as investment expenditure across all parts of the world.

(b) Cost push inflation—It refers to inflationary rise in prices which arises due to increase in costs. Cost push inflation is caused mainly due to increase in cost of wages and increase in profit margin.
Three Determinants of Cost push inflation:

1. Fluctuations in Output and Supply—The wide fluctuations in production of foodgrains has been mainly responsible for price rise. There was a remarkable increase in production Of food grains during first two plans and supply of food grains was good. But fluctuation in foodgrains production, the tactics of holding, resulted in an increase in price.
2. Public Distribution System—The defective working of the public distribution system results in an uneven supply of various goods, ultimately affecting the prices of essential commodities by way of artificial scarcity.
3. Rise in Wages—The rise in the general price level raises the cost of living which in turn, leads to demand for higher wages by workers. When the demand for higher wages is met, it will lead to further rise in costs or prices.

Question 10:
(a) With reference to the Central Bank, explain the following: [5]

1. Monopoly of note issue
2. Lender of the last resort.

(b) An alert consumer is a safe consumer.
Give reasons to support your answer. [5]