ICSE Class 10 Economic Applications Board Exam Question Paper 2013 with Solutions

ICSE Board Class 10 Economics Applications Board Exam Question Paper 2013 with Solutions

PART I

Question 1

Attempt all questions from this part. [10 Marks]

(a) With the help of a diagram show how a market demand cure can be obtained from individual demand curves. [2 Marks]

[Figure: Three separate demand curve diagrams. The first two show individual demand curves labelled A's Demand Curve and B's Demand Curve with downward sloping lines DD from price axis to quantity axis. The third shows the Market Demand Curve which is the horizontal summation of the first two curves, also sloping downwards from left to right.]

Answer:
The market demand curve represents the market demand schedule for two consumers A and B in the market. The market demand curve is the horizontal summation of the individual demand curves. It indicates various quantities of a commodity which all consumers in the market are willing to buy at different possible prices of the commodity at a point of time.

Teacher's Note:
a) Market demand is derived by horizontally summing the individual quantities demanded at each price level.
b) Ensure the axes (Price on Y-axis and Quantity on X-axis) are clearly labelled in the diagrams.

(b) Which section of society is worst affected during inflation? Briefly explain. [2 Marks]

Answer:
During inflation, people who receive a fixed income are hit the hardest. People living on past savings, fixed interest or rent, pensions, salaries, etc., suffer during periods of rising prices as their incomes remain fixed. The middle class which works hard to provide for their children's education, their own livelihood in times of sickness and old age, and to accommodate day-to-day expenses, finds it difficult to survive in times of serious inflation.

Teacher's Note:
a) Fixed-income earners suffer because their nominal income remains constant while the purchasing power of money declines.
b) Mention specific groups like wage earners, pensioners, and creditors to secure full marks.

(c) Mention one way be which Government policy can ensure social justice. [2 Marks]

Answer:
The government in a welfare state can ensure social justice with the help of fiscal policy. The state can reduce inequality and achieve the goal of equity through the system of progressive taxation, subsidies, and concessions to low and middle-income groups.

Teacher's Note:
a) Fiscal policy involves the government's revenue and expenditure measures.
b) Progressive taxation ensures that the rich are taxed at higher rates while the proceeds are used for the welfare of the poor.

(d) There are no substitute goods in a monopoly market. Give a reason to support your answer. [2 Marks]

Answer:
The government may grant a license for the production of a particular commodity to a single producer, bringing monopoly into existence. Also, the government may decide to control the production of certain goods exclusively through its departmental undertakings, such as the railways in India. Hence, there are no close substitutes for the monopoly product in the market. For example, there is no close substitute for railways as a bulk carrier.

Teacher's Note:
a) A pure monopoly is characterized by a single seller selling a product with no close substitutes.
b) Mention legal barriers or exclusive government rights as primary reasons for the absence of substitutes.

(e) Briefly explain the impact of constructing dams on the ecosystem. [2 Marks]

Answer:
The impact of constructing dams on the ecosystem is as follows:
1. Soil erosion: Dams hold back the sediment load generally found in a river flow, thus restricting their transport downstream. The downstream water then erodes its channels and banks to make up for the sediments, threatening vegetation and river wildlife.
2. Species extinction: Many large dams do not include proper bypass systems for fishes and other aquatic species, which interferes with their lifecycles and forces species to extinction.

Teacher's Note:
a) Environmental degradation caused by large dams is a major area of study in resource economics.
b) Give clear headings like soil erosion and aquatic disruption to score full marks.

Question 2

Attempt all questions from this part. [10 Marks]

(a) Briefly explain why labour is considered to be the means and end of production. [2 Marks]

Answer:
A labourer is both a means of production as well as the end of it. He produces goods and also consumes them. The demand for goods largely depends upon the level of wages in the country. Hence, labour is considered to be the means and end of production.

Teacher's Note:
a) Labour acts as an active factor of production (means) and also the ultimate consumer of output (end).
b) Emphasize both production and consumption roles to get complete credit.

(b) Distinguish between joint demand and composite demand. [2 Marks]

Answer:
When the demand for different complementary goods is created simultaneously, it is termed as joint demand. For example, the demand for computer hardware and software is created jointly.
When any good or service is in demand for many alternative uses, that demand is called a composite demand. For example, electricity is in demand for lighting, heating, and running machinery.

Teacher's Note:
a) Joint demand relates to complementary goods used together.
b) Composite demand relates to a single good having multiple alternative uses.

(c) State two reasons for slow capital formation in a developing economy. [2 Marks]

Answer:
The reasons for the slow rate of capital formation in a developing economy are:
1. Lack of ability to save: Due to poverty, poor people are unable to save more than a negligible part of their earnings. Hence, a low rate of savings leads to a low rate of capital formation.
2. Lack of willingness to save: In certain parts of the country, a traditional social framework exists where people who have the ability to save money are not willing to do so, spending all their income on customary consumption.

Teacher's Note:
a) Capital formation depends directly on the capacity and willingness to save.
b) Distinguish clearly between the ability to save (income constraint) and the willingness to save (psychological/social constraint).

(d) State one difference between monopsony and monopolistic competition. [2 Marks]

Answer:
Monopsony refers to a market where there is a single buyer of a commodity or service with many sellers; whereas monopolistic competition is a form of market in which there are many buyers and sellers selling differentiated products.

Teacher's Note:
a) Note carefully that monopsony relates to a single buyer, not a single seller (which is monopoly).
b) Monopolistic competition involves product differentiation and a large number of firms.

(e) Classify the following capital goods:
(i) Machines (ii) Cotton yarn (iii) Oil mill (iv) Bridge [2 Marks]

Answer:
(i) Machines - Fixed capital
(ii) Cotton yarn - Floating capital (or Circulating capital)
(iii) Oil mill - Sunk capital
(iv) Bridge - Social capital

Teacher's Note:
a) Fixed capital refers to durable producer goods used in production over multiple periods.
b) Sunk capital has specialized use and cannot be easily converted to alternative uses without loss.

Question 3

Attempt all questions from this part. [10 Marks]

(a) Indicate the degree of elasticity of demand of the following demand curves. [2 Marks]

[Figure: Two graphs. Graph 1 shows a horizontal demand curve DD parallel to the X-axis with an arrow A pointing to it. Graph 2 shows a downward sloping demand curve DD intersecting both axes, with an arrow B pointing to it.]

Answer:
1. For demand curve A (horizontal line parallel to the X-axis): The degree of elasticity of demand is perfectly elastic where \( E_d = \infty \).
2. For demand curve B (downward sloping line): The degree of elasticity of demand is unitary elastic where \( E_d = 1 \) (or unit elastic representing constant total expenditure).

Teacher's Note:
a) A horizontal demand curve indicates infinite responsiveness of quantity demanded to price changes.
b) Unitary elasticity occurs when a change in price leaves total consumer expenditure completely unchanged.

(b) What is meant by land use pattern? [2 Marks]

Answer:
Land use pattern relates to the physical features of land, the institutional and other framework of resources such as labour and capital available, and how land is allocated among various alternative purposes like cultivation, dairy farming, or building houses based on returns from those uses.

Teacher's Note:
a) Land use pattern indicates the distribution of land under various uses such as forests, agriculture, and pastures.
b) Mention that it depends on economic returns and institutional frameworks.

(c) What are indirect taxes? Give an example. [2 Marks]

Answer:
Indirect taxes are those taxes which are imposed on one person but are paid by another person either partly or wholly. Hence, the impact and incidence of taxes fall on different persons. For example, excise duty or Goods and Services Tax (GST).

Teacher's Note:
a) The distinguishing feature of an indirect tax is the shifting of tax burden.
b) The producer bears the initial impact, but the consumer bears the ultimate incidence through higher prices.

(d) Define money. How does it act as a 'measure of value'? [2 Marks]

Answer:
According to Robertson, money is anything which is widely accepted in payment for goods or in discharge of other kinds of business obligations. Money acts as a measure of value by serving as a common denominator or unit of account in terms of which the values of all diverse goods and services are expressed and compared.

Teacher's Note:
a) Always quote a standard standard economist's definition when asked to define money.
b) As a measure of value, money eliminates the cumbersome exchange ratios required in a barter system.

(e) What is meant by an overdraft facility? [2 Marks]

Answer:
An overdraft facility is a credit facility provided by a commercial bank to current account holders. When a customer receives this facility, he or she is permitted to draw cheques in excess of the balance standing in his/her credit up to a specified sanctioned limit.

Teacher's Note:
a) Overdraft is generally extended to trusted business customers holding current accounts.
b) Interest is charged only on the actual amount overdrawn, not on the sanctioned limit.

Question 4

Attempt all questions from this part. [10 Marks]

(a) The price of milk rises from Rs. 26.00 to Rs. 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. [2 Marks]

Answer:
Given data:
Initial Price (\( P_1 \)) = Rs. 26.00
New Price (\( P_2 \)) = Rs. 30.00
Change in Price (\( \Delta P \)) = \( 30 - 26 = 4 \)
Initial Quantity (\( Q_1 \)) = 4 litres
New Quantity (\( Q_2 \)) = 2 litres
Change in Quantity (\( \Delta Q \)) = \( 2 - 4 = -2 \)
Formula: \( E_p = -\frac{P}{Q} \times \frac{\Delta Q}{\Delta P} \)
\( E_p = -\frac{26}{4} \times \frac{-2}{4} = \frac{52}{16} = 3.25 \)
Here, the elasticity of demand is greater than unity.

Teacher's Note:
a) Always include the negative sign in the percentage method formula to make the final elasticity coefficient positive.
b) Clearly state whether demand is elastic, inelastic, or unit elastic based on the final numerical result.

(b) Differentiate between an entrepreneur and labour on the basis of:
(i) Nature of work (ii) Nature of risk involved [2 Marks]

Answer:

Teacher's Note:
a) Structure differences in a tabular format with clear headings as requested.
b) Highlight risk-bearing as the exclusive function of the entrepreneur.

(c) Distinguish between the fiscal and monetary policy of the Government. [2 Marks]

Answer:

Teacher's Note:
a) Clearly distinguish between the governing authorities (Government vs Central Bank).
b) List key instruments of each policy to earn full credit.

(d) What are public sector units? Mention one problem faced by Public sector units in India. [2 Marks]

Answer:
Public sector units (PSUs) are industrial and commercial enterprises owned, managed, and controlled by the government with the primary objective of maximizing social welfare rather than earning profits. One major problem faced by PSUs in India is the lack of incentives to maximize efficiency, as promotions are often based strictly on seniority rather than merit.

Teacher's Note:
a) Emphasize that PSUs prioritize social welfare over private profit.
b) Other problems include bureaucratic delays, political interference, and overstaffing.

(e) What is meant by bank rate? How does it help in controlling the flow of credit in the economy? [2 Marks]

Answer:
Bank rate is the standard rate at which the Central Bank rediscounts bills of exchange or provides accommodation loans to commercial banks. During inflation, the Central Bank raises the bank rate, which increases the cost of borrowing for commercial banks. In turn, commercial banks raise their lending rates to the public, reducing borrowings and effectively controlling the flow of credit.

Teacher's Note:
a) Explain both definition and mechanism during inflationary conditions.
b) An increase in the bank rate initiates a domino effect leading to dearer credit in the entire banking system.

PART II

Attempt any four questions from this part. (60 Marks)

Question 5

(a) Define capital and explain three important functions of capital. [7 Marks]

Answer:
Capital is defined as the produced means of production. It consists of those man-made goods which are used as inputs for further production of other goods and services, and are not meant for immediate final consumption.
Important functions of capital are:
1. Capital and large-scale production: Capital allows investment in heavy machinery and modern equipment, enabling industries to undertake large-scale production and achieve economies of scale.
2. Capital and division of labour: Capital enables the complex production process to be divided into small specialized tasks. Different groups of workers are assigned specific segments, which increases productivity and reduces unit costs.
3. Extraction of goods from nature: Capital provides tools, tractors, and mining machinery that make it possible to extract and utilize natural resources efficiently, which human labour alone could not accomplish.

Teacher's Note:
a) Start with the standard economic definition: "produced means of production".
b) Explain each function with clear economic reasoning and examples.

(b) “Land is the original source of all material wealth”. In this context, explain four determinants that influence the productivity of land. [8 Marks]

Answer:
Four determinants that influence the productivity of land are:
1. Scientific cultivation and inputs: The use of high-yielding variety (HYV) seeds, adequate chemical or bio-fertilizers, pesticides, and modern agricultural implements like tractors and power tillers significantly increases land productivity.
2. Natural qualities of soil: The fertility and natural properties of the soil determine its yield potential. Soil suitable for a specific crop (such as wheat or rice) enhances agricultural productivity.
3. Location of the land: Land located closer to markets is more productive in economic terms because it reduces transportation costs and ensures timely availability of produce for sale.
4. Ownership of land: Permanent owners take active interest in making permanent improvements and maximizing productivity, whereas tenants with temporary settlements lack incentives for long-term investments in land.

Teacher's Note:
a) Land productivity refers to the output yielded per unit of land.
b) Discuss both natural and human-induced factors affecting land productivity to secure full marks.

Question 6

(a) Explain the following functions of the Central Bank of a country. [8 Marks]
i. Acting as a “banker to the Government”.
ii. Fixation of margin requirement on secured loans.
iii. Developmental functions.

Answer:
i. Acting as a banker to the Government: The Central Bank acts as a banker, advisor, and agent to the government. It maintains current accounts for government funds, receives government receipts, makes payments on behalf of the government, and provides short-term loans (ways and means advances) to meet budgetary deficits.
ii. Fixation of margin requirement on secured loans: Margin requirement refers to the difference between the market value of the security offered by a borrower and the maximum loan amount sanctioned against it by commercial banks. By raising or lowering margin requirements, the Central Bank can restrict or expand credit creation during inflation or deflation.
iii. Developmental functions: In a developing economy, the Central Bank undertakes promotional functions to establish and expand financial institutions, develop sound money and capital markets, promote banking habits among the public, and ensure stability to foster economic growth.

Teacher's Note:
a) Cover each sub-heading thoroughly with precise banking terminology.
b) Clarify that margin requirement is a selective credit control instrument.

(b) What is meant by ecosystem? Explain three adverse effects of mining on the ecosystem. [7 Marks]

Answer:
An ecosystem is defined as a dynamic complex of plant, animal, and microorganism communities and their non-living environment interacting as a functional unit.
Three adverse effects of mining on the ecosystem are:
1. Generation of waste: Mining operations generate massive quantities of overburden, toxic tailings, and rock waste that degrade surrounding land and pollute natural habitats.
2. Disruption of water circulation: Unregulated mining activities disrupt surface drainage patterns and underground aquifers, leading to depletion and contamination of freshwater resources.
3. Reshaping of topography: Large-scale excavation removes plant cover and soil mantles, destroying natural landscapes, causing severe soil erosion, and leading to loss of biodiversity.

Teacher's Note:
a) Define ecosystem clearly, highlighting the interaction between biotic and abiotic components.
b) Detail specific environmental consequences arising from resource extraction.

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. [8 Marks]

Answer:
Efficiency of labour refers to the productive capacity or capability of a worker to produce more work or better quality work per unit of time.
Three factors that determine the efficiency of labour are:
1. Health, standard of living, and wages: Better health, proper nutrition, higher wages, and a higher standard of living directly enhance physical stamina and working capacity.
2. Education and training: Literacy, vocational training, and technical skill development enable workers to operate complex machinery efficiently and minimize wastage.
3. Working conditions and climate: Favorable working environments, adequate safety measures, and temperate climates enhance worker comfort and productivity compared to extreme heat and poor ventilation.

Teacher's Note:
a) Define labour efficiency as productivity per worker per hour.
b) Support your explanation with standard socio-economic determinants.

(b) Define a Commercial Bank. Explain three methods adopted by Commercial Banks to mobilise funds from the public. [7 Marks]

Answer:
A commercial bank is a financial institution that accepts deposits from the public, grants loans for business and personal purposes, and provides various other financial services such as remittance and agency services.
Three methods adopted by commercial banks to mobilise funds are:
1. Fixed deposits (Term deposits): Deposits accepted for a specific period offering higher rates of interest. They cannot be withdrawn before maturity without penalty.
2. Current account deposits: Demand deposits maintained primarily by business firms, allowing unlimited withdrawals by cheque without any interest payment.
3. Savings account deposits: Deposits held mainly by households with restrictions on the number of withdrawals, offering a modest rate of interest and cheque facilities.

Teacher's Note:
a) Distinguish clearly between the three types of bank deposits based on liquidity, purpose, and interest.
b) Emphasize that commercial banks mobilize savings to channel them into productive investments.

Question 8

(a) Define privatisation. Discuss two arguments each in favour and against privatisation. [8 Marks]

Answer:
Privatisation refers to the process of transferring ownership, management, and control of state-owned public sector enterprises to private business entities, or opening up previously state-reserved economic sectors to private participation.
Arguments in favour of privatisation:
1. Improved efficiency: Private enterprises operate on profit motives, leading to better management, reduced wastages, and higher operational efficiency.
2. Reduction of political interference: Privatisation removes state-run enterprises from bureaucratic delays and political pressures.
Arguments against privatisation:
1. Neglect of social welfare: Private monopolies tend to maximize profits at the expense of weaker sections, compromising social objectives.
2. Uneven regional growth: Private investors tend to concentrate in developed urban areas, leading to regional imbalances in economic development.

Teacher's Note:
a) Define privatisation as the reduction of the state's role in economic activity.
b) Provide balanced economic arguments both supporting and opposing privatisation.

(b) Read the following extract and answer the questions that follow: [7 Marks]
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-adversarial 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.

Answer:
i. Direct tax refers to a tax whose incidence and impact fall on the same person; the burden cannot be shifted to anyone else. Examples: Income tax and wealth tax.
ii. Direct tax fosters social consciousness because taxpayers feel a direct connection to state revenue collection, making them more vigilant about how public funds are utilized by the government.
iii. A progressive direct tax is one in which the rate of taxation increases as the taxpayer's income increases. It brings about equity by narrowing the gap between rich and poor, as higher-income groups pay a larger proportion of their income in taxes.
iv. Two demerits of direct taxes are:
1. Possibility of tax evasion: Taxpayers may misrepresent income statements to evade tax liabilities.
2. Inconvenience in computation: Filing direct tax returns involves cumbersome paperwork and administrative complexities.

Teacher's Note:
a) Ensure all four sub-questions based on the passage are answered precisely.
b) Highlight progressiveness as the key tool for income redistribution.

Question 9

(a) Define price elasticity of demand. Explain how the following determine factors determine price elasticity of demand. [7 Marks]
i. Existence of substitute goods
ii. Nature of the commodity
iii. Proportion of expenditure incurred in a household budget.

Answer:
Price elasticity of demand is defined as the responsiveness of quantity demanded of a good to a change in its price, expressed as the ratio of percentage change in demand to percentage change in price.
Determinants of price elasticity of demand:
i. Existence of substitute goods: Commodities with close substitutes (e.g., tea and coffee) have elastic demand because consumers easily switch to substitutes when price rises. Goods without substitutes have inelastic demand.
ii. Nature of the commodity: Necessities of life (e.g., food, medicines) have inelastic demand because consumers must buy them regardless of price changes. Luxury goods (e.g., air conditioners, jewelry) have elastic demand.
iii. Proportion of expenditure incurred in a household budget: Goods on which consumers spend a very small fraction of their income (e.g., matchboxes, salt) have inelastic demand, whereas goods consuming a large share of income (e.g., clothing, housing) have elastic demand.

Teacher's Note:
a) Define price elasticity clearly before explaining individual determinants.
b) Give relevant economic examples for each determinant to support your answer.

(b) State whether the following statements are true or false. Give reasons for each. [8 Marks]
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 incurred on infrastructural development.
iv. An indirect tax can be made progressive by imposing higher tax rates on luxury goods.

Answer:
i. False. If prices are expected to fall in the future, current demand falls because consumers postpone their purchases to take advantage of lower future prices.
ii. True. Slow growth in agriculture fails to generate adequate rural employment, compelling workers to migrate from rural to urban areas in search of livelihood.
iii. False. Public expenditure on infrastructure (such as power, transport, irrigation) is crucial for economic development and stimulates private investment in a developing country.
iv. True. Although indirect taxes are generally regressive, they can be made progressive by imposing higher tax rates on luxury goods consumed primarily by the rich while exempting necessities.

Teacher's Note:
a) Each statement must be clearly classified as True or False first.
b) Provide a logical economic reason for each judgment.

Question 10

(a) Under which type of a market are producers price takers? Explain three of its characteristics. [7 Marks]

Answer:
Producers are price takers under a perfectly competitive market.
Three characteristics of perfect competition are:
1. Large number of buyers and sellers: The share of each firm in total market supply is so negligible that no single firm can influence the market price.
2. Homogenous product: All firms sell identical units of a product in terms of quality, design, and features, giving buyers no reason to prefer one seller over another.
3. Free entry and exit of firms: There are no legal or economic barriers preventing new firms from entering or existing firms from leaving the industry in the long run.

Teacher's Note:
a) Identify perfect competition as the market structure where producers are price takers.
b) Explain how homogeneity of products ensures a uniform price across the market.

(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 Marks]

Answer:
The supply of a good is directly related to its price. As price rises, quantity supplied increases, and as price falls, quantity supplied decreases, illustrating the Law of Supply.
[Figure: Supply schedule table showing prices Rs. 5, 10, 15 with corresponding quantities supplied 100, 200, 300 units, and an upward sloping supply curve SS on a Cartesian coordinate system with Price on Y-axis and Quantity on X-axis.]
Four determinants of supply are:
1. Price of the product: A higher price increases profitability, inducing producers to increase the supply of the commodity.
2. Prices of factors of production: An increase in input costs (wages, raw materials) reduces profit margins and decreases the supply of the good.
3. State of technology: Technological improvements lower production costs and increase the productive capacity of firms, thereby increasing supply.
4. Objectives of the firm: If the primary goal of the firm is profit maximization, higher prices stimulate greater output, whereas welfare-oriented state enterprises may follow different supply responses.

Teacher's Note:
a) State the direct relationship clearly and mention the Law of Supply.
b) Describe supply determinants with clear economic direction (positive or negative impact).