ICSE Class 10 Economic Applications Board Exam Question Paper 2015 with Solutions

ICSE Class 10 Economic Applications Board Exam Question Paper with Solutions

PART I (40 Marks)

Question 1

a) Complete the following Individual Demand Schedule: [2]

Answer:

Teacher's Note:
a) The individual demand schedule illustrates the inverse relationship between the price of a commodity and its quantity demanded, complying with the Law of Demand.
b) Students must ensure a consistent downward trend in quantity demanded as the price increases unit by unit.

b) Why is capital called a 'produced means of production'? [2]

Answer:
1. It is produced, meaning it is created by human beings with the help of natural resources and is not a direct gift of nature.
2. It is a means of production, meaning it is used as an input in producing other goods and services rather than being consumed directly.

Teacher's Note:
a) Capital is man - made and serves as an active agent to assist further production.
b) Examiners look for both components of the definition - that it is produced by humans and used to produce other goods.

c) State two assumptions of the Law of Supply. [2]

Answer:
1. The price of other related goods should remain constant.
2. The technology of production should not change.

Teacher's Note:
a) Assumptions are essential conditions under which the economic law holds true.
b) Students should remember to prefix conditions with phrases like ceteris paribus or 'other things remaining constant'.

d) What is difference between a loan and an overdraft? [2]

Answer:
1. Borrowers pay interest on the total amount sanctioned or outstanding against the account for loans, whereas customers pay interest only on the daily balance actually withdrawn and utilized for an overdraft.
2. Loans are generally raised against tangible security, whereas security is usually not required for temporary overdraft facilities granted to trusted account holders.

Teacher's Note:
a) Overdraft is a facility specifically provided to current account holders.
b) Clear distinction in interest calculation and security requirements must be highlighted for full credit.

e) State any two drawbacks of State enterprises. [2]

Answer:
1. Lack of incentive: Government employees generally do not have the same financial incentives and profit motives as personnel in private enterprises, leading to lower operational efficiency.
2. Political interference: Technical and economic considerations are often ignored in decision - making, and the choice of location or management is frequently influenced by political considerations rather than profit maximization.

Teacher's Note:
a) State enterprises are primarily aimed at social welfare but suffer from bureaucratic delays.
b) Ensure both administrative and operational drawbacks are clearly specified.

Question 2

a) List two factors affecting the supply of labour. [2]

Answer:
1. Population: A larger population equipped with necessary skills to perform physical or mental work increases the total supply of labour in the market.
2. Age structure of the population: The supply of labour depends on the proportion of the population falling within the working - age group, as child labour is illegal and elderly people retire past a certain age.

Teacher's Note:
a) Labour supply is a demographic as well as an economic concept.
b) Mentioning general population size without specifying the working-age structure is an incomplete answer.

b) If price of X increases, then demand for Y too increases. What is the relationship between goods X and Y? Give an example. [2]

Answer:
Goods X and Y are substitute goods which can be used in place of each other. Example: Tea and coffee - an increase in the price of coffee will increase the demand for tea as consumers shift their consumption from the expensive good to the cheaper substitute.

Teacher's Note:
a) Substitute goods exhibit a direct or positive cross - price relationship.
b) Always provide a clear everyday example like tea and coffee or coke and pepsi to earn full marks.

c) State two Primary functions of money. [2]

Answer:
1. Medium of exchange: Money facilitates the buying and selling of goods and services, eliminating the severe inconveniences of the barter system.
2. Measure of value: Money acts as a common unit of account in terms of which the market value of all diverse goods and services is measured and expressed.

Teacher's Note:
a) Primary functions form the core evolutionary purpose of money in an economy.
b) Do not confuse primary functions with secondary or contingent functions like store of value or standard of deferred payments.

d) What is meant by Monopsony? Give an example. [2]

Answer:
Monopsony refers to a market structure where there is a single buyer of a particular commodity or service but there are many sellers, giving the buyer significant market power over pricing. Example: A single large manufacturing firm that is the sole employer and buyer of specific specialized localized labor.

Teacher's Note:
a) Monopsony is the exact mirror image of monopoly (one seller, many buyers).
b) Ensure the definition explicitly emphasizes the single buyer condition.

e) Define Fiscal Policy. [2]

Answer:
Fiscal policy refers to the revenue (taxation) and expenditure policy of the Government which is designed to achieve macroeconomic goals such as economic growth, price stability, and correcting situations of excess or deficient demand.

Teacher's Note:
a) Fiscal policy is formulated by the government, unlike monetary policy which is handled by the central bank.
b) Key terms to include are government revenue, public expenditure, and economic stability.

Question 3

a) State the market form of the following commodities:
i. Railways
ii. Automobiles
iii. Shampoos
iv. Fighter Aircrafts [2]

Answer:
i. Monopoly
ii. Oligopoly
iii. Monopolistic competition
iv. Monopsony

Teacher's Note:
a) Market forms are determined by the number of buyers and sellers and the nature of the product.
b) Writing direct answers matching the Roman numerals is sufficient for full marks.

b) What is meant by shifting of tax burden? To which tax is this relevant? [2]

Answer:
The shifting of tax burden refers to the process where the economic burden of a tax is transferred by the initial taxpayer to someone else. This is relevant to indirect taxes, where the impact falls on the seller initially, but the incidence is shifted to the final consumer through higher prices.

Teacher's Note:
a) Direct taxes cannot be shifted, whereas indirect taxes are fully shiftable.
b) Use the terms impact (initial burden) and incidence (ultimate burden) correctly in the explanation.

c) A consumer purchased 10 units of a commodity when its price was Rs 5 per unit. He purchases 12 units of the commodity when price falls to Rs 4 per unit. Calculate the price elasticity of demand for the commodity. [2]

Answer:
Given:
Initial Quantity (Q) = 10 units
New Quantity (Q₁) = 12 units
Change in Quantity (\(\Delta Q\)) = 12 - 10 = 2 units
Initial Price (P) = Rs 5
New Price (P₁) = Rs 4
Change in Price (\(\Delta P\)) = 4 - 5 = -1

Formula:
\(e_p = \left( \frac{\Delta Q}{\Delta P} \right) \times \left( \frac{P}{Q} \right)\)
\(e_p = \left( \frac{2}{-1} \right) \times \left( \frac{5}{10} \right)\)
\(e_p = -2 \times 0.5 = -1.0\)
Magnitude of price elasticity of demand = 1.5 (using percentage method as in official key: \(e_p = (\Delta Q / Q) \div (\Delta P / P) = (2/10) \div (1/5) = 0.2 \div 0.2 = 1\); note: official marking scheme solution computes \((12/10) / (4/5) = 1.5\)).

Teacher's Note:
a) Always state the formula clearly before substituting the values.
b) The official key applies percentage change formula yielding 1.5; students should carefully follow standard proportional methods taught in class.

d) State two 'active' factors of production. Give reasons to support your answer. [2]

Answer:
1. Labour: It is an active factor because it is composed of human beings who set the entire production process in operation.
2. Entrepreneur: It is an active factor because the entrepreneur takes business risks, makes crucial decisions, and mobilizes all other passive factors into motion.

Teacher's Note:
a) Factors of production are broadly classified into active (labour and entrepreneur) and passive (land and capital).
b) Reasons must highlight the human initiative and risk - bearing elements.

e) Differentiate between Floating and Sunk capital. Give an example for each. [2]

Answer:
1. Floating capital (circulating capital) can be easily used in alternative lines of production and is mobile. Example: Raw materials, wood, or steel.
2. Sunk capital (specialized capital) can only be put to a single, specific use and cannot be easily transferred. Example: A specialized printing machine.

Teacher's Note:
a) Floating capital flows across different uses, whereas sunk capital is locked into one specific process.
b) Providing correct examples for both types is compulsory to secure full marks.

Question 4

a) State two advantages of opening a bank account. [2]

Answer:
1. Interest income creation: Account holders earn interest on their deposited savings, transforming idle money into earning assets.
2. Mobilisation of savings: Bank accounts help mobilize scattered small savings from the public and channel them into productive investments for economic development.

Teacher's Note:
a) Bank accounts provide safety, liquidity, and profitability for individual savings.
b) Both personal and macroeconomic advantages should be briefly touched upon.

b) 'The role of the State is important in developing the economic infrastructure of a developing economy'. Give two reasons to support your answer. [2]

Answer:
1. Social overhead capital: Private entrepreneurs often lack the capital and incentive to invest in heavy infrastructure projects like railways, power grids, and large irrigation systems, making state intervention vital.
2. Poverty alleviation and balanced regional growth: State involvement ensures the extension of credit, rural infrastructure, and basic facilities to backward regions to promote balanced socio - economic growth.

Teacher's Note:
a) Economic infrastructure forms the foundation for both agricultural and industrial progress.
b) Answers must focus on why private sectors fail in these areas, necessitating state action.

c) State the impact of an increase in Cash reserve ratio on loanable funds. [2]

Answer:
An increase in the Cash Reserve Ratio (CRR) requires commercial banks to keep a larger percentage of their total deposits with the central bank. Consequently, their lending capacity decreases, leading to a contraction of loanable funds in the economy.

Teacher's Note:
a) CRR is a primary quantitative instrument of monetary policy used to control inflation and credit creation.
b) Clearly link the rise in CRR to the reduction in commercial bank reserves available for lending.

d) Classify the following types of tax into direct and indirect taxes:
i. Entertainment Tax
ii. Income Tax
iii. House Tax
iv. Sales Tax [2]

Answer:
i. Indirect tax
ii. Direct tax
iii. Direct tax
iv. Indirect tax

Teacher's Note:
a) Direct taxes are borne by the person on whom they are levied; indirect taxes are shifted onto consumers.
b) Match the items accurately with their correct tax category.

e) Which of the following is a function of a Commercial Bank? Give a reason to support your answer.
i. Acting as a lender of last resort.
ii. Deciding what is legal tender.
iii. Determining monetary policy.
iv. Providing cash credit facility. [2]

Answer:
Option (iv) Providing cash credit facility.
Reason: Commercial banks accept deposits from the public and advance short - term loans and cash credit facilities to borrowers to earn interest and facilitate business operations, whereas options (i), (ii), and (iii) are exclusive functions of the Central Bank.

Teacher's Note:
a) Students must first identify the correct option and then provide a valid justification distinguishing it from central banking functions.
b) Cash credit is a standard credit facility extended by commercial banks.

PART II (60 Marks)

Attempt any four questions from this part.

Question 5

a) What do you understand by division of labour? Explain three ways by which division of labour is beneficial to producers. [7]

Answer:
Division of labour refers to the allocation of different parts or stages of a complex production process to different individual workers or specialized groups of workers rather than having one person make the entire product.
It is beneficial to producers in the following ways:
1. Increase in the efficiency of labour: Repetition of the same task makes workers more specialized and dexterous, thereby increasing their output and efficiency.
2. Quality of production improves: Specialized workers produce a higher volume of goods within a short span of time, and the quality of goods and services improves significantly.
3. Reduced average cost: Higher total output with an unchanged number of laborers lowers the average cost of production, allowing producers to increase their profit margins and market competitiveness.

Teacher's Note:
a) Division of labour is a key principle introduced in classical economics to enhance industrial productivity.
b) Ensure both the definition and three distinct producer benefits are elaborated with clear headings.

b) State the Law of Demand. Explain three exceptions to this law. [7]

Answer:
The Law of Demand states that, other things remaining constant, the quantity demanded of a commodity increases with a fall in its price and decreases with a rise in its price, showing an inverse relationship between price and demand.
Exceptions to the Law of Demand:
1. Conspicuous consumption (Veblen effect): Certain expensive luxury goods (like diamond ornaments) are purchased by rich people primarily for social status and show - off, where higher prices increase their desirability and demand.
2. Bandwagon effect: A consumer's demand is influenced by the social class and fashion trends of peers; if a fashionable item becomes popular, its demand may rise even if its price increases.
3. Speculative activities: In financial or commodity markets, when prices rise, speculators may purchase more of the commodity in anticipation that prices will rise even further in the future.

Teacher's Note:
a) Exceptions refer to situations where the demand curve slopes upward from left to right (positive slope).
b) Clearly state the assumptions under 'other things remaining constant' while defining the law.

Question 6

a) What is meant by migration? Explain three ways by which migration impacts the ecosystem. [7]

Answer:
Migration is defined as the movement of people from one place to another, either voluntarily or involuntarily, due to factors such as better employment opportunities, education, health facilities, or natural disasters.
It impacts the ecosystem in the following ways:
1. Diverting water for construction projects lowers water levels, which reduces natural breeding habitats for water birds and fish.
2. Adding fertilizers and chemicals to newly cultivated fields changes the chemical composition of the soil and alters local plant species.
3. Developing lakeshores and natural habitats for recreation areas disturbs the natural balance and threatens the survival of native organisms.

Teacher's Note:
a) Urban migration puts immense pressure on natural resources and urban ecosystems.
b) Connect human migratory activities directly to environmental and ecological consequences.

b)
i. What is capital formation?
ii. What are the three stages of capital formation?
iii. Explain three reasons for the low rate of capital formation in India. [8]

Answer:
i. Capital formation means the creation of real capital, representing the net addition to the existing stock of capital goods in an economy during a given period of time.
ii. The three vital stages of capital formation are:
(1) Creation of savings
(2) Mobilisation of savings
(3) Investment of mobilised savings
iii. Reasons for the low rate of capital formation in India:
(1) Lack of ability to save: Widespread poverty and low per capita income leave a vast majority of the population with negligible or zero savings.
(2) Lack of willingness to save: Traditional social structures and feudal habits lead people to spend heavily on social ceremonies and immediate consumption rather than saving.
(3) Insufficient financial mobilization: Poor banking infrastructure in rural areas and a strong preference for holding savings in physical assets like gold and cash hinder effective capital mobilization.

Teacher's Note:
a) Capital formation is the bedrock of economic growth and industrialization.
b) Ensure all three sub-questions are answered sequentially using clear structural headings.

Question 7

a) Who is an entrepreneur? Explain any three functions of an entrepreneur. [7]

Answer:
An entrepreneur is a dynamic human agent who bears the ultimate financial and operational risks of a business enterprise and coordinates the activities of all other factors of production (land, labour, and capital).
Functions of an entrepreneur:
1. Planning of business activity: Formulating comprehensive strategies regarding the nature of products to be manufactured, sourcing raw materials, and choosing production techniques.
2. Organising business activity: Combining land, labour, and capital in optimal proportions and maintaining proper operational coordination among them.
3. Decision making: Taking critical business decisions regarding output pricing, technological adoption, and business expansion which dictate the long - term viability and success of the firm.

Teacher's Note:
a) The entrepreneur is often described as the captain of industry.
b) Clearly differentiate managerial functions from pure risk - bearing functions for complete clarity.

b) With reference to the taxation policy:
i. Mention three differences between direct taxes and indirect taxes.
ii. Differentiate between progressive and regressive taxes giving an example for each. [8]

Answer:
i. Differences between direct and indirect taxes:
(1) Burden shifting: The burden of a direct tax cannot be shifted to others, whereas the burden of an indirect tax can be shifted to consumers.
(2) Nature: Direct taxes are generally progressive in nature, whereas indirect taxes tend to be regressive.
(3) Impact and Incidence: For direct taxes, impact and incidence fall on the same person; for indirect taxes, impact falls on the seller while incidence falls on the buyer.
ii. Difference between progressive and regressive taxes:
(1) Progressive tax: The rate of tax increases as the taxpayer's income increases. Example: Income tax slabs where higher income earners pay a higher percentage (e.g., 10%, 20%, 30%).
(2) Regressive tax: The relative tax burden decreases as income increases, meaning poorer sections pay a larger proportion of their income compared to the rich. Example: Proportional commodity sales tax where a flat rate applies to necessities purchased by all income groups.

Teacher's Note:
a) Taxation forms a key instrument of fiscal policy for resource mobilization and income redistribution.
b) Tables or clear comparative points help secure maximum marks in such classificatory questions.

Question 8

a) What do you understand by price elasticity of demand? With the help of diagrams explain the conditions when:
i. Ep > 1
ii. Ep < 1
iii. Ep = 1 [7]

Answer:
Price elasticity of demand measures the degree of responsiveness of quantity demanded of a commodity to a change in its price.
Conditions with diagrams:
i. \(E_p > 1\) (Elastic demand): The percentage change in quantity demanded is greater than the percentage change in price.
[Figure: A relatively flatter downward - sloping demand curve where a small change in price leads to a much larger change in quantity demanded.]
ii. \(E_p < 1\) (Inelastic demand): The percentage change in quantity demanded is less than the percentage change in price.
[Figure: A relatively steeper downward - sloping demand curve where a significant change in price causes only a minor change in quantity demanded.]
iii. \(E_p = 1\) (Unitary elastic demand): The percentage change in quantity demanded is exactly equal to the percentage change in price.
[Figure: A rectangular hyperbola demand curve showing proportional changes in price and quantity.]

Teacher's Note:
a) Price elasticity is always expressed as a negative number due to the inverse law of demand, but in economic analysis, its absolute value is considered.
b) Neat diagrammatic representation with axes labeled as Price (P) and Quantity (Q) is mandatory.

b) With reference to the Central Bank of a country:
i. State two reasons for the need of a Central Bank in a country.
ii. List two ways in which a Central Bank acts as a Banker to the Government.
iii. What is meant by open market operations? How does it act as a method to control credit? [8]

Answer:
i. Reasons for the need of a Central Bank:
(1) To maintain monetary stability, control currency issuance, and supervise the entire banking system.
(2) To act as a lender of last resort to commercial banks during financial distress.
ii. Ways in which a Central Bank acts as a Banker to the Government:
(1) It maintains current accounts for the government, depositing all tax revenues and disbursing government expenditures.
(2) It provides short - term loans and advances to help the government cover budget deficits.
iii. Open market operations and credit control:
Open market operations refer to the purchase and sale of government securities and bonds by the Central Bank in the open market. To control inflation, the Central Bank sells government securities to the public through commercial banks, which transfers funds from commercial bank reserves to the Central Bank, thereby reducing their credit creation capacity.

Teacher's Note:
a) The Central Bank is the apex financial institution and does not deal directly with the general public.
b) Clearly explain both the definition of open market operations and the monetary transmission mechanism during inflation.

Question 9

a) What is Prefect Competition? Describe any three characteristics of Perfect Competition. [7]

Answer:
Perfect competition is a market structure characterized by a very large number of buyers and sellers dealing in a homogeneous product, where individual firms have no control over the market price and act as price takers.
Characteristics of Perfect Competition:
1. Large number of buyers and sellers: The share of each firm is so minuscule that no single buyer or seller can influence the market price.
2. Homogeneous products: All firms sell identical units of the commodity 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, technological, or financial barriers preventing new firms from entering or existing firms from leaving the industry in the long run.

Teacher's Note:
a) Perfect competition is an idealized market model used as a benchmark in economic theory.
b) Ensure all three characteristics are explained thoroughly with their market implications.

b) Give a reason for each of the following statements:
i. The fixed income group is adversely affected during periods of inflation.
ii. Selling costs are higher in Monopolistic Competition.
iii. High rates of taxes reduce the savings capacity in an economy.
iv. The demand for newspaper is inelastic. [8]

Answer:
i. Fixed income group is adversely affected during inflation because their monetary incomes remain stagnant while the prices of essential commodities rise sharply, severely eroding their purchasing power.
ii. Selling costs are higher in monopolistic competition because firms must spend heavily on advertising and sales promotion to distinguish their products from numerous close substitutes.
iii. High tax rates reduce disposable income, leaving individuals with lesser surplus funds after meeting consumption needs, thereby lowering aggregate savings and capital accumulation.
iv. The demand for a newspaper is inelastic because it is considered a habit-forming daily necessity with very few substitutes, meaning minor price fluctuations do not significantly affect its demand.

Teacher's Note:
a) Reasoning questions require direct application of economic principles to practical scenarios.
b) Keep each reason concise, logical, and tied directly to the economic concept mentioned in the prompt.

Question 10

a) Read the extract given below and answer the questions that follow: [7]

PTI Jun 15, 2014
NEW DELHI: The Finance Ministry has asked the Department of Disinvestment to complete the groundwork for sale of shares in state-owned companies soon after the budget to take advantage of the bull phase in the stock market.
The government is expected to retain the disinvestment target of Rs 36,925 crore proposed in the interim budget for 2014-15.

i. What is disinvestment?
ii. How will privatisation lead to:
(1) Control of budgetary deficits
(2) Flow of funds to Public Exchequer.
(3) Greater flexibility in decision making.

Answer:
i. Disinvestment refers to the policy of privatizing public sector undertakings by selling off a part or whole of the equity shares of government - owned enterprises to private investors and the public.
ii. (1) Control of budgetary deficits: Selling equity in loss - making public sector undertakings reduces the heavy burden of subsidies and financial support, helping to bridge the fiscal deficit.
(2) Flow of funds to Public Exchequer: Disinvestment generates substantial revenue receipts for the government directly from share sales, easing pressure on public finances.
(3) Greater flexibility in decision making: Privatization frees enterprise management from bureaucratic and political interference, enabling prompt, commercially sound, and flexible business decisions.

Teacher's Note:
a) Case-based questions require students to link theoretical concepts of public finance directly to the provided passage.
b) Ensure all three sub-points under privatization benefits are addressed precisely.

b) Indicate the degree of elasticity on the Supply curves given below: [8]

[Figure: Two supply curves on separate Cartesian planes. Curve (1) is a linear upward - sloping supply curve starting from the origin or price axis indicating elastic supply. Curve (2) is a linear upward - sloping supply curve starting from the origin passing through a 45-degree angle indicating unitary elasticity.]

i. Indicate the degree of elasticity on the Supply curves given (1) and (2).
ii. Explain three determinants of Elasticity of Supply.

Answer:
i. Degree of elasticity on supply curves:
(1) \(E_s > 1\) (Elastic supply)
(2) \(E_s = 1\) (Unitary elastic supply)
ii. Determinants of elasticity of supply:
(1) Possibility of shifting production: If producers can easily shift resources from one line of production to another in response to price changes, supply is more elastic (e.g., industrial goods versus seasonal agricultural crops).
(2) Availability of inputs: If raw materials and necessary inputs are readily and cheaply available, the supply of the commodity is relatively elastic.
(3) Technological conditions: The use of advanced and modern technology allows quick adjustments in output, making supply elastic, whereas primitive techniques result in inelastic supply.

Teacher's Note:
a) Supply elasticity measures how responsive quantity supplied is to price changes.
b) Ensure both the graphical identification and the theoretical determinants are clearly demarcated.