ICSE Class 10 Economic Applications Board Exam Question Paper 2016 with Solutions

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

PART I

Question 1

(a) What is meant by labour in economics? [2 Marks]

Answer:
Labour is the aggregate of all human physical and mental effort used in the creation of goods and services.

Teacher's Note:
a) Ensure you include both physical and mental effort in your definition, as labour in economics covers both manual and intellectual work.
b) Avoid writing that labour is just any physical work done for fun; it must be productive work undertaken in exchange for an economic reward.

(b) Construct an imaginary individual supply schedule. [2 Marks]

Answer:
An imaginary supply schedule is given below which shows the positive relationship between price and quantity supplied.

Teacher's Note:
a) A supply schedule must clearly show a direct (positive) relationship between price and quantity supplied.
b) Make sure to label the columns correctly with units (Price in Rs and Quantity Supplied) to avoid losing marks.

(c) What are complementary goods? Explain its impact on demand. [2 Marks]

Answer:
Goods which are used together to satisfy a particular want are complementary goods. An increase or decrease in the prices of complementary goods inversely affects the demand for the given quantity.

Teacher's Note:
a) Give standard examples like cars and petrol or pens and ink when explaining complementary goods to make your answer clearer.
b) Remember that the cross-price demand relationship for complementary goods is negative or inverse.

(d) State two qualities of a successful entrepreneur. [2 Marks]

Answer:
1. Efficient to identify skilled resource and to assign work according to tastes and preferences.
2. Ability to predict future market and business conditions.

Teacher's Note:
a) Entrepreneurial qualities should reflect leadership, risk-taking, and organizational vision.
b) Keep the points distinct and concise as required for a two-mark question.

(e) Explain any one disadvantage of division of labour. [2 Marks]

Answer:
Monotony of work is one of the disadvantages of division of labour. If workers do the same work repeatedly, then they get bored and dull when completing the task.

Teacher's Note:
a) Clearly state the disadvantage first and follow it up with a brief explanation of how repetition impacts the worker.
b) Other valid disadvantages include loss of craftsmanship and interdependence of workers, but monotony is the most common point expected.

Question 2

(a) What do you understand by bank rate? [2 Marks]

Answer:
Bank rate is used as the main instrument of monetary control during inflation. The increase in bank rate increases the cost of borrowing which reduces commercial banks borrowing from the central bank. Consequently, the flow of money from the commercial banks to the public reduces. Therefore, inflation arising because of bank credit is controlled.

Teacher's Note:
a) Define bank rate properly as the rate at which the central bank rediscounts first-class bills of exchange or lends money to commercial banks.
b) Emphasize its role as a monetary policy tool used by the central bank to regulate money supply.

(b) Classify the following into fixed and working capital. Give Reasons: [2 Marks]
(i) A television set in a hotel room.
(ii) Iron-ore in a steel plant

Answer:
1. A television set in a hotel room is fixed capital which is used for many years.
2. Iron ore in a steel plant is working capital because it is the raw material used in the production process.

Teacher's Note:
a) Fixed capital refers to durable goods used in production that last for several years, whereas working capital consists of single-use producer goods like raw materials.
b) Always provide the reason explicitly alongside the classification as asked in the question.

(c) Identify the market forms for the items given below: [2 Marks]
(i) A single seller
(ii) Homogeneous goods
(iii) Product Differentiation
(iv) A single buyer

Answer:
(i) A single seller: Monopoly
(ii) Homogeneous goods: Perfect competition
(iii) Product differentiation: Monopolistic competition
(iv) A single buyer: Monopsony

Teacher's Note:
a) Match each characteristic precisely with its corresponding market structure.
b) Monopsony is a rare market form where there is only one buyer, which students often confuse with monopoly.

(d) Define real capital. Give two examples. [2 Marks]

Answer:
Real capital refers to the physical stock of goods which are used as inputs in the production process. Examples: Machines, raw materials.

Teacher's Note:
a) Distinguish real capital clearly from financial capital, which involves money and securities.
b) Give standard, undeniable examples such as factory buildings, machinery, or tools.

(e) When is the demand for a good said to be perfectly inelastic? [2 Marks]

Answer:
When there is no change in demand with change in price, the demand for such a commodity is said to be perfectly inelastic (Ed = 0).

Teacher's Note:
a) Mention the numerical value of elasticity (Ed = 0) along with the verbal definition.
b) Note that the demand curve in this case is a vertical straight line parallel to the Y-axis.

Question 3

(a) Briefly explain why direct taxes foster civic consciousness among people. [2 Marks]

Answer:
Direct tax is imposed on the income of a person based on the principle of ability to pay. The income tax burden is equitably distributed on different people and institutions. Thereby the tax burden falls more on the rich than on the poor. Hence, direct taxes foster civic consciousness among people.

Teacher's Note:
a) Civic consciousness arises because taxpayers directly feel the pinch of paying tax from their income and consequently take keen interest in how government spends public funds.
b) Connect the argument directly to the direct payment nature of the tax burden.

(b) What is the impact of division of labour on cost of production? [2 Marks]

Answer:
Division of labour increases efficiency of labour. Workers become more specialised if they are entrusted with only a part of the work in production. When efficiency of labour increases, it increases the quantity and quality of production. Society can produce goods at a lower cost of production.

Teacher's Note:
a) Explain the intermediate link: division of labour leads to specialization, which raises productivity and efficiency.
b) Higher productivity naturally drives down the per-unit cost of production.

(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 Marks]

Answer:
Given that initial price (P) = Rs 20, new price (P1) = Rs 40, change in price (\(\Delta P\)) = 40 - 20 = 20.
Initial quantity (Q) = 100 units, new quantity (Q1) = 400 units, change in quantity (\(\Delta Q\)) = 400 - 100 = 300 units.
Price elasticity of supply (\(E_s\)) = (\(\Delta Q \div \Delta P\)) \(\times\) (\(P \div Q\))
\(E_s\) = \((300 \div 20) \times (20 \div 100)\) = 3.
Therefore, price elasticity of supply is highly elastic (\(E_s \gt 1\)).

Teacher's Note:
a) Always write out the formula clearly before substituting the values to ensure full credit.
b) Double-check your arithmetic when cancelling out zeros and factors.

(d) State two agency functions of a Commercial bank. [2 Marks]

Answer:
1. Commercial banks provide services like collection and making payments for their customers such as insurance premiums and dividends.
2. They also help in transferring funds from one place to another in the form of cheques and drafts.

Teacher's Note:
a) Distinguish clearly between general utility functions and agency functions; agency functions are performed on behalf of customers.
b) Examples like collection of funds, payment of bills, and acting as trustees are standard agency functions.

(e) Give two reasons in favour of privatization of Public Sector Enterprises. [2 Marks]

Answer:
1. Lack of efficient management has thrown most PSUs in darkness.
2. High construction cost because most government projects were not completed within the stipulated time, so the estimated expenditures had increased over the period.

Teacher's Note:
a) Focus on efficiency, profitability, and reduction of government burden when writing arguments for privatization.
b) Ensure both points are distinct and well-phrased.

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 Marks]

Answer:
True. Construction of a dam causes destruction of the ecosystem because of deforestation. This change in land use has destroyed the natural habitats of organisms and many are on the verge of extinction.

Teacher's Note:
a) State clearly whether the statement is true or false before giving the reason.
b) Highlight environmental consequences such as displacement of flora and fauna and submergence of forests.

(b) The demand for inferior goods rises when the income of a consumer increases. [2 Marks]

Answer:
False. Inferior goods refer to goods whose demand decreases with an increase in income. This is because there is an inverse relationship between income and the demand for inferior goods.

Teacher's Note:
a) Correct the statement by noting that demand for inferior goods falls as income rises.
b) Clearly state the inverse income effect for inferior goods.

(c) A monopolist can sell the same product at different prices to different customers. [2 Marks]

Answer:
True. A monopolist can sell the same product at different prices to different customers because products are differentiated only on the basis of brand, colour and size. Here, the product of a firm is close but not a perfect substitute of the other.

Teacher's Note:
a) This concept is known as price discrimination, which is a characteristic feature of monopoly.
b) Ensure you mention price discrimination as the core economic term justifying the statement.

(d) During inflation the debtors gain and creditors lose. [2 Marks]

Answer:
True. Debtors borrow from creditors to repay with interest at some future date. Changes in the price level affect them differently at different time periods. During inflation, when the prices rise and the real value of money goes down, the debtors pay back less in real terms than what they had borrowed and thus to that extent they are gainers. On the other hand, the creditors get less in terms of goods and services than what they had lent and lose to that extent.

Teacher's Note:
a) Explain the concept of real purchasing power of money during inflationary periods.
b) Clearly show how fixed repayments favor the borrower at the expense of the lender.

(e) Labour is the beginning and end of production? [2 Marks]

Answer:
True. Labour is the beginning and end of production because one produces goods as well as consumes them. The demand for goods depends on the level of their earnings.

Teacher's Note:
a) Explain that labour acts as an active factor initiating production and also as the final consumer whose satisfaction is the ultimate aim of production.
b) Keep the explanation concise and directly tied to human effort and consumption.

PART II

Question 5

(a) What is demand? Explain how quantity demanded of a commodity X will be affected by : [7 Marks]
(i) An increase in the price of its substitutes.
(ii) Consumer credit facility.
(iii) Government policy.

Answer:
Demand for a good refers to the desire to buy a good backed with sufficient purchasing power and the willingness to spend.
Change in quantity demanded means the movements along the demand curve, i.e. the extension of demand caused by a decrease in price of the same good and the contraction of demand caused by an increase in the price of the same good. Therefore, an increase in the price of its substitute good, consumer credit facility and government policy does not affect the quantity demanded.

Teacher's Note:
a) Distinguish carefully between change in demand (shift in demand curve) and change in quantity demanded (movement along the demand curve).
b) Factors like substitute prices, credit facilities, and government policies cause shifts in demand rather than movements along the curve.

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

Answer:
Efficiency of labour means the productive capacity of a worker. It indicates the ability of the worker to do more work or better work during a given period of time.
Cause of low efficiency of labour:
1. Climatic differences affect efficiency of labour in production. The hot and humid climate of majority states of India is a factor which prevents people from doing more work and thus the ability to display high efficiency.
2. The ability and willingness of workers to work and learn skills depend on their health, the wage rate and the standard of living. Generally, the wages are low and labourers are poorly fed. Hence, the low standard of living affects the efficiency of work.
Measure to improve efficiency of labour:
Eradication of illiteracy is a priority to improve efficiency of labour.

Teacher's Note:
a) Define efficiency clearly in terms of output per unit of time or effort.
b) Ensure both causes and the remedial measure are clearly labeled and explained.

Question 6

(a) With reference to land as a factor of production : [7 Marks]
(i) Why is it considered a 'passive' and an 'indestructible' factor of production?
(ii) Mention two ways in which land is different from capital.
(iii) Discuss two important functions of land.

Answer:
(i) Land is a passive factor of production because it cannot produce anything on its own. Example: Land cannot produce food grains without the help of labour and capital. Land is indestructible because it cannot go out of existence. It can never be destroyed; although the fertility of land can be used up, it can always be renewed. A labourer would die one day, and hence, he will no longer be able to provide service in the productive activity.
(ii) Land is different from capital: (a) Capital is a passive factor of production, whereas labour is an active factor of production. (b) Capital can be separated from the owner, whereas labour cannot be separated from labourers.
(iii) Functions of land: (a) Determines agricultural production: The supply of land resources determines the level of agricultural production in an economy. Nearly 43% of the land area of India is plains and is suitable for crop cultivation. (b) Industrial development: Land resources of an economy help in industrialisation. Raw materials for industry are obtained from land. Power needed to run an industry is also supplied by land.

Teacher's Note:
a) Address each sub-part (i, ii, iii) separately and clearly under land as a factor of production.
b) Use correct economic terminology such as passive factor, indestructible nature, and geographical utility.

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

Answer:
Indirect taxes are imposed on an individual but are paid by another person either partly or wholly. Hence, the impact and incidence of taxes are on different people. Customs and excise duties are examples of indirect taxes. Here, the producer bears the impact and the incidence of tax on the consumer.
Merits of indirect tax:
1. Broad coverage: In the case of tax on a commodity, all the buyers of the commodity have to pay an indirect tax irrespective of their income level, whether they belong to high income groups or low income groups. By widening the tax net, the government can yield more revenue for public expenditure.
2. Convenient: Indirect taxes are paid in small portions at regular intervals. It is not a burden to the tax payer as it is included in the price of the commodity.
Demerits of indirect tax:
1. Uncertain: Taxes on goods with elastic demands are uncertain. When the commodity is taxed, prices of the commodity increases which reduces the demand for the commodity in the market. Hence, the revenue from indirect tax is uncertain.
2. Discourage savings: Most of the income is spent on consumption of goods where the price of goods includes indirect tax, thus making savings impossible.

Teacher's Note:
a) Clearly distinguish between impact of tax (who pays initially) and incidence of tax (who bears the ultimate burden).
b) Provide balanced points covering both advantages and disadvantages.

Question 7

(a) Define Ecosystem. Explain any two impacts of each of the following on the eco system: [7 Marks]
(i) Industrialisation
(ii) Automobiles
(iii) Dwelling houses.

Answer:
An ecosystem is a group of living and non-living things which are interdependent and are found in a particular type of environment.
Impacts of destruction of an ecosystem:
1. Dwelling houses:
- Because of an increase in population growth rate and per capita consumption of resources, the ecosystem is being changed and destroyed.
- Deforestation is undertaken to accommodate more human settlement.
- Because of widespread construction, the local groundwater level has declined and cities have to make provision for external sources of water.
2. Automobiles:
- Air pollution has also increased enormously with an increase in the number of automobiles. Engines give off incompletely burnt waste products, including carbon, carbon dioxide, various oxides of nitrogen and hydrogen. These gases lead to innumerable environmental hazards and health hazards in individuals.
3. Industrialisation:
- Air pollution has also increased enormously with an increase in the number of industries and factories. Gases such as carbon dioxide, sulphur and nitrogen are emitted from various industries. These gases lead to environmental and health hazards such as acid rain and skin disorders in individuals.
- Dumping of industrial wastes is the main factor which contributes to soil pollution. Industrial wastes contain chemicals which get accumulated on the top layer of the soil, leading to a loss of fertility of the soil.

Teacher's Note:
a) Ensure the definition of an ecosystem covers both biotic and abiotic components.
b) Structure the impacts clearly under the three headings requested in the question.

(b) (i) Define a monopolistically competitive market. Give two examples of this market structure. [8 Marks]
(ii) Explain two important features of this type of market. State one similarity and one difference between monopolistic competition and perfect competition.

Answer:
Monopolistic competition is a form of market in which there are many sellers of the product, but the product of each seller is different from the other. Example: Selling toothpastes such as Colgate, Pepsodent and Closeup.
Features:
1. A monopolistic firm has partial control over price only through product differentiation. Products are differentiated through design and colour of packaging. This attracts consumers to buy the product at a higher price. As there are many rivals and close substitutes of products in the market, a monopolistic firm cannot have full control over the price.
2. In monopolistic competition, the firm has a negatively sloped demand curve which is more elastic. A large quantity of the product can be sold by reducing its price. It is more elastic than the demand curve of a monopoly firm because of close substitutes available in the market.
Similarity: Both perfect and monopolistic competition have a large number of buyers and sellers of a commodity.
Difference: Perfect competition is a form of the market which does not incur any selling costs for products, whereas monopolistic competition is a form of the market which incurs high selling costs for products.

Teacher's Note:
a) Highlight product differentiation as the defining feature of monopolistic competition.
b) Clearly state both the similarity and difference when comparing it with perfect competition.

Question 8

(a) Define money. Explain how money can : [7 Marks]
(i) Overcome the difficulties of double coincidence of wants.
(ii) Act as a store of value
(iii) Help producers employ various factors of production.

Answer:
Money is commonly accepted as a medium of exchange. It is an instrument which serves as a medium of exchange, a measure of value, a store of value and a standard for deferred payments.
Functions of money:
1. Money acts as a medium of exchange: The introduction of money resulted in the end of the barter system, where goods were exchanged according to needs. Now, money acts as an intermediate in the exchange process and is thus known as a medium of exchange. Anyone can exchange goods for money and buy commodities which are required for personal use. Thus, it overcomes the difficulty of double coincidence of wants.
2. Money acts as store of value: People keep their wealth in the form of money because money is the most liquid form of wealth. Savings in the form of money are maintained for purchasing commodities in the future. In this case, the value of commodities is stored. Hence, money acts as a store of value.
3. Money has made deferred payments easier: Deferred payments refer to payments which are made in the future. When money is borrowed, the principal and interest amounts have to be returned to the lender. However, these transactions are not possible in terms of goods and services. Money performs this function more effectively. Thus, it enables producers to employ factors of production.

Teacher's Note:
a) Define money through its primary functions before detailing specific sub-points.
b) Explain each function clearly with reference to how it resolves barter system limitations.

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

Answer:
The state plays an important role in the development of an economy by generating employment for the poor and promoting their social welfare. Promotional role of the state in economic development is as follows:
1. Providing rural infrastructure and extending credit to the poor at a low rate of interest as an effective instrument to remove poverty.
2. Development of infrastructure such as transport, irrigation system, power and electricity, and communication is required to promote agricultural and industrial development.
3. The state has to intervene in macro-economic management of the economy. The government can intervene in some sections of the population which are not covered by market mechanism.
4. Income inequality is not a healthy phenomenon. Revenue policy and public expenditure policy are two measures undertaken by the government to reduce income inequality in an economy. The progressive and proportional system of taxation helps reduce the gap between the rich and the poor. All the public expenditure incurred in the projects will benefit the middle classes and the poor sections of an economy.

Teacher's Note:
a) Focus on public expenditure, infrastructure development, poverty alleviation, and reduction of inequalities as key state roles.
b) List all four points clearly with explanatory details for full marks.

Question 9

(a) (i) What is the impact of the behaviour of cost of production on elasticity of supply? [7 Marks]
(ii) Draw and explain the following degrees of elasticity of supply.
i. \(E_p = \alpha\)
ii. \(E_p = 0\)
iii. \(E_p \gt 1\)

Answer:
Impact of the behaviour of cost of production on elasticity of supply: The price elasticity of supply of any commodity depends on the nature and supply of inputs required for the production of that commodity. If these inputs are easily available, then the supply of that commodity will be relatively elastic. Otherwise, its supply becomes relatively inelastic because of the non-availability of inputs. Thus, the cost of production varies according to the nature and supply of inputs.
Degree of elasticity of supply:
1. \(E_p = \infty\): Supply is said to be infinite when \(E_p = \infty\). Infinite elasticity of supply refers to a horizontal straight line supply curve which shows infinite supply corresponding to a particular price of the commodity. The quantity supplied is infinite when the price of the commodity is OS. It reduces to zero even when the price is slightly reduced.
[Figure: A horizontal supply line labeled S parallel to the X-axis at price OS, with quantity on the X-axis and price on the Y-axis]
2. \(E_p \gt 1\): Supply is said to be elastic when \(E_p \gt 1\). Elastic supply refers to a straight line, positively sloped supply curve from the y-axis irrespective of the angle it makes. An increase in the price of the commodity from OP will lead to extension of supply.
[Figure: A positively sloped supply curve starting from the Y-axis above the origin, showing elastic supply where percentage change in quantity is greater than percentage change in price]
3. \(E_p = 0\): When the supply of a commodity becomes completely price-inelastic, the supply curve becomes parallel to the vertical axis.
[Figure: A vertical supply curve labeled \(e_s = 0\) parallel to the Y-axis, indicating that quantity supplied remains constant regardless of changes in price]

Teacher's Note:
a) Connect cost of production directly to availability of inputs and how easily production can be scaled up or down.
b) Clearly explain each degree of elasticity along with its graphical representation.

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

Answer:
Commercial banks are financial institutions that accept deposits from the public and grant loans for commercial purposes with the aim of making profit.
Three methods adopted by commercial banks to borrow money from the public (accept deposits):
1. Fixed Deposits: Money is deposited for a fixed period of time earning a higher rate of interest. These cannot be withdrawn before the expiry of the term without a penalty.
2. Savings Deposits: Aimed at encouraging small savings among households. These accounts offer moderate interest and allow a limited number of withdrawals per week or month.
3. Current Account Deposits: Maintained by businessmen and traders where money can be deposited and withdrawn multiple times a day without any restriction. Generally, no interest is paid on these accounts.

Teacher's Note:
a) Define commercial banks accurately before discussing their deposit-mobilization methods.
b) Clearly distinguish among current, savings, and fixed deposit accounts.

Question 10

(a) Read the extract and answer the questions that follow: [7 Marks]
Mumbai : Bankers today said, the sharp fall in inflation to 3.78% for July has raised hopes of another rate cut by RBI at September review of the policy. “Obviously, if more and more and more positive news on inflation front comes. It’s a reasonable expectation to expect that rates will be cut at the September policy”, reported Mr. Aditya Puri, the Managing Director of HDFC Bank. He said, the Governor of RBI, Mr. Raghuram Rajan had earlier said that RBI is actively looking at rate cut.
(i) Name the policy implemented by RBI to control and regulate money supply.
(ii) Define creeping inflation. What is its impact on the economy?
(iii) Explain how the following measures are adopted by RBI to control inflation:
i. Change in Reserve Ratio
ii. Credit Rationing.

Answer:
(i) Bank rate is the policy implemented by the RBI to control and regulate money supply.
(ii) Creeping inflation: Creeping inflation is inflation where the price level increases at a slow rate of 2 to 2.5% per annum. It keeps away from the stagnant situation in an economy. However, it is also dangerous for the economy as it extends for a long time.
(iii) Measures adopted by RBI to control inflation:
- Cash Reserve Ratio (CRR): While controlling inflation, the central bank raises the CRR which reduces the lending capacity of commercial banks. Consequently, the flow of money from commercial banks to the public decreases. In the process, it halts the rise in prices arising due to bank credits to the public.
- Credit rationing: The quota system was introduced in 1960. The RBI fixes credit quota for member banks. If a member bank seeks more loan than its fixed quota, then it will have to pay higher interest.

Teacher's Note:
a) Reference the extract where necessary while answering general monetary policy questions based on it.
b) Clearly explain both CRR and credit rationing as quantitative and qualitative instruments of monetary control.

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

Answer:
Entrepreneur to promote economic development:
1. Risk bearing and innovative capabilities are associated with entrepreneurship. Entrepreneurs introduce cost-reducing or demand-creating innovations in various industries, and industrial production becomes a factor. Hence, the country would become self-sufficient in the production of various industrial goods of high quality to cater to the changing needs of domestic and international markets.
2. Contribution towards the generation of higher employment and income opportunities. They spend a greater portion of their profits in new ventures or for productive purposes. Hence, higher investment can create more employment and income opportunities within the country.
3. They set up industries in backward regions to avail various concessions and subsidies provided by the government. This enables to reduce regional disparities in an economy.
4. They also help the economy to reduce dependence on foreign countries by producing indigenous substitutes of imported goods.

Teacher's Note:
a) Focus on innovation, employment generation, regional balance, and import substitution as the core contributions of entrepreneurs.
b) Ensure all four points are well-structured and clearly detailed.