ICSE Class 10 Economic Applications Board Exam Question Paper 2017 with Solutions

ICSE Class 10 Economics Applications Board Exam Question Paper with Solutions

PART I (40 Marks)

Question 1

(a) Demand is inversely related to price. Explain. [2 Marks]

Answer:
The law of demand states the inverse relationship between the price and the quantity demanded keeping other factors constant. This implies that the demand for a good increases with a fall in its price, and the demand decreases with a rise in its price.

Teacher's Note:
a) Ensure you mention the assumption "other factors remaining constant" (ceteris paribus) while stating the law.
b) Students often forget to explain the direction of change, which is essential for full marks.

(b) State two ways in which the government can promote economic development [2 Marks]

Answer:
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.

Teacher's Note:
a) Government role in developing nations primarily focuses on capital formation and social overhead capital.
b) Write clear bullet points with specific examples of developmental activities.

(c) What is meant by Joint demand? Give an example. [2 Marks]

Answer:
When the demand for different complementary goods is created at one time, it is termed joint demand. For example, the demand for computer hardware and software is created jointly.

Teacher's Note:
a) Joint demand implies that two or more goods are demanded together to satisfy a single want.
b) Always provide a clear, standard economic example like car and petrol, or printer and cartridge.

(d) Mention two adverse effects of mining on the environment. [2 Marks]

Answer:
1. Adverse effects of mining on the environment reshape the topography.
2. Mining leads to the generation of great volumes of waste and land degradation.

Teacher's Note:
a) Mining disrupts local ecosystems, causes deforestation, and results in soil erosion.
b) Keep the points crisp and directly linked to environmental degradation.

(e) Draw and briefly explain a perfectly elastic supply curve. [2 Marks]

Answer:
Supply is said to be perfectly elastic when \(E_p = \infty\). A perfectly elastic supply curve is a horizontal straight line parallel to the X-axis, indicating that an infinite quantity can be sold at a given price, and any rise in price would cause supply to drop to zero.

[Figure: A horizontal straight line supply curve parallel to the X-axis at a given price level OP, showing infinite elasticity.]

Teacher's Note:
a) Clearly state the value of price elasticity of supply (\(E_p = \infty\)).
b) A neat diagram showing the parallel line to the X-axis is mandatory for full credit.

Question 2

(a) If the price of a commodity increases by 50% and its supply increases by 25% then calculate the price elasticity of supply following the percentage method. Identify the degree of price elasticity. [2 Marks]

Answer:
Price elasticity of supply (\(E_s\)) = Percentage change in quantity supplied / Percentage change in price
\(E_s = 25 / 50 = 0.5\)
Therefore, supply is less elastic (inelastic) as \(E_s \lt 1\).

Teacher's Note:
a) Always write the formula clearly before substituting the values.
b) Conclude with the degree of elasticity to secure the second mark.

(b) State any two factors which determine capital formation in a country. [2 Marks]

Answer:
1. Personal saving: Personal saving is the difference between personal income and personal consumption. This difference is the main source of capital formation.
2. Corporate saving: Companies do not distribute all their profits as dividends paid to shareholders. A part of the profits is retained for purchasing capital goods, which forms corporate savings.

Teacher's Note:
a) Capital formation depends primarily on the ability to save and the willingness to save.
b) Mention both individual/household savings and corporate retentions for a complete answer.

(c) What is meant by regressive taxation? [2 Marks]

Answer:
In a regressive tax, the average tax rate decreases with an increase in the income of an individual. The lower-income groups bear a heavier relative tax burden compared to higher-income groups.

Teacher's Note:
a) Clarify that the tax rate falls as income rises, which distinguishes it from progressive and proportional taxes.
b) Mentioning that the tax burden falls disproportionately on the poor adds clarity.

(d) Define Monopoly. Give an example. [2 Marks]

Answer:
Monopoly is a form of market where there is a single seller of a good with no close substitutes. Example: Indian Railways.

Teacher's Note:
a) The key elements of monopoly are a single producer/seller and the absence of close substitutes.
b) Ensure the example cited represents a legal or natural monopoly in the economy.

(e) What is meant by creeping inflation? [2 Marks]

Answer:
Creeping inflation is inflation where the general price level increases at a very slow rate, typically of 2% to 2.5% per annum.

Teacher's Note:
a) Creeping inflation is often considered mild and even beneficial for economic growth.
b) Specify the percentage range to earn full credit.

Question 3

(a) Name the market in which there is a single buyer and many sellers. Give an example. [2 Marks]

Answer:
Monopsony. An example occurs when a single large firm is the sole buyer of a specialized component or raw material produced by many small suppliers.

Teacher's Note:
a) Do not confuse monopsony (single buyer) with monopoly (single seller).
b) Provide a clear and logical example of sole purchasing power.

(b) How does a Central Bank act as a custodian of foreign exchange? [2 Marks]

Answer:
The central bank acts as a custodian of the country's stock of gold and reserves of foreign exchange. This enables the central bank to exercise reasonable control over foreign exchange and helps in stabilizing the external value of the domestic currency.

Teacher's Note:
a) Central banks maintain international liquidity through these reserves.
b) Mentioning exchange rate stability is critical for the complete concept.

(c) Define division of labour. Explain one benefit of division of labour. [2 Marks]

Answer:
Division of labour refers to the breaking down of the production process into distinct, specialized operations where different workers are assigned specific tasks.
Benefit: It increases efficiency and productivity, allowing workers to produce goods at a lower cost and higher quality.

Teacher's Note:
a) Define specialization clearly in terms of task allocation.
b) State one concrete benefit such as time-saving or increased skill proficiency.

(d) How does money act as measure of value? [2 Marks]

Answer:
Money acts as a common denominator or unit of account. It provides a monetary expression of the market value of all diverse goods and services, which facilitates business accounts and price comparisons.

Teacher's Note:
a) Money solves the lack of a common measure of value present in the barter system.
b) Emphasize its role in accounting and pricing.

(e) What is meant by a demand deposit? [2 Marks]

Answer:
Demand deposits are bank deposits that can be withdrawn by the depositor at any time without prior notice. They are chequable and do not earn any interest.

Teacher's Note:
a) Highlight that they are withdrawable on demand through cheques or electronic transfers.
b) Mentioning the absence of interest differentiates them from time deposits.

Question 4

State whether the following statements are true or false. Give reasons.

(a) Inflation has a favourable effect on producers. [2 Marks]

Answer:
True. A moderate rise in prices (creeping inflation) increases profit expectations within the business community because output prices rise faster than the cost of production.

Teacher's Note:
a) State clearly whether the statement is True or False first.
b) Provide the economic rationale regarding profit margins during moderate inflation.

(b) In a perfectly competitive market producers are price makers. [2 Marks]

Answer:
False. In a perfectly competitive market, producers are price takers, not price makers, because of the presence of a large number of sellers selling homogeneous products.

Teacher's Note:
a) Identify the statement as False and correct the terminology.
b) Briefly explain that individual firms have no control over market price determined by industry forces.

(c) When change in demand is greater than the change in price. It is a case of inelastic demand. [2 Marks]

Answer:
False. When the percentage change in demand for a good is greater than the percentage change in price, it is a case of elastic demand (\(E_d \gt 1\)).

Teacher's Note:
a) State False and correct the elasticity condition.
b) Ensure mathematical notation or elasticity range is mentioned.

(d) Savings is essential for capital formation. [2 Marks]

Answer:
True. Savings form the primary source of funds that are channeled into investment, which drives capital formation in an economy.

Teacher's Note:
a) State True directly.
b) Link savings directly to investment and capital accumulation.

(e) An increase in the rate of tax with an increase in income is called proportional tax. [2 Marks]

Answer:
False. A tax rate that increases with an increase in income is called a progressive tax, whereas a proportional tax remains constant at all income levels.

Teacher's Note:
a) Mark the statement as False.
b) Correctly define progressive taxation to justify the correction.

PART II (60 Marks)

Attempt any four questions from this part

Question 5

(a) Define a Perfect market. Explain any four features of a Perfect market. [7 Marks]

Answer:
A perfect market is a market structure characterized by a large number of buyers and sellers, homogeneous products, perfect knowledge, and free entry and exit of firms, where prices are determined by market demand and supply forces.
Main features of perfect competition:
1. Large number of sellers and buyers: The number of firms selling a particular commodity is so large that an individual firm cannot impact the market price. It is a price taker.
2. Homogeneous products: All sellers sell identical units of a product, leaving buyers with no reason to prefer one seller over another.
3. Free entry and exit of firms: Firms can easily enter or exit the industry based on profit or loss conditions in the long run.
4. Perfect knowledge among buyers and sellers: Both buyers and sellers have complete information about the product market and prices.

Teacher's Note:
a) Definition should capture the core structural assumptions of perfect competition.
b) List and explain exactly four distinct features clearly with proper headings.

(b) (i) What do you understand by supply? How does it differ from stock? [8 Marks]

Answer:
Supply of a commodity refers to the various quantities of a commodity that producers are willing to sell at different possible prices during a specific point in time.

(ii) What does the Law of Supply state? List two assumptions of this Law.
The law of supply states that, other factors remaining constant, the quantity supplied of a good increases with a rise in its price and decreases with a fall in its price.
Assumptions:
1. Price of related goods remains constant.
2. No change in the state of technology.

(iii) Explain two factors affecting supply other than price.
1. Technological condition: Technological progress reduces the cost of production and increases productivity, making production more profitable and shifting the supply curve to the right.
2. Government policy: An increase in taxes increases the cost of production and reduces supply, while subsidies increase supply.

Teacher's Note:
a) Ensure the distinction between supply and stock clearly highlights the flow versus stock concept.
b) For assumptions and other determinants, precise economic terminology must be used.

Question 6

(a) What is meant by urbanization? Explain four impacts of urbanization on the environment. [7 Marks]

Answer:
Urbanization refers to the process by which large numbers of people permanently concentrate in relatively small areas, forming cities, driven by industrialization and rural-urban migration.
Impacts of urbanization/industrialization on the environment:
1. Global warming: Emission of greenhouse gases like carbon dioxide and methane raises global temperatures, leading to climate change and melting glaciers.
2. Air pollution: Increase in industrial units and vehicular emissions releases harmful gases such as sulfur dioxide and nitrogen oxides, causing acid rain and health hazards.
3. Soil pollution: Dumping of solid and industrial wastes leads to the loss of soil fertility and disrupts local ecological balance.
4. Water pollution: Discharge of untreated industrial effluents and domestic sewage into water bodies severely pollutes aquatic resources.

Teacher's Note:
a) Define urbanization and industrial expansion clearly as the primary drivers of environmental stress.
b) Detail four distinct environmental impacts with adequate explanation for each.

(b) With the help of appropriate diagram, explain the meaning of contraction in demand and extension in demand. [8 Marks]

Answer:
1. Extension of demand: It refers to a rise in the quantity demanded of a commodity due to a fall in its own price, other things remaining constant. It is represented graphically by a downward movement along the same demand curve.
2. Contraction of demand: It refers to a decrease in the quantity demanded of a commodity due to a rise in its own price, other things remaining constant. It is represented graphically by an upward movement along the same demand curve.

[Figure: Two demand curve diagrams showing price on the Y-axis and quantity on the X-axis. One diagram illustrates a downward movement for extension of demand, and the other shows an upward movement for contraction of demand along a single demand curve.]

Teacher's Note:
a) Clearly distinguish between movement along the demand curve (extension/contraction) and shift in the demand curve.
b) Well-labelled diagrams are essential to secure full marks in this question.

Question 7

(a) Define land. State any three factors which determine the productivity of land. [7 Marks]

Answer:
Land is defined to include not only the surface of the Earth but all other free gifts of nature available to mankind, such as air, water, minerals, and forests.
Factors determining the productivity of land:
1. Natural qualities: Fertility, soil composition, and climatic conditions heavily influence agricultural productivity.
2. Scientific processes: Use of high-yielding variety (HYV) seeds, chemical/bio-fertilizers, pesticides, and improved agricultural machinery like tractors.
3. Organization and management: The efficiency with which factors of production are organized, including trained labor, modern equipment, and irrigation facilities.

Teacher's Note:
a) Give the standard economic definition of land as a factor of production.
b) Explain three distinct determinants clearly with agricultural or industrial context.

(b) What is meant by a Commercial Bank? Explain how Commercial banks provide Credit facilities through the methods given below: [8 Marks]
(i) Cash Credit
(ii) Loan
(iii) Overdraft facility

Answer:
A commercial bank is a financial institution that accepts deposits from the public, offers safe custody of funds, and extends credit facilities for profit.
Credit facilities:
1. Cash Credit: Banks sanction a credit limit to a borrower against approved securities. The borrower is allowed to borrow up to that limit and pays interest only on the actual amount withdrawn.
2. Loans: A lump sum amount advanced to a borrower against approved collateral securities for a specified period. Interest is charged on the entire sanctioned amount.
3. Overdraft facilities: A facility given to current account holders allowing them to withdraw money in excess of their actual bank balance up to a specified limit, with interest charged on the overdrawn amount.

Teacher's Note:
a) Define commercial banking clearly before detailing credit instruments.
b) Highlight the specific distinction between cash credit and loans, particularly regarding interest calculation.

Question 8

(a) What is meant by Monetary policy? Explain the following : [7 Marks]
(i) Bank rate policy
(ii) Open market operations.

Answer:
Monetary policy refers to the policy adopted by the central bank of a country to control the money supply and credit creation in the economy to achieve macroeconomic stability.
1. Bank Rate Policy: It is the rate at which the central bank discounts bills of exchange or lends money to commercial banks. To control inflation, the central bank raises the bank rate, making borrowing expensive, which reduces commercial bank lending and controls credit.
2. Open Market Operations: Refers to the sale and purchase of government securities and bonds by the central bank in the open market. Selling securities to the public through banks absorbs commercial bank reserves and reduces their credit creation capacity during inflation.

Teacher's Note:
a) Define monetary policy as the central bank's key tool for credit control.
b) Explain both instruments clearly in the context of controlling inflation or deflation.

(b) What is meant by product differentiation? To which market is it relevant? Explain three features of this market. [8 Marks]

Answer:
Product differentiation refers to the practice of distinguishing a product from others through shape, design, packaging, brand name, or quality to make it appear unique to consumers. It is relevant to the **monopolistic competition** market.
Features of monopolistic competition:
1. Large number of sellers and buyers: There are many independent firms operating in the market, but each holds a relatively small market share.
2. Product differentiation: Products are close substitutes but not identical, giving firms partial control over price.
3. Free entry and exit: Firms are free to enter or exit the industry in the long run, though patents or brand loyalty may pose minor barriers.

Teacher's Note:
a) Define product differentiation and correctly identify monopolistic competition as its market structure.
b) List three clear features of monopolistic competition to fulfill the marking scheme.

Question 9

(a) Define money. Explain three contingent functions of money. [7 Marks]

Answer:
Money is anything that is generally accepted as a medium of exchange, a measure of value, a store of value, and a standard for deferred payments.
Contingent functions of money:
1. Assisting production decisions: Factor payments are made in money, helping producers determine costs and make profitable production decisions.
2. Assisting consumption decisions: Consumer utility maximization depends on their income and money prices of commodities in the market.
3. Assisting distribution of national income: Factor incomes such as wages, rent, interest, and profit are distributed in monetary terms among the owners of factors of production.

Teacher's Note:
a) Provide a comprehensive general definition of money.
b) Differentiate contingent functions from primary and secondary functions clearly.

(b) What is meant by privatization? Explain briefly four problems of public sector undertakings in India. [8 Marks]

Answer:
Privatization refers to the process of transferring ownership, management, or control of state-owned public sector enterprises to private sector entities.
Problems of public sector undertakings in India:
1. Lack of incentive: Promotions in government undertakings are often based on seniority rather than merit or efficiency, reducing work motivation.
2. Delay in completion: Projects frequently suffer from cost overruns and time delays due to bureaucratic procedures.
3. Capital-intensive industries: Overemphasis on heavy capital-intensive projects led to lower employment generation in early planning periods.
4. Pricing policy: Public enterprises are often guided by social welfare rather than profit maximization, resulting in recurring financial losses.

Teacher's Note:
a) Define privatization as the transfer of state economic activities to private ownership.
b) Enumerate four structural problems faced by public sector undertakings clearly.

Question 10

Read the extract and answer the following:
Labour refers to any physical and mental endeavour undertaken for the purpose of producing a good or a service. In India in 2012 there were 487 million workers, the second largest after China. About 94% of Indian labour is involved in the unorganised sector comprising semi-skilled and unskilled workers ranging from push cart vendors to home based diamond and gem polishing operators. The organised sector includes workers employed in the public sector and the private sector.

(i) Explain any four special characteristics of labour. [6 Marks]

Answer:
1. Labour cannot be separated from the labourer: Unlike land or capital, the labourer must be physically present to supply labour.
2. Labour is an active factor of production: Unlike passive factors like land and capital, labour initiates production.
3. Labour is mobile: Labour can move geographically from place to place and occupationally from job to job.
4. Labour cannot be accumulated: A day's labour lost cannot be stored for the future; it perishes if not used today.

Teacher's Note:
a) State four distinct, accepted characteristics of labour as a factor of production.
b) Explain why labour is perishable and inseparable from the worker.

(ii) With suitable examples explain three important classifications of labour. [6 Marks]

Answer:
1. Skilled labour: Workers who undergo professional training and acquire specialized skills for their occupation, e.g., doctors, engineers.
2. Semi-skilled labour: Workers who possess partial professional training and practical experience, e.g., machine operators.
3. Unskilled labour: Workers who do not require specialized skills or training to perform their jobs, e.g., manual laborers, push-cart vendors.

Teacher's Note:
a) Classify labour into skilled, semi-skilled, and unskilled categories.
b) Provide appropriate examples for each category to ensure full credit.

(iii) Define efficiency of labour. Briefly explain the impact of technology on efficiency of labour. [3 Marks]

Answer:
Efficiency of labour refers to the productive capacity or capability of a worker to produce more or better quality output per unit of time.
Impact of technology: Advanced technology provides better tools, machinery, and automated processes, which reduces physical strain, saves time, and significantly enhances worker productivity.

Teacher's Note:
a) Define labour efficiency precisely in terms of output per unit of time.
b) Explain how technological advancement directly boosts working capacity and efficiency.