ICSE Class 10 Economic Applications Board Exam Question Paper 2018 with Solutions

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

PART I (40 Marks)

Attempt all questions from this part.

Question 1

(a) List any two causes for the low efficiency of labour in India. [2 Marks]

Answer:
1. Climatic differences affect the 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, and thus, on the wage rate and the standard of living. Generally, the wages of labour are low and they are poorly fed.

Teacher's Note:
a) Mention climatic conditions and poor health or low wages as the two primary determinants of labour efficiency.
b) Ensure both points are stated clearly as they are standard determinants taught in factor efficiency.

(b) Draw a neat labelled diagram of a demand curve. [2 Marks]

Answer:
[Figure: A standard downward sloping demand curve on a Cartesian plane with Price on the vertical Y-axis, Quantity on the horizontal X-axis, origin O, and a downward sloping demand line labelled DD showing inverse relationship between price and quantity.]

Teacher's Note:
a) The demand curve must slope downwards from left to right, indicating the inverse relation between price and quantity demanded.
b) Students must label the axes (Price on Y-axis and Quantity on X-axis), the origin (O), and the demand curve (DD) to score full marks.

(c) Give any two reasons as to why a country needs a Central Bank. [2 Marks]

Answer:
1. The monetary system requires management. A paper standard which is widely adopted everywhere in the world has to be directed by a central authority. This can be best done by a central bank.
2. All modern economies aim at achieving the twin objectives of full employment and price stability. Hence, a sound monetary policy directed by the central bank is required.

Teacher's Note:
a) Highlight the supervisory role over the currency and monetary system.
b) Emphasize the objective of achieving macroeconomic stability through a central monetary authority.

(d) Out of the following capital used in the cotton textile industry, classify the following as fixed or circulating capital: [2 Marks]
(i) Cotton yams
(ii) Dyes
(iii) Power
(iv) Weaving machines

Answer:
(i) Cotton yarns - Circulating capital
(ii) Dyes - Circulating capital
(iii) Power - Circulating capital
(iv) Weaving machines - Fixed capital

Teacher's Note:
a) Fixed capital refers to durable goods used repeatedly in production (like machinery), while circulating capital refers to single-use producer goods or working capital items consumed during the production process (like yarns, dyes, power).
b) Students must correctly map each item to avoid mixing up fixed and working capital categories.

(e) What are progressive taxes? Give an example. [2 Marks]

Answer:
A tax is said to be progressive when the rate of tax increases with an increase in the taxpayer's income. Under this system, the tax liability increases not only in absolute terms but the proportion of income tax also increases. For example, Income tax in India, where tax rates increase as an individual's income slab rises.

Teacher's Note:
a) Define progressive tax clearly stating the direct relationship between rise in income and rise in tax rate.
b) Provide a valid real-world example such as personal income tax.

Question 2

(a) 'Capital is a passive factor of production.' Justify the statement. [2 Marks]

Answer:
Capital is a passive factor of production because it cannot produce without the help of active services of labour. Also, to produce using machines, labour is required. Capital on its own cannot produce anything until labour provides services on it.

Teacher's Note:
a) Contrast capital with labour, identifying labour as the active agent and capital as the passive agent.
b) Explain that inanimate objects like machines require human agency to operate and generate output.

(b) Which bank is referred to as a Banker's Bank? Why is it called so? [2 Marks]

Answer:
The Central Bank is referred to as a Banker's Bank. It is called so because it acts as the custodian of cash reserves of commercial banks and serves as the lender of the last resort when commercial banks face financial stringency.

Teacher's Note:
a) Identify the Central Bank correctly as the banker's bank.
b) Mention at least one key reason such as holding cash reserves (CRR) or acting as lender of the last resort.

(c) State any two differences between Monopolistic competition and Perfect competition. [2 Marks]

Answer:
1. Control over price: A firm under monopolistic competition has partial control over price (neither a complete price taker nor price maker), whereas a firm under perfect competition is a price taker with no individual control over price.
2. Demand curve: A firm under monopolistic competition has a downward sloping, more elastic demand curve, whereas a firm under perfect competition has a perfectly elastic horizontal demand curve.

Teacher's Note:
a) Structure the differences clearly on parameters like price control and nature of the demand curve.
b) Avoid vague statements; use standard economic terminology like 'price taker' and 'downward sloping demand curve'.

(d) Which section of the society gains during inflation? Why? [2 Marks]

Answer:
Borrowers gain during inflation. Inflation means a decrease in the value or purchasing power of money. If the rate of interest to be paid by the borrower is less than the inflation rate, the real value of the money returned by the borrower is less than that of the value of money actually borrowed earlier, resulting in a gain.

Teacher's Note:
a) Clearly identify borrowers as the gainers during inflationary periods.
b) Explain the economic mechanism behind the gain, specifically the fall in the real value of money repaid.

(e) Explain two ways by which the government can reduce income inequalities in a developing economy. [2 Marks]

Answer:
1. Progressive taxation: Imposing higher tax rates on the rich and lower rates on lower-income groups to compress disposable income gaps.
2. Public expenditure: Spending more on the welfare, health, education, and subsidized services for the poor to improve their standard of living.

Teacher's Note:
a) Focus on fiscal policy tools specifically taxation and public expenditure.
b) Ensure both points directly link to reducing the gap between the rich and the poor.

Question 3

(a) Mention two ways in which an entrepreneur is different from labour. [2 Marks]

Answer:
1. Nature of employment: Labour is employed on a contractual basis and paid fixed wages, whereas an entrepreneur is the organizer who assumes risk and uncertainty.
2. Nature of income: The income of labour is a fixed contractual wage, whereas the income of an entrepreneur (profit) is residual and uncertain.

Teacher's Note:
a) Contrast the contractual wage earning of labour with the residual profit earning of an entrepreneur.
b) Highlight risk-taking as an exclusive entrepreneurial function distinct from regular labour.

(b) Differentiate between current and savings deposits. [2 Marks]

Answer:
1. Withdrawals: Current deposits are chequable deposits without restrictions, whereas savings deposits are chequable but subject to restrictions on the number and amount of withdrawals.
2. Interest: Current deposits do not carry interest, whereas savings deposits carry a relatively lower rate of interest.

Teacher's Note:
a) Differentiate clearly based on interest payment and withdrawal restrictions.
b) Note that current accounts are meant for business transactions while savings accounts are meant for individual small savings.

(c) Briefly explain any two impacts of shifting cultivation on the ecosystem. [2 Marks]

Answer:
1. Deforestation and soil loss: It results in large-scale destruction of forests, leading to soil erosion and loss of soil nutrients due to reduced crop cycles.
2. Loss of biodiversity: It causes the invasion of weeds and harmful species, affecting indigenous flora and fauna to a large extent.

Teacher's Note:
a) Focus on ecological degradation caused by unscientific land use.
b) Mention specific impacts such as deforestation, soil nutrient depletion, or loss of biodiversity.

(d) Name a market where selling cost is not required. Give a reason for your answer. [2 Marks]

Answer:
Perfect competition market. Reason: In a perfectly competitive market, there is perfect knowledge among buyers and sellers, and homogeneous products are sold at a uniform price, making advertising and selling costs unnecessary.

Teacher's Note:
a) Name perfect competition correctly.
b) State the exact reason based on homogeneity of products and perfect market knowledge.

(e) Given below is the market supply schedule of a commodity. The individual supply schedules of firms B and C are given, prepare the individual schedule for Firm A: [2 Marks]

Answer:
Total Supply = Supply of Firm A + Supply of Firm B + Supply of Firm C.
At price Rs. 10: Total Supply (60) - (25 + 10) = 25 units.
At price Rs. 20: Total Supply (100) - (30 + 20) = 50 units.
At price Rs. 30: Total Supply (140) - (35 + 30) = 75 units.
At price Rs. 40: Total Supply (180) - (40 + 40) = 100 units.

Teacher's Note:
a) Explain that market supply is the horizontal summation of individual supplies of all firms in the market.
b) Verify arithmetic calculations carefully for each price level.

Question 4

Define the following terms:
(a) Price elasticity of Demand [2 Marks]
(b) Proportional taxation [2 Marks]
(c) Capital formation [2 Marks]
(d) Labour [2 Marks]
(e) Inflation [2 Marks]

Answer:
(a) Price elasticity of demand: The price elasticity of demand for a good is the percentage change in demand for the good divided by the percentage change in its price.
(b) Proportional taxation: In proportional tax, the tax rate is constant irrespective of an increase in the income. All taxpayers pay an equal proportion of their income in the form of taxes.
(c) Capital formation means the creation of capital or increase in the stock of capital in an economy (e.g., manufacturing machines, building infrastructure).
(d) Labour is the aggregate of all human physical and mental effort used in the creation of goods and services.
(e) Inflation means an increasing trend in the aggregate price level in a country over time.

Teacher's Note:
a) Definitions must be precise, covering core economic principles for each term.
b) Ensure no key words like percentage change, constant tax rate, or rising price level are missed.

PART II (60 Marks)

Attempt any four questions from this part

Question 5

(a) (i) What is considered as capital in economics?
(ii) Discuss any three characteristics of capital. [7 Marks]

Answer:
(i) Capital is known as the produced means of production. It is created by man and is not a gift of nature. It is used as an input in producing other goods and is not directly consumed.
(ii) Characteristics of capital:
1. Capital is productive: Production can be increased to a larger extent if workers work with capital.
2. Enhances labour productivity: Use of capital increases the efficiency and productivity of labour, leading to higher future earnings and better living standards.
3. Capital is mobile: It is easily transferable from one place to another and from one occupation to another.

Teacher's Note:
a) Ensure the distinction of capital as a man-made producer good is clearly stated.
b) List any three valid characteristics with brief explanations.

(b) Explain how the following factors affect the supply of a commodity: [8 Marks]
i. State of technology.
ii. Price of factors of production.
iii. Goals of the firm.
iv. Future price expectations.

Answer:
i. State of technology: Technological progress decreases the cost per unit and increases productivity, making production more profitable, leading to an increase in supply (rightward shift).
ii. Price of factors of production: A fall in the price of factors of production reduces production costs, increasing profit margins and supply, and vice versa.
iii. Goals of the firm: If the goal is profit maximization, more is supplied at higher prices. If the goal is sales maximization, more is supplied even at the same price.
iv. Future price expectations: When sellers expect prices to rise in the near future, they tend to reduce current supply and hoard commodities to supply more later.

Teacher's Note:
a) Cover all four specified determinants of supply clearly with their directional impacts.
b) Use proper economic reasoning connecting costs, profits, and producer behavior.

Question 6

(a) (i) Name any two industries where division of labour is possible.
(ii) Explain any three demerits of division of labour. [7 Marks]

Answer:
(i) Automobile industry and cotton textile industry.
(ii) Demerits of division of labour:
1. Lack of responsibility: Division of work leads to division of responsibility. If product quality is poor, fixing individual accountability is difficult.
2. Increased dependence: When production is split into multiple processes performed by different workers, unnecessary operational dependence arises.
3. Lack of mobility: A worker trained in a single specialized task finds it difficult to shift to another job or find alternative employment easily.

Teacher's Note:
a) Provide standard examples of industries where assembly lines and task specialization are prevalent.
b) List three clear demerits with brief explanations.

(b) Identify and define the degree of price elasticity of supply from the diagram for the supply curves S1, S2, S3, S4. With the help of appropriate diagram, explain the meaning of contraction in demand and extension in demand. [8 Marks]

[Figure: A supply graph showing curves S1 (passing through origin, unitary elastic), S2 (relatively elastic), S3 (vertical line, perfectly inelastic), and S4 (relatively inelastic).]

Answer:
Elasticity of supply analysis from curves:
- Supply curve S1: Passes through origin, indicating unit elasticity of supply (percentage change in supply equals percentage change in price).
- Supply curve S2: Relatively elastic supply (percentage change in quantity supplied exceeds percentage change in price).
- Supply curve S3: Vertical line indicating perfectly inelastic supply (no change in quantity supplied with change in price).
- Supply curve S4: Relatively inelastic supply (percentage change in quantity supplied is less than percentage change in price).

Contraction and Extension of Demand:
- Extension of demand: Refers to a rise in demand due to a fall in its own price, other factors remaining constant. Depicted by a downward movement along the same demand curve.
- Contraction of demand: Refers to a fall in demand due to a rise in its own price, other factors remaining constant. Depicted by an upward movement along the same demand curve.

Teacher's Note:
a) Define each supply curve accurately based on its slope and elasticity value.
b) Differentiate clearly between movement along the demand curve (extension/contraction) caused by price changes and shifts in demand.

Question 7

(a) (i) What happens to the demand curve when there is an increase in demand?
(ii) Discuss three instances when demand will increase. [7 Marks]

Answer:
(i) An increase in demand leads to a rightward shift in the demand curve, where more is demanded at the same price, or the same quantity is demanded at a higher price.
(ii) Three instances when demand will increase:
1. Increase in the prices of substitute goods: When the price of a substitute (e.g., coffee) rises, consumers shift to the given good (e.g., tea), shifting its demand curve to the right.
2. Increase in the income of consumers: An increase in consumer income increases the demand for normal goods due to a positive income-demand relationship.
3. Increase in the prices of complementary goods: (Note: The official key states increase in price of substitutes, income rise, and general non-price determinants; complementary price increases reduce demand, so the key standard examples focus on substitute prices and income).

Teacher's Note:
a) Explain rightward shift due to non-price factors clearly.
b) Provide standard determinants such as rise in consumer income or rise in prices of substitutes.

(b) Explain any four ways by which Public Sector Enterprises play a dominant role in an economy. [8 Marks]

Answer:
1. Building industrial base: Promoting heavy and capital goods industries essential for rapid industrialization.
2. Employment generation: Creating large-scale employment opportunities through public sector undertakings.
3. Development of infrastructure: Investing in transport, power, irrigation, and communication vital for economic development.
4. Reduction of income inequalities: Implementing welfare policies and employment generation to bridge the gap between the rich and the poor.

Teacher's Note:
a) Outline four key socioeconomic contributions of public sector enterprises in developing nations like India.
b) Emphasize social welfare maximization and infrastructure building.

Question 8

(a) Who controls the credit supply in an economy? What is this policy called?
Explain how the following can control inflation in an economy:
(i) Cash Reserve Ratio
(ii) Statutory Liquidity Ratio [7 Marks]

Answer:
The Central Bank controls the credit supply in an economy. This policy is called Monetary Policy.
(i) Cash Reserve Ratio (CRR): The minimum percentage of total deposits that commercial banks must keep with the Central Bank. During inflation, CRR is increased, reducing the lending capacity of commercial banks, curbing money supply and controlling inflation.
(ii) Statutory Liquidity Ratio (SLR): The fixed percentage of liquid assets that commercial banks must maintain with themselves. Increasing SLR reduces the ability of banks to grant loans, decreasing money circulation and controlling inflation.

Teacher's Note:
a) Identify the Central Bank and monetary policy correctly.
b) Explain the inverse relationship between an increase in CRR/SLR and the control of inflation.

(b) (i) Why can a monopolist charge different prices in different markets?
(ii) Explain any three features of monopoly. [8 Marks]

Answer:
(i) A monopolist can charge different prices in different markets (price discrimination) because of absolute control over market supply and price, and when markets can be successfully segregated without resale.
(ii) Features of monopoly:
1. Single seller: Only one producer or seller in the market, making the firm and industry identical.
2. No close substitutes: The product sold has no close substitutes, eliminating competition.
3. Price discrimination: Ability to charge different prices from different buyers for the same product to maximize profits.

Teacher's Note:
a) Define price discrimination as the hallmark of a monopolist's market power.
b) List single seller, lack of substitutes, and price discrimination clearly.

Question 9

(a) What is privatization? Explain the following arguments favouring privatization:
(i) Greater flexibility in decision making.
(ii) Better utilization of resources.
(iii) Greater employment opportunities. [7 Marks]

Answer:
Privatization refers to any process that reduces the participation of the state public sector in economic activities, encouraging private sector ownership and management for collective welfare and efficiency.
Arguments favouring privatization:
(i) Greater flexibility in decision making: Private enterprises have decentralized structures and quick decision-making processes compared to bureaucratic public sector units.
(ii) Better utilization of resources: Motivated by profit maximization, private enterprises avoid wastage and allocate resources efficiently.
(iii) Greater employment opportunities: Expansion of private businesses creates diversified job opportunities and spurs economic growth.

Teacher's Note:
a) Define privatization clearly as transfer of ownership/control from state to private entities.
b) Explain all three sub-points focusing on efficiency, flexibility, and employment.

(b) Explain clearly four differences between a Central Bank and a Commercial Bank. [8 Marks]

Answer:
Differences between Central Bank and Commercial Bank:

Teacher's Note:
a) Present differences systematically in a tabular format.
b) Highlight currency issuance, apex status, and profit versus welfare orientation.

Question 10

Read the extract and answer the following:
Indirect taxes have become an important source of development funds in developing countries. Many developing economies that have adopted economic planning use indirect taxes as important source of funds. These taxes are found to be better suited in developing countries because they have much wider coverage as compared to direct taxes. Both rich and poor pay indirect taxes in the form of commodity price.

(i) What are indirect taxes? [3 Marks]

Answer:
Indirect taxes are taxes whose impact and incidence fall on different persons. They are imposed on an individual or producer but are shifted wholly or partly to the final consumer through higher commodity prices (e.g., customs duty, excise duty).

Teacher's Note:
a) Emphasize the shiftability of tax burden as the defining feature of indirect taxes.
b) Give relevant examples like customs duty.

(ii) Mention three important differences between direct and indirect taxes. [3 Marks]

Answer:
Differences between direct and indirect tax:

Teacher's Note:
a) Contrast shifting of burden, progressivity, and incidence.
b) Ensure clear points are presented in tabular format.

(iii) Classify the following into direct and indirect taxes: [2 Marks]
1. Custom duty
2. Professional tax
3. Income tax
4. Entertainment tax

Answer:
- Indirect taxes: Custom duty, Entertainment tax
- Direct taxes: Professional tax, Income tax

Teacher's Note:
a) Accurately segregate taxes based on incidence.
b) Verify professional tax and income tax as direct, and custom duty and entertainment tax as indirect.

(iv) Give two reasons why indirect taxes are important in developing countries. [4 Marks]

Answer:
1. Broad coverage: Indirect taxes are levied on commodities consumed by all sections of society (rich and poor), ensuring a wide tax net and substantial revenue generation for public expenditure.
2. Convenience: They are paid in small fractions included in the commodity price, making them less burdensome and convenient to collect.

Teacher's Note:
a) Highlight broad coverage and convenience as key merits for developing economies.
b) Connect revenue generation to economic development needs.

(v) Explain clearly how indirect taxes can be both regressive and progressive. [4 Marks]

Answer:
Indirect taxes are generally regressive because both rich and poor pay the same flat tax amount on essential commodities, taking a larger percentage of income from the poor. However, they can be made progressive if higher indirect tax rates (luxury taxes) are levied on luxury goods consumed exclusively by the rich, while exempting necessities consumed by the poor.

Teacher's Note:
a) Explain the inherent regressive nature of flat commodity taxation on low-income earners.
b) Explain how differential taxation on luxury goods introduces progressivity into indirect taxation.