ICSE Class 10 Economic Applications Board Exam Question Paper 2019 with Solutions

ISC Class 10 Economic Applications Board Exam Question Paper with Solutions

SECTION - I [40 Marks]

Question 1.

(a) State the Law of Supply. [2 Marks]

Answer:
The law of supply states that other things being equal, the quantity of a good supplied increases with an increase in price level and decreases with a decrease in price level of the good. The supply schedule and supply curve show the positive relationship between price and quantity supplied.

Teacher's Note:
a) Ensure the phrase "other things remaining equal" (ceteris paribus) is mentioned, as it forms the core condition for the law.
b) Students often confuse supply with stock; specify that supply refers to the quantity offered for sale at a specific price during a given period.

(b) "Entrepreneurs are innovators." Briefly explain. [2 Marks]

Answer:
When entrepreneurs adopt new inventions in the production process it is called innovation. Through innovation an entrepreneur can bring about appropriate alteration in his production methods. Product variation is possible through this innovation according to consumer's choice. Hence according to Schumpeter "the entrepreneurs are innovators".

Teacher's Note:
a) Mention Joseph Schumpeter's concept of innovation to score full credit.
b) Do not restrict innovation only to new products; include new production techniques, raw materials, or markets.

(c) What do you understand by hyperinflation? [2 Marks]

Answer:
When prices rise very fast at double or triple digit rates from more than 20 to 100 per cent per annum or more, it is usually called hyperinflation or galloping inflation.

Teacher's Note:
a) Hyperinflation is characterized by extremely rapid and out-of-control price increases.
b) Students must highlight the extreme percentage or double/triple digit nature of price rises.

(d) Mining operations can destroy the ecosystem. Give two reasons to support the statement. [2 Marks]

Answer:
1. Physical effects: Soil compaction is one of the most severe effects of mining on the ecosystem. It is a result of large machinery moving across the landscape. Compaction minimises the potential for plant establishment, lowering overall fertility of the soil and increasing water movement through the soil and landscape.
2. Chemical effects: Mining operations often contaminate the soil with toxic heavy metals and acids. Acids can lower the pH of the soil, preventing plants and soil micro-organisms from thriving.

Teacher's Note:
a) Clearly distinguish between physical and chemical degradation caused by industrial activities.
b) Keywords like soil compaction, heavy metals, and acidic pH are essential for evaluation.

(e) Highlight the importance of selling costs in a monopolistically competitive market. [2 Marks]

Answer:
Under monopolistic competition, products are differentiated and these differences are made known to the buyers through selling costs. Selling costs refer to the expenses incurred on marketing, sales promotion and advertisement of the product. Such costs are incurred to persuade the buyers to buy a particular brand of the product in preference to competitor's brand. Due to this reason, selling costs constitute a substantial part of the total cost under monopolistic competition.

Teacher's Note:
a) Define selling costs explicitly as expenses on advertisement and sales promotion.
b) Remember to link selling costs directly with product differentiation under monopolistic competition.

Question 2.

(a) Land is heterogeneous in nature. Explain. [2 Marks]

Answer:
Land like other factors of production differs from another in respect of location, fertility, nature and productivity. Two pieces of land are not exactly the same.

Teacher's Note:
a) Heterogeneous means lacking uniformity or being dissimilar in characteristics.
b) Emphasize differences in fertility and geographic location as primary reasons.

(b) How does the presence of banks in a country help in capital formation? [2 Marks]

Answer:
Public sector collects savings of the people and helps in capital formation. The nationalised as well as private banks have played an important role in collecting savings and mobilisation of resources.

Teacher's Note:
a) Banks act as intermediaries between savers and investors by mobilizing idle savings.
b) Mention resource mobilization and channelling funds into productive investments.

(c) Which of the following is considered as labour in Economics? [2 Marks]
(i) Acting done by a film star.
(ii) The judgement given by a judge in the court.
(iii) Washing of clothes by a washer man.
(iv) Preparation of tea by a housewife.

Answer:
(i) Yes - Productive
(ii) Yes - Service
(iii) Yes - Service
(iv) No - Non Productive

Teacher's Note:
a) In economics, any physical or mental effort undertaken in exchange for an economic reward (income) is considered labour.
b) Housewife services are unpaid and done out of affection, hence excluded from economic labour.

(d) Why is money referred to as legal tender money? [2 Marks]

Answer:
Legal tender money means that money which individuals are bound to accept it in the payment of goods and services. It cannot be refused in settlement of payments, e.g., coins and currency notes.

Teacher's Note:
a) Legal tender is backed by the legal authority of the government.
b) State clearly that creditors cannot legally refuse it for settling debts.

(e) What is meant by product differentiation? In which market form is it prevalent? [2 Marks]

Answer:
Product differentiation means slightly different products of each seller. It prevails in monopolistic competition.

Teacher's Note:
a) Product differentiation can be real (quality, design) or imaginary (branding, packaging).
b) Identify the market form correctly as monopolistic competition.

Question 3.

(a) State the formula for calculating the Price Elasticity of demand using the Percentage method. [2 Marks]

Answer:
According to this method, price elasticity of demand is measured as the ratio of percentage change in the quantity demanded to percentage change in the price.
\( E_d = -\frac{\text{Percentage Change in } Q_d}{\text{Percentage Change in Price}} \)
\( E_d = -\frac{\Delta Q}{\Delta P} \times \frac{P}{Q} \)
Where, \(\Delta Q\) = Change in \(Q_d\), \(\Delta P\) = Change in Price, \(P\) = Initial Price, \(Q\) = Initial Quantity

Teacher's Note:
a) The negative sign indicates the inverse relationship between price and quantity demanded.
b) Ensure all components of the formula (\(\Delta Q\), \(\Delta P\), \(P\), \(Q\)) are explicitly defined.

(b) Explain the impact of inflation on the fixed income group of people. [2 Marks]

Answer:
Inflation adversely affects fixed income groups like salaried people and pension earners as the real income falls.

Teacher's Note:
a) Fixed income earners face a decline in purchasing power as prices rise while nominal income remains constant.
b) Use the economic term "real income" in the explanation.

(c) Give two examples of a pair of commodities that are substitutes of each other. [2 Marks]

Answer:
(i) Tea and Coffee
(ii) Computer and Laptop

Teacher's Note:
a) Substitutes are goods that can be used in place of one another to satisfy the same want.
b) Give clear pairs as requested rather than isolated examples.

(d) Explain how an improper price policy results in the poor performance of public sector enterprises. [2 Marks]

Answer:
1. The basic aim of the Public Sector is public welfare and economic development.
2. Due to this Public Sector keep the prices of their products low. Sometimes lowers than the cost of production.
3. This lowers the profit margin.
4. Lower profit margin leads to lower capital formation and ultimately still lower profits.

Teacher's Note:
a) Public sector pricing policies often prioritize social welfare over commercial profitability.
b) Connect below-cost pricing directly to losses and lack of reinvestment capital.

(e) Differentiate between capital and capital formation. [2 Marks]

Answer:
Capital : It includes all man-made productive assets such as buildings, machinery, materials, fuels etc.
Capital formation : By capital formation we mean the increase in the stock of capital goods (e.g., machines, equipments, buildings, means of transport, factories, etc.) which are used for more production.

Teacher's Note:
a) Capital is a stock concept representing existing assets at a point in time.
b) Capital formation is a flow concept denoting the net addition to the existing stock over a period.

Question 4.

(a) How does direct tax reduce income inequality? [2 Marks]

Answer:
Direct taxes reduce income inequality, because they are charged according to the income of person. Higher incomes are charged at higher rates than lower incomes.

Teacher's Note:
a) Mention the progressive nature of direct taxation where tax rates rise with income.
b) Explain how revenue collected is used for welfare schemes targeting lower-income groups.

(b) What are Public Sector Enterprises? Give two examples of Public Sector Enterprises in India. [2 Marks]

Answer:
Public sector enterprises are those enterprises which are owned and managed by the government. Example : State Trading Corporation (S.T.C.), Hindustan Steel Limited.

Teacher's Note:
a) Ownership and control rest primarily with the central or state government.
b) Provide correct and relevant examples from public sector undertakings in India.

(c) Distinguish between sunk capital and floating capital. [2 Marks]

Answer:
Sunk Capital: Capital is said to be sunk when it is put to some special use and it cannot be shifted to any other use. It always remains at the place where it is fixed. Factory, machine or roads can be described as sunk capital.
Floating capital : Floating capital is the capital which can be used in alternative lines of production. It is also called free capital. Examples: Steel, wood, raw materials etc.

Teacher's Note:
a) Sunk capital has specialized utility and zero alternative use value.
b) Floating capital is versatile and can be diverted across different production lines.

(d) Briefly explain the following credit control methods adopted by the Central bank : [2 Marks]
(i) Publicity
(ii) Moral persuasion

Answer:
(i) Publicity: The Central Bank undertakes publicity to educate and influence the commercial banks and the public opinion about the money market trends and banking conditions in the country. It publishes statements of its assets, policies, plans and programmes to be adopted in the country. During inflation it advises the banks and people to avoid non-productive loans.
(ii) Moral persuasion : Under this method, the Central Bank applies the policy of persuasion and pressure on the commercial banks in order to get them to fall in line with its policy.

Teacher's Note:
a) Both are qualitative (selective) methods of credit control used by the central bank.
b) Highlight that moral persuasion relies on moral pressure rather than legal compulsion.

(e) Name any two instruments of Fiscal Policy. [2 Marks]

Answer:
Taxes, subsidies, public debt etc.

Teacher's Note:
a) Fiscal policy refers to government revenue and expenditure policies.
b) List at least two distinct instruments clearly to get full marks.

PART - II [60 Marks]

Question 5.

(a) (i) Prepare an individual supply schedule. [7 Marks]
(ii) Draw a supply curve based on the schedule prepared above.
(iii) State three assumptions of the law of supply.

Answer:
(i) Individual supply schedule : Individual supply schedule shows the different quantities of a commodity that an individual firm or producer is prepared to sell at various prices. The law of supply can be explained with the help of individual supply schedule :

Hypothetical Individual Supply Schedule for Commodity X

A hypothetical individual supply schedule of commodity X is given in the table. It is clear from the above individual supply schedule that more and more quantity of commodity X is being offered for sale by the firm as the price of the commodity increases. The firm is willing to supply 20 units of product X per month when the product price is Rs. 2 per unit. When the price rises to Rs. 3 per unit, it is now willing to sell 40 units of the commodity.

(ii) Supply curve is a graphical representation of a supply schedule. Individual supply curve reflects an individual supply schedule and market supply schedule represents a market supply schedule. Thus, curve SS reflects the individual supply curve.
Supply curve has a positive slope, i.e., it moves upward from left to right. It shows that more quantity will be supplied at higher prices and vice-versa. The various points on the supply curve represent different possible price-quantity combinations. The positively sloping supply curve SS shows the direct relationship between price and quantity supplied.

[Figure: A standard upward-sloping Cartesian graph with Price on the Y-axis ranging from 1 to 6 and Quantity on the X-axis ranging from 0 to 100. The straight line curve labeled SS starts from point a (2, 20) and moves upwards to point e (6, 100), passing through b, c, and d.]

(iii) The phrase 'other things being equal' as used in the law of supply indicates its assumptions. The main assumptions of the law are as follows :
1. Price of other related goods should not change.
2. Technology of production should not change.
3. Cost of factors of production should remain the same.

Teacher's Note:
a) Ensure the schedule has a direct, positive correlation between price and quantity.
b) The supply curve must slope upwards from left to right to correctly indicate positive elasticity.

(b) Explain four reasons as to why land is considered to be an important factor of production. [8 Marks]

Answer:
Land is an important factor of production in spite of the fact that land is a passive factor of production, no production can start without it. The importance of land becomes evident from the following facts :
1. Agricultural Development : The agricultural development of a country largely depends upon the quantity and the quality of land. About 43 per cent of land area of India is plain and suitable for crop farming. Some parts of India have good climate, good rainfall and fertile lands and therefore help in prosperous farming. The development of primary industries such as fishing, mining, forestry, etc., is determined by the quality of land found in the country.
2. Industrial Development : The development of industries is also dependent upon land, because the raw materials for these industries are ultimately obtained from land. What is more, the power (i.e., electricity, coal, etc.) to run such industries is also provided by land.
3. Development of the Means of Transport and Communication : Land facilitates the development of the means of transport and communication in a country. Sea coast and rivers provide navigation facilities for transportation. However, the construction of roads and railway tracks turns out to be very costly and expensive in hilly regions.
4. Importance to Man : Much of our requirements of food, clothing, etc., are directly or indirectly met from land. Our food consists of rice, wheat, other cereals and pulses, fish, meat, eggs, milk, etc. all our food comes from plants and animals which nature supports. Residential houses are constructed on land. Not only this, houses are made of bricks, stone, wood and steel, all of which in their raw form come from nature.

Teacher's Note:
a) Cover distinct economic spheres such as agriculture, industry, transport, and basic human needs.
b) Emphasize that land provides both the site for production and the natural resources used as raw materials.

Question 6.

(a) Does a demand curve always have a negative slope ? Give three reasons to justify your answer. [7 Marks]

Answer:
No, a demand curve does not always have a negative slope. There are certain exceptions to the law of demand where the demand curve slopes upward from left to right (positive slope). Three reasons/exceptions are as follows:
1. The Giffen's Paradox : A fall in the price of inferior goods (Giffen Goods) tends to reduce its demand and a rise in its price tends to extend its demand. This phenomenon was first observed by SIR ROBERT GIFFEN, popularly known as Giffen's paradox. He observed that the working class families of U.K. were compelled to curtail their consumption of meat in order to be able to spend more on bread.
2. Fear of Shortage : The people may buy more of a commodity even at higher prices when they fear of a shortage of that commodity in the near future. This is contrary to the law of demand. It may happen during times of war and inflation and mostly in the case of goods which fall in the category of necessities of life like sugar, kerosene oil etc.
3. Conspicuous Necessities : Another exception occurs in the use of such commodities as, due to their constant use, have become necessities of life. For example, in spite of the fact that the prices of television sets, refrigerators, washing machines, cooking gas, scooters etc., have been continuously rising, their demand does not show any tendency to fall.

Teacher's Note:
a) Clearly state that exceptions to the law of demand result in a positively sloping demand curve.
b) Describe Giffen goods and fear of shortage accurately with examples.

(b) Point out the differences between perfect competition and monopoly on the basis of : [8 Marks]
(i) Number of sellers
(ii) Market price
(iii) Entry of Firms
(iv) Type of products produced

Answer:

Teacher's Note:
a) Tabular format is best suited for differentiation questions.
b) Ensure all four specified parameters are addressed clearly and accurately.

Question 7.

(a) Why is labour an important factor of production ? Explain the following characteristics of labour : [7 Marks]
(i) Labour cannot be separated from the labourer.
(ii) Labour can improve its efficiency.
(iii) Labour is perishable.

Answer:
Labour is an active and indispensable factor of production without which no enterprise can function. Its key characteristics are explained below:
(i) Labour cannot be separated from Labourer : Land and capital can be separated from their owners but labour cannot be separated from a labourer. Labour and labourer are inseparable from each other. The labourer will have to present himself at a place where work is going on. For example, it is not possible for a teacher to teach in the school, while staying away at home. Therefore, the worker and his service go together. He cannot sell his labour like land and capital.
(ii) Labour can improve its efficiency : The efficiency of labour is not static and can be enhanced over time through better education, training, healthcare, and working conditions, leading to higher productivity.
(iii) Labour is perishable : If a worker does not work on a particular day, his labour for that day is wasted. Labour is, thus, perishable. Labour cannot be stored. The labourer has to sell his labour immediately irrespective of the prices (i.e., wages) paid to him. It is because of this feature that labour has a weak bargaining power.

Teacher's Note:
a) Address all three sub-characteristics thoroughly under distinct headings.
b) Highlight the perishable nature of labour as the primary cause of the worker's weak bargaining position.

(b) Discuss four ways in which an entrepreneur contributes to Economic development. [8 Marks]

Answer:
Entrepreneurs play an important role in production. In every type of production, the element of risk always exists. It is only the entrepreneur who bears risks involved in business. The ways in which an entrepreneur contributes to economic development are:
1. The size of national income which is considered the indicator of economic development of a nation is largely determined by the amount and quality of entrepreneurial resources. What is produced, how much is produced and how efficiently it is produced, all depend upon the class of entrepreneurs. A country will be able to produce a large amount of output and generate a large national income if it possesses a large number of entrepreneurs with a modern outlook.
2. Secondly, entrepreneurs mobilise idle savings of the public through the issues of shares and debentures. Investment of these public savings in industry results in capital formation which is regarded crucial for economic development.
3. Thirdly, entrepreneurs generate employment opportunities and thus help to reduce the unemployment problem in the country.
4. Fourthly, they also set up industries in the backward areas of the country to avail various concessions and subsidies provided by the government. In this way, they help to reduce regional disparities in the country.

Teacher's Note:
a) Detail four distinct developmental contributions such as national income generation, capital mobilization, employment, and regional balance.
b) Emphasize the risk-bearing and organizing role of the entrepreneur.

Question 8.

(a) Define Money. Explain the secondary functions of money. [7 Marks]

Answer:
Money is anything which is universally accepted as a medium of exchange, measure of value, store of value and standard of deferred payments and has divisibility and transferability. Money is the means of valuation and of payment; both as the unit of account and the generally accepted medium of exchange.
Secondary functions of money are:
1. Standard of deferred payment : Most of the business transactions are done on credit basis, which call for future payments. Borrowing and lending is generally carried in terms of money whose value remains fairly stable.
2. Store of Value : Money enables a person to preserve value without fear of loss. Money can be stored easily without losing its value, risk and uncertainty.
3. Transfer of Value : Money serves as a transfer of value from place to place and from time to time. It can be transferred from one place to another through cheques, money orders and drafts.

Teacher's Note:
a) Provide a complete definition incorporating primary and general characteristics of money.
b) Clearly categorize deferred payments, store of value, and transfer of value as secondary functions.

(b) Explain the methods adopted by Commercial Banks to mobilize funds from the public. [8 Marks]

Answer:
Commercial Banks play an important role in mobilizing savings from individual savers. They provide households the most important agency where they may deposit their savings, to earn income based on interest assuring a high degree of security of their funds. There are various kinds of deposits through which Commercial Banks mobilize funds :
1. Fixed Deposit Account : In such deposits, the deposited amount can be withdrawn only after the period of time agreed upon by the bank and the depositor. The interest rates are higher in case of such deposits. The longer the period, higher is the interest rate. However, in practice banks allow the depositors to withdraw funds from such deposits even before the maturity period, but at a low interest.
2. Current Account : A depositor can withdraw their money from such accounts at any time. Usually no interest is paid by the bank on such deposits, but in fact, the bank charges some amount for the services rendered on maintaining such deposits. In some cases, the bank provides overdraft facility also to the depositor against certain securities or personal guarantee. Such deposits are mainly kept by traders and industrialists who are required to make regular deposits and payments through banks.
3. Savings Account : This kind of account is opened by banks with the objective of collecting small savings from the people who have small earnings, and deposit, in small amounts as they like, but the withdrawals are allowed, thrice a week only. However, the rate of interest is less than that on fixed deposits.
4. Recurring Account : In case of such deposits, an account holder has to deposit a certain fixed amount every month for a specified period. The amount accumulated along with interest is paid to the depositor after the specified period. Rate of interest paid by the bank is higher than the savings account but less than the fixed deposit account.

Teacher's Note:
a) Detail the four primary types of bank accounts (Fixed, Current, Savings, Recurring) used for mobilization.
b) Highlight the operational differences such as withdrawal limits, interest rates, and target account holders.

Question 9.

(a) What is meant by urbanisation ? Explain three negative impacts of urbanisation on the eco-system. [8 Marks]

Answer:
Development of cities and towns is known as urbanisation.
Adverse impact of urbanisation on the ecosystem :
1. Temperature : Temperature increases severely due to factors such as paving over formerly vegetated land, increasing the number of residences and giant apartments and industries.
2. Air pollution : There is enormous growth of factories and automobiles due to urbanisation. Harmful emissions of gases and smoke from factories and vehicles cause air pollution. It contributes to allergies and respiratory problems, thereby becoming a huge health hazard.
3. Water issues : The water cycle changes as cities have more precipitation than surrounding areas. Dumping of sewage can lead to outbreaks of epidemics.

Teacher's Note:
a) Define urbanization clearly as the growth of urban settlements.
b) List distinct ecological impacts such as microclimate changes, air pollution, and hydrological disruptions.

(b) State two merits and two demerits of direct taxes. [8 Marks]

Answer:
Two merits of Direct Tax are :
1. Economical : Direct taxes are economical because the cost of collecting these taxes is relatively low as they are collected at source and paid to the government by the tax payers.
2. Certainty : Direct taxes satisfy tax payers as they have the knowledge of correct assessment of tax and the government is fully aware of the amount of tax revenue they will receive.
Two demerits of Direct Tax are :
1. Possibility of evasion : The collection of direct tax is dependent on the honesty and good intentions of the tax-payers. Hence, there is a great possibility of tax-evasion.
2. Inconvenience : Direct taxes are considered highly inconvenient by the tax-payers. The tax-payers have to maintain accounts and submit statements of their income with other relevant details. This creates inconvenience to the tax-payers.

Teacher's Note:
a) Balance the answer by providing two valid merits and two valid demerits.
b) Emphasize tax evasion as a major administrative drawback of direct taxation.

Question 10.

(a) Read the extract given below and answer the questions that follow :
Economic Times, April 12, 2018, New Delhi
NEW DELHI : The Tata Group remains in the race for Air India, the debt-laden national carrier on which IndiGo, Jet Airways and Emirates are no longer keen. Other airlines still interested in participating in the privatisation of Air India include Lufthansa and Singapore Airlines. Reuters on Wednesday reported that the Tata Group is not interested in bidding for Air India. But sources told ET that the Tata's have not pulled out, and are still interested in acquiring Air India along with a foreign partner. Meanwhile, in another move that will allow bidders to change members between the initial and final bidding stages, likely suitors for Air India have sought a relaxation in the norms for consortia participating in the debt-laden carrier's privatisation.
(i) Explain any two ways in which the government can undertake privatisation of public sector units. [4 Marks]
(ii) State three reasons for the need for privatisation. [3 Marks]

Answer:
(i) 1. Contraction of Public Sector : Number of industries reserved for the public sector has been reduced from 17 to 8. And now only 3 industries (namely, atomic minerals, atomic energy and rail transport) are reserved for the public sector. Hence, even core industries like iron and steel, electricity, air transport, shipbuilding, heavy machines and strategic industries like defence productions have been opened for the private sector.
2. Policy of Disinvestment : Selling off a part of the equity of public sector undertakings is called disinvestment. According to the government, the purpose of disinvestments of shares of PSUs was to raise resources for the budget to reduce fiscal deficit and to provide funds for the modernisation of PSUs. The government has adopted two methods of disinvestments - (i) selling of shares in select PSUs and (ii) strategic sale of a PSU.
(ii) 1. Poor performance of Public Enterprises : In view of the poor performance of public sector undertakings, public sector has become an economic burden on the national economy.
2. Rising Budgetary Deficits : The budgetary deficits in India are increasing considerably and further contribute to rising prices. To reduce budgetary deficits, the scope of public sector should be contracted and that of private sector be expanded.
3. High Capital Output Ratio : The capital output ratio in the economy has been increasing particularly for the public sector. It is likely to increase further. High capital output ratio in the public sector demands privatisation. In short, as private enterprises are motivated by profits, they take right economic decisions.

Teacher's Note:
a) Relate privatization methods to disinvestment and deregulation.
b) Clearly outline efficiency and deficit-reduction as the main drivers for privatization.

(b) Discuss four ways in which the State plays an important role in Economic Development. [8 Marks]

Answer:
The ways in which the State plays an important role in Economic Development are:
1. Promotion of welfare : In India, 'socialistic pattern of society' has been regarded as the national goal. This goal calls for state participation in industrial and commercial enterprises to promote social welfare. In our economy, public sector enterprises are being used as an instrument to promote economic growth with social justice.
2. Infrastructure : Without the development of infrastructural facilities (such as transport, communication, power, irrigation, education, basic industries, etc.) economic development is not possible. These infrastructural facilities are developed only by the public sector of the country because the private sector does not take interest in their development due to lack of resources and less profitability. Public sector investment in infrastructure has paved the way for agricultural and industrial development.
3. Strong Industrial Base : There is no denying the fact that rapid industrialization during the first three decades after independence was mainly due to the public sector. Thus, by developing a strong industrial base, the public sector has now opened the path of rapid industrialization of the country.
4. Export Promotion and Import Substitution : Public sector enterprises have been contributing a lot for the promotion of India's exports. This has resulted in foreign exchange earning.

Teacher's Note:
a) Detail four major developmental functions undertaken by the government.
b) Highlight infrastructure development and social welfare as primary state responsibilities.