ICSE Class 10 Economics Sample Paper 2020 with Solutions

SECTION A (40 Marks)

Attempt all questions from this Section

Question 1

(a) With the help of an example explain the term inferior goods. [2 Marks]

Answer:
Inferior goods are those goods whose demand decreases as the income of the consumer increases, and vice versa, keeping other factors constant. For example, coarse grains like bajra or jowar are considered inferior goods compared to superior grains like wheat or rice. As a household's income rises, they tend to consume less coarse grain and shift towards superior grains.

Teacher's Note:
a) Students must state the inverse relationship between consumer income and the demand for inferior goods clearly along with a valid example.
b) A common mistake is confusing inferior goods with Giffen goods; all Giffen goods are inferior goods, but not all inferior goods are Giffen goods.

(b) Explain the meaning of a monopoly market. [2 Marks]

Answer:
Monopoly is a form of market structure where there is a single seller or producer of a commodity that has no close substitutes. There are strong barriers to the entry of new firms, giving the single firm complete control over the supply and price of the product, making it a price maker.

Teacher's Note:
a) The key features to mention are a single seller, absence of close substitutes, and barriers to entry.
b) Ensure the term "price maker" is highlighted as it distinguishes monopoly from perfect competition.

(c) Define money. [2 Marks]

Answer:
Money is anything that is generally accepted as a medium of exchange, a measure of value, a standard of deferred payments, and a store of value, and is backed by the authority of the government.

Teacher's Note:
a) Mentioning general acceptability and the primary functions of money ensures full credit.
b) Avoid writing vague definitions; legal tender and general acceptance by law are essential components.

(d) What does productivity of land mean? [2 Marks]

Answer:
Productivity of land refers to the average output produced per unit of land over a given period of time. It measures the productive capacity and fertility of land in generating agricultural crops or other goods and services.

Teacher's Note:
a) Productivity is output per unit of input, hence output per acre or hectare of land defines land productivity.
b) Students should not confuse total production of land with the productivity of land.

(e) Give two points of difference between revenue and capital expenditure. [2 Marks]

Answer:
1. Meaning: Revenue expenditure is incurred for day-to-day running of government administration or provision of normal services and does not create assets, whereas capital expenditure is incurred on creation or acquisition of permanent assets and reduction of liability.
2. Nature: Revenue expenditure is recurring in nature, whereas capital expenditure is non-recurring or capital-in-nature.

Teacher's Note:
a) The distinction should be based on asset creation and recurring versus non-recurring nature.
b) Clear examples like payment of salaries for revenue expenditure and construction of roads for capital expenditure help reinforce the answer.

Question 2

(a) In order to secure their rights what duties should be fulfilled by consumers? [2 Marks]

Answer:
1. Consumers must insist on cash memos, bills, and warranty cards while purchasing goods and services.
2. Consumers should be aware of various goods and services available in the market and read labels carefully to check quality standards like ISI, Agmark, or FPO.

Teacher's Note:
a) Duties include exercising consumer responsibilities such as asking for bills and checking quality marks.
b) Students must write any two distinct consumer duties clearly.

(b) What is the meaning of 'food basket' in terms of inflation? [2 Marks]

Answer:
The food basket refers to a representative collection of essential food items and consumables typically purchased by an average household, the aggregate price of which is monitored over time to measure food inflation through indices like the Consumer Price Index (CPI).

Teacher's Note:
a) Explain that it represents a fixed bundle of consumer goods used for calculating changes in the cost of living.
b) Keep the explanation concise, focusing on price tracking for index calculation.

(c) Give a graphical representation of relatively elastic demand. [2 Marks]

Answer:
[Figure: A demand curve sloping downwards from left to right, which is relatively flatter or more horizontal, showing that a small percentage change in price leads to a larger percentage change in quantity demanded, such that elasticity is greater than one.]
In a relatively elastic demand curve, the percentage change in quantity demanded exceeds the percentage change in price, resulting in a flatter slope.

Teacher's Note:
a) The demand curve must be flatter (closer to horizontal) to indicate elastic demand where E_d > 1.
b) Label axes properly with Price on the vertical axis and Quantity on the horizontal axis.

(d) Explain any two causes of cost push inflation. [2 Marks]

Answer:
1. Increase in wage rates: When trade unions demand higher wages, cost of production rises, forcing producers to raise prices.
2. Increase in cost of raw materials: Rising prices of essential imported inputs like crude oil increase the cost of production across sectors, leading to cost-push inflation.

Teacher's Note:
a) Cost-push inflation arises due to a rise in the cost of production inputs.
b) State two clear causes such as wage hikes and raw material price increases.

(e) What is meant by overdraft facility offered by a commercial bank? [2 Marks]

Answer:
Overdraft facility is a credit facility granted by a commercial bank to current account holders, allowing them to withdraw money in excess of the actual balance available in their account up to a specified sanctioned limit.

Teacher's Note:
a) Emphasize that it is exclusively for current account holders and involves withdrawing more than the deposited balance.
b) Mention that interest is charged only on the overdrawn amount, not on the entire limit.

Question 3

(a) With the help of an example explain the measure of value function of money. [2 Marks]

Answer:
Money serves as a common unit of account and standard measure of value, enabling the prices of all goods and services to be expressed in terms of a single monetary unit. For example, if a pen costs Rs. 20 and a book costs Rs. 100, the value of both items is measured in rupees, making it easy to compare their relative worth and determine that the book is five times more valuable than the pen.

Teacher's Note:
a) Explain how money acts as a common denominator of value eliminating the complexities of the barter system.
b) Provide a clear price comparison example to secure full marks.

(b) Define bank rate. [2 Marks]

Answer:
Bank rate is the standard rate at which the central bank of a country rediscounts bills of exchange or rediscounts eligible securities and provides long-term loans to commercial banks.

Teacher's Note:
a) Highlight that it is the central bank's lending rate to commercial banks.
b) Differentiate it clearly from the repo rate which is for short-term lending.

(c) What are recurring deposits? [2 Marks]

Answer:
Recurring deposits are a type of term deposit where depositors deposit a fixed sum of money every month for a pre-determined period, earning compound interest, and the total accumulated amount along with interest is paid back to the depositor on maturity.

Teacher's Note:
a) Focus on regular periodic monthly deposits and maturity payout.
b) Mention that it encourages the habit of regular savings among small depositors.

(d) Give one point of difference between cash reserve ratio and statutory liquidity ratio. [2 Marks]

Answer:
Cash Reserve Ratio (CRR) refers to the fraction of total deposits that commercial banks must keep with the Central Bank in liquid cash form, whereas Statutory Liquidity Ratio (SLR) refers to the fraction of total deposits that commercial banks must maintain with themselves in the form of specified liquid assets like cash, gold, or approved securities.

Teacher's Note:
a) The primary difference lies in where the reserve is kept: CRR is kept with the Central Bank, while SLR is maintained by the commercial bank itself.
b) Both are key quantitative instruments of monetary policy.

(e) What is meant by derivative deposits? [2 Marks]

Answer:
Derivative deposits are those deposits created by commercial banks through loans, advances, or purchase of securities when they lend money to borrowers, resulting in secondary credit creation in the banking system.

Teacher's Note:
a) Derivative deposits arise out of loan transactions rather than direct cash deposits by customers.
b) They are central to the money creation process of commercial banks.

Question 4

(a) How is labor different from other factors of production? [2 Marks]

Answer:
1. Inseparability: Labor is inseparable from the labourer himself, whereas other factors like capital or land can be separated from their owners.
2. Perishability: Labor cannot be stored or accumulated for future use; a day lost of labor is lost forever, unlike material factors of production.

Teacher's Note:
a) Highlight unique characteristics of labor such as live agency, perishability, and inelastic supply in the short run.
b) Give clear points contrasting labor with capital or land.

(b) Capital is a produced means of production. Explain. [2 Marks]

Answer:
Capital is called a produced means of production because it is not a free gift of nature like land; rather, it is created, manufactured, or accumulated by human effort combined with natural resources and is further used in the production of other goods and services, such as machinery, tools, and factories.

Teacher's Note:
a) Explain both parts: "produced" (created by humans) and "means of production" (used to produce further goods).
b) Contrast with land which is a primary, non-produced factor.

(c) Draw a supply schedule using hypothetical data. [2 Marks]

Answer:

Teacher's Note:
a) The schedule must reflect a direct positive relationship between price and quantity supplied.
b) Ensure proper headings and clean tabular format.

(d) Why is direct tax unpopular among tax payers? [2 Marks]

Answer:
1. Direct incidence: The burden cannot be shifted to others, and the taxpayer feels the direct pinch of parting with their hard-earned income.
2. Inconvenience in compliance: Filing returns, maintaining accounts, and dealing with tax authorities involve considerable time, paperwork, and risk of harassment or evasion penalties.

Teacher's Note:
a) Explain that direct taxes are painful because the taxpayer pays directly out of pocket without shifting options.
b) Mention procedural complexity as a secondary reason for unpopularity.

(e) Why is the Central Bank considered as 'custodian of foreign reserves'? [2 Marks]

Answer:
The Central Bank is the official custodian of the country's foreign exchange reserves because it holds and manages all official reserves of foreign currencies, gold, and Special Drawing Rights (SDRs) to maintain stability in the external value of the domestic currency and stabilize exchange rates.

Teacher's Note:
a) Mention that centralizing foreign exchange reserves helps maintain external stability and back the domestic currency.
b) State that the central bank uses these reserves to intervene in foreign exchange markets when necessary.

SECTION B (40 Marks)

Attempt any four questions from this Section

Question 5

(a) Give five reasons to explain low efficiency of labour in India. [5 Marks]

Answer:
1. Climatic conditions: Hot and humid climate in most parts of India saps energy levels and reduces the working capacity and endurance of workers.
2. Inadequate health and nutrition: Widespread poverty, malnutrition, and poor sanitary conditions lead to poor health, frequent illness, and low productivity.
3. Defective educational system: Lack of vocational training and poor quality of general education leave workers ill-equipped with modern technical skills.
4. Outdated technology and poor working conditions: Use of primitive tools, machinery, and unsafe factory environments curb potential output per worker.
5. Social factors: Social evils, caste barriers, lack of labor mobility, and fatalistic attitude reduce incentive for hard work and efficiency.

Teacher's Note:
a) List any five distinct socioeconomic or environmental causes of low labor productivity in India.
b) Provide a brief explanatory sentence for each point to secure full marks.

(b) (i) What do you mean by an entrepreneur? [2 Marks]

Answer:
An entrepreneur is a person who combines the other three factors of production (land, labour, and capital), initiates the business enterprise, coordinates production, introduces innovations, and bears the ultimate risk and uncertainty of business.

Teacher's Note:
a) Emphasize risk-bearing, organizing, and innovation as core functions of an entrepreneur.
b) Distinguish entrepreneur from a routine salaried manager.

(ii) Explain any three ways by which an entrepreneur contributes to the economic development of a country. [3 Marks]

Answer:
1. Capital formation: Entrepreneurs mobilize savings and channel them into productive investments, leading to capital accumulation.
2. Employment generation: By setting up new industries and businesses, entrepreneurs create vast job opportunities across various sectors.
3. Innovation and technological advancement: Entrepreneurs introduce new products, production techniques, and market methods, enhancing productivity and overall economic growth.

Teacher's Note:
a) Provide three clear contributions of entrepreneurship to economic growth.
b) Use keywords like capital formation, employment generation, and innovation.

Question 6

(a) Draw and explain the difference between contraction and extension in demand. [5 Marks]

Answer:
[Figure: A demand curve showing movement along the same demand curve. Extension in demand is indicated by a downward movement from a higher point to a lower point along the curve due to a fall in price. Contraction in demand is indicated by an upward movement from a lower point to a higher point along the curve due to a rise in price.]
Difference between extension and contraction in demand:
1. Meaning: Extension in demand refers to a rise in quantity demanded due to a fall in the price of the commodity, other things remaining constant. Contraction in demand refers to a fall in quantity demanded due to a rise in the price of the commodity, other things remaining constant.
2. Direction of movement: Extension involves a downward movement along the same demand curve, while contraction involves an upward movement along the same demand curve.
3. Cause: Extension is caused by a decrease in price; contraction is caused by an increase in price.

Teacher's Note:
a) Clarify that both phenomena represent changes in quantity demanded due to price changes, resulting in movement along the same curve (opposed to shift in demand).
b) A neat labelled diagram showing upward and downward movements is essential for full credit.

(b) Explain any five ways by which consumers are exploited by the retailers. [5 Marks]

Answer:
1. Under-weighing and under-measuring: Retailers often use faulty weights, measures, or scales to deliver less quantity than what the consumer has paid for.
2. Adulteration: Mixing inferior, harmful, or duplicate substances into pure food items or medicines to increase profit margins.
3. Charging exorbitant prices: Retailers often charge prices higher than the Maximum Retail Price (MRP) or exploit consumers during shortages.
4. Supply of sub-standard or defective goods: Selling expired, damaged, or poor-quality goods disguised as quality products.
5. False and misleading advertisements: Making exaggerated or untrue claims regarding the efficacy, quality, or utility of products to lure consumers into buying.

Teacher's Note:
a) List five common trade malpractices through which consumers face exploitation.
b) Provide clear, realistic examples for each point.

Question 7

(a) (i) What is meant by GST? [2 Marks]

Answer:
Goods and Services Tax (GST) is an indirect, comprehensive destination-based tax levied on the supply of goods and services across the country, subsuming multiple indirect taxes like excise duty, service tax, and VAT.

Teacher's Note:
a) Define GST as a unified indirect tax replacing multiple cascading levies.
b) Mention that it is destination-based.

(a) (ii) Give any four objectives of GST. [3 Marks]

Answer:
1. To eliminate the cascading effect of taxes (tax on tax) across the supply chain.
2. To create a unified common national market by subsuming numerous central and state indirect taxes.
3. To broaden the tax base and enhance government revenue collection through better compliance.
4. To simplify tax filing procedures and promote ease of doing business through an IT-driven transparent framework (GSTN).

Teacher's Note:
a) List four clear macroeconomic objectives of implementing GST.
b) Highlight elimination of cascading effect and single national market.

(b) Differentiate between monopoly and monopolistic competition. [5 Marks]

Answer:

Teacher's Note:
a) Comparison must be made on clear parameters such as number of sellers, product differentiation, entry barriers, and price control.
b) Tabular presentation is ideal for differentiation questions.

Question 8

(a) (i) What do you understand by hyper inflation? [2 Marks]

Answer:
Hyper inflation is an extreme, highly accelerated form of inflation where the general price level rises at an exceptionally rapid rate (often exceeding hundreds or thousands of percent per annum), causing money to lose its value drastically and collapse public confidence in the monetary system.

Teacher's Note:
a) Define hyperinflation as runaway inflation with extremely rapid price surges.
b) Mention loss of monetary value as the principal outcome.

(a) (ii) Give any three effects of inflation on production. [3 Marks]

Answer:
1. Encouragement to producers in mild inflation: Moderate inflation raises profit margins, encouraging producers to increase output and investment.
2. Deterioration of quality in hyperinflation: During severe inflation, producers may cut corners and compromise product quality due to rising input costs and speculative hoarding.
3. Misallocation of resources: Producers tend to shift resources away from essential goods production toward speculative real estate or luxury goods production where profits are higher during inflationary spirals.

Teacher's Note:
a) Explain how moderate inflation acts as an incentive while severe inflation disrupts production cycles.
b) Mention resource misallocation and speculative activities.

(b) With the help of a schedule and graph explain the law of demand. [5 Marks]

Answer:
The law of demand states that, other things remaining constant (ceteris paribus), there is an inverse relationship between the price of a commodity and its quantity demanded. That is, as price rises, quantity demanded falls, and as price falls, quantity demanded rises.
Demand Schedule:

Teacher's Note:
a) Students must state the law, explain the ceteris paribus assumption, and provide both a valid schedule and a properly labeled downward-sloping graph.
b) Emphasize the inverse slope of the demand curve.

Question 9

(a) Explain any five factors affecting supply of a commodity. [5 Marks]

Answer:
1. Price of the commodity: Higher price induces higher supply due to higher profit margins, and vice versa.
2. Cost of production: An increase in input costs (wages, raw materials) reduces profitability, shifting supply downwards or leftwards.
3. State of technology: Technological advancements improve productivity and lower costs, leading to an increase in supply.
4. Government policy: Favorable subsidies increase supply, whereas heavy excise duties or taxes reduce the supply of a commodity.
5. Goals of the firm: If the objective of the firm is profit maximization, supply depends on price; if sales maximization is the goal, supply may increase regardless of lower prices.

Teacher's Note:
a) List any five determinants of supply with clear explanations.
b) Ensure price and non-price factors are both covered.

(b) State and explain any three merits and two demerits of indirect taxes. [5 Marks]

Answer:
Merits of indirect taxes:
1. Convenient to pay: They are paid in small amounts included in the price of goods purchased, making payment painless.
2. Broad-based: Even low-income groups contribute to national revenue as everyone consumes taxed commodities.
3. Progressive through social control: Higher taxes can be levied on harmful luxury goods (like alcohol or tobacco) to discourage consumption.
Demerits of indirect taxes:
1. Regressive nature: They fall equally on both rich and poor consumers, placing a heavier relative burden on poorer sections of society.
2. Uncertainty in revenue: Revenue collection is uncertain and depends heavily on the volume of consumer spending and market demand.

Teacher's Note:
a) Clearly segregate three merits and two demerits as requested in the question.
b) Highlight regressivity as the principal demerit of indirect taxation.

Question 10

(a) (i) Explain the term COPRA and RTI. [2 Marks]

Answer:
COPRA (Consumer Protection Act): Enacted in 1986 (and updated in 2019), it is a landmark legislation designed to protect and promote consumer interests, providing cheap, speedy, and simple redressal of consumer disputes.
RTI (Right to Information Act): Enacted in 2005, it empowers citizens to secure access to information under the control of public authorities, promoting transparency and accountability in government functioning.

Teacher's Note:
a) Define both acronyms with their core objectives and enactment contexts.
b) Emphasize consumer grievance redressal for COPRA and government transparency for RTI.

(a) (ii) Give three features of COPRA. [3 Marks]

Answer:
1. Establishment of Consumer Disputes Redressal Commissions at district, state, and national levels for a three-tier quasi-judicial system.
2. Protection of six basic consumer rights including the right to safety, information, choice, representation, redressal, and consumer education.
3. Provision for fast-track, inexpensive grievance redressal without necessarily requiring elaborate legal representation.

Teacher's Note:
a) Outline three salient features of the Consumer Protection Act.
b) Mention the three-tier judicial structure and consumer rights protection.

(b) How is the Central Bank a 'banker to the government'? [5 Marks]

Answer:
The Central Bank acts as banker, agent, and financial adviser to the government in the following ways:
1. Manages government accounts: It maintains current accounts for central and state governments, receiving deposits and honoring cheques and payments made by government departments.
2. Provides short-term loans and advances: It extends ways and means advances or temporary loans to the government to cover budget deficits and temporary mismatches in receipts and disbursements.
3. Manages public debt: It floats new loans, manages government securities, pays interest, and handles the redemption of public debt on behalf of the government.
4. Financial adviser: It provides expert advice to the government on crucial economic, fiscal, and monetary policy matters.
5. Acts as government agent: It buys, sells, and manages foreign exchange and represents the government in international financial institutions and forums.

Teacher's Note:
a) Detail the multiple roles played by the central bank as banker, advisor, and debt manager to the state.
b) Give at least four or five distinct functional points to secure full marks.