ICSE Previous Papers with Solutions for Class 10 Economic Applications 2015
ICSE Paper 2015
Answers to this Paper must be written on the paper provided separately.
You will not be allowed to write during the first 15 minutes.
This time is to be spent in reading the Question Paper.
The time given at the head of this Paper is the time allowed for writing the answers.
Section I is compulsory. Attempt any four questions from Section II.
The intended marks for questions or parts of questions are given in brackets [ ].
SECTION-I (40 Marks)
(Attempt all questions from this Section)
(a) Complete the following Individual Demand Schedule: 
|Price in Rs.||Quantity of sugar demanded in kgs.|
(b) Why is capital called a ‘produced means of production’? 
(c) State two assumption of the Law of Supply. 
(d) What is the difference between a loan and an overdraft? 
(e) State any two drawbacks of State enterprises. 
|Price in Rs.||Quantity of sugar demanded in kgs.|
(b) Capital is a different kind of factor of production. It is sometime called a secondary factor of production. Capital is unique among the factors of production in this sense that man exercises complete control over its creation because it is a produced factor of production.
(c) Two assumptions of the law of supply are:
- Prices of inputs remain unchanged.
- State of technology used for production should remain unchanged.
(d) Loan: The bank sanctions a lump sum advance credited to the account of the borrower in one go. The interest is charged on the amount he has borrowed.
Overdraft: Overdraft allows the customer to draw cheques in excess of the balance standing in his current account. The interest is charged only on the amount overdrawn.
(e) Two drawbacks of state enterprises are as follows:
- Low efficiency: Public sector enterprises are dubbed as inefficient as compared to private enterprises. Many public sector undertakings are inefficiently managed by non-technical and inexperienced bureaucrats.
- Undue Delay: Many a time, there has been uncalled delay in completing various projects. Many of the public sector projects took much longer time to complete than was initially estimated.
(a) List two factors affecting the supply of labour. 
(b) If price of X increases, then demand for Y too increases.
What is the relationship between goods X and Y? Give an example. 
(c) State two Primary functions of money. 
(d) What is meant by Monopsony? Give an example. 
(e) Define Fiscal Policy. 
(a) The two factors on which supply of labour depends are:
- Population: The most important factor affecting the supply of labour in a country is its population. The larger the population, the larger will be the number of persons who will have the capacity to perform physical or mental work. Hence, the larger will be the supply of labour.
- Emigration (Out-migration) and Immigration (in-migration): Growth of population, is determined not only by its natural growth but also by the out migration and in migration of people. If some people leave the country, the population goes down, and if some people enter the country from outside, the population goes up. In India, the in-migration of refugees after the partition in 1947 and the Bangladesh war of 1971 led to substantial increase in the supply of. labour.
(b) The relationship between goods X and Y is substitute goods. For example:
If the price of Tata Tea (X) rises, many people will shift from the consumption of Tata Tea to the consumption of Halmira Tea (Y) because the latter has become relatively cheaper. The demand for Halmira Tea (Y) will increase and that of Tata Tea will decrease. Hence the demand for Halmira Tea (Y) has increased because of increase in price of its substitute Tata Tea (X).
(c) Two primary functions of money are as follows:
- Medium of Exchange—Money acts as a medium of exchange. Hence, it has removed the problem of double coincidence of wants faced under the Barter System. Money has general acceptability and purchasing power so nobody refuses to accept money in exchange for goods and services. As a medium of exchange, money helps us to purchase all goods and services from the market.
- Measure of Value—Money acts as a common measure of value. The value of every thing can be expressed in terms of money and is known as its price, when we say that the price of one metre of cloth is Rs. 15/-, this means that in order to obtain one metre of cloth, we have give up 15 units of money.
(d) Monopsony is the market situation in which there is a single buyer who purchase the whole commodity. Sellers may be one, few or in large numbers. This situation is very rare in the market.
For example—A coal mine may be the only employer who demands the services of coal-mines in a region.
(e) Fiscal Policy: This refers to the revenue and expenditure policy of the Government of any country. The instruments of fiscal policy are public expenditures, imposition of taxes (and changes in tax rates), provision of subsidy, public debt etc.
(a) State the market form of the following commodities:
- Fighter Aircrafts. 
(b) What is meant by shifting of tax burden?
To which tax is this relevant? 
(c) A consumer purchased 10 units of a commodity when its price was Rs. 5 per unit. He purchases 12 units of the commodity when price falls to Rs. 4 per unit. Calculate the price elasticity of demand for the commodity. 
(d) State two ‘active’ factors of production. Give reasons to support your answer. 
(e) Differentiate between Floating and Sunk capital. Give an example for each. 
- Monopoly Market
- Oligopoly Market
- Monopolistic competition Market
- Monoposony Market.
(b) Shifting of tax burden is possible in case of indirect tax. The tax is paid by some other person and the final incidence is borne by some other person e.g. excise duty and sale tax etc.
(d) Labour and Entrepreneur are two active factors of production. Land and capital can be used only when labour is employed on then.
No doubt, all factors are important in production because production results from cooperation among all the productive resources, yet labour is regarded as the single most important factor of production.
(e) Sunk Capital: It is that kind of capital, which can be used to produce only one type of commodity or service. For example, an ice factory.
Floating Capital: It is that category of capital, in which all items can be put to alternate uses. For example: money, fuels etc.
(a) State two advantages of opening a bank account. 
(b) ‘The role of the State is important in developing the economic infrastructure of a developing economy’. Give two reasons to support your answer. 
(c) State the impact of an increase in Cash Reserve Ratio on loanable funds. 
(d) Classify the following types of tax into direct and indirect taxes:
- Entertainment tax
- Income tax
- House tax
- Sales tax. 
(e) Which of the following is a function of a Commercial Bank? Give a reason to support your answer:
- Acting as a lender of last resort
- Deciding what is legal tender
- Determining monetary policy
- Providing cash credit facility. 
(a) Two Advantages of a Bank Account:
- It helps to develop saving habits among people.
- A bank account can be produced as an evidence in case of dispute.
(b) Two Roles of State in Economic Development:
- It creates economic and social infrastructures wherein private sector does not come forward.
- It establishes basic and heavy industries like iron and steel, heavy electricals, fertilisers, etc., which require huge investments and have long gestation periods.
- Indirect tax
- Direct tax
- Direct tax
- Indirect tax
(e) 4. Providing cash credit facility: In this case, the entire sanctioned amount of loan by the bank is not given to the borrowers at a particular time. The borrower is allowed to withdraw the sanctioned amount as and when he requires money. The bank charges interest only on the actual amount withdrawn from the bank.
SECTION-II (60 Marks)
(Answer any four questions from this section)
(a) What do you understand by division of labour?
Explain three ways by which division of labour is beneficial to producers. 
(b) State the Law of demand. Explain three exceptions to this law. 
(a) Division of labour rgfers to the method of organising production where the work required to produce a product is divided into different specialized tasks with different workers specializing in each task.
The four ways in which Division of Labour will influence production in an economy are as follows:
- Quality of Production Improves—Division of Labour leads to an increase in the efficiency of Labour which further leads not only to an increase in the quantity of output but also to an improvement in the quality of the produced goods and services.
- Large Scale Production—Division of Labour makes large scale production possible. Indeed, large scale production requires division of labour. If a car manufacturing company, for instance wishes to make 10000 cars in a year but does not introduce division of labour in its factory, it will have to employ so many workers that it will not be an economically viable company. It is by virtue of division of labour that the company can produce 10000 cars per year with a reasonable number of workers
- Reduced Average Cost—Since division of labour increases total output, even with an unchanged number of labourers, the average cost of producing a commodity falls. This is a social advantage. Society can produce goods by incurring lower average cost of production.
- Lower Prices of Output—The reduced average costs of the products leads to reduced prices of the outputs in the market. As a result, consumers are benefited.
(b) Law of Demand: The law of demand is based on the law of diminishing marginal utility. This law states the relationship between the quantity demanded and price.
According to Marshall: “The amount demanded increases with a fall in price and diminishes with a rise in price.”
According to Samuelson: “Law of demand states that people will buy more at lower prices and buy less at higher prices, ceteris paribus.”
Demand Schedule: According to Prof. Marshall, “demand schedule is a list of prices and quantities.” It is a tabular statement of price-quantity relationship between two variables. The demand schedule in the table represent the different quantities of commodities that are purchased at different prices during a certain specified period.
Demand Curves: The demand curve is a graphic statement or presentation of quantities of a commodity, which will be demanded by the consumer at various possible prices at a given moment of time. Demand curve does not tell us the price. It only tells us how much quantity of good would be purchased by the consumer at various possible prices.
|Price of Oranges (Rs. per kg.)||Demand by Consumer (in per kg.)|
Exceptions to the Law:
- War or Emergency: During the period of war, if there is fear of shortage, people may start buying for hoarding and building stocks, even at high prices. On the other hand, if there is depression, they will buy less at low prices.
- Articles of Distinction: Articles of distinction command more demand when their prices are high. These articles include jewellery, diamonds, gems, coastly carpets etc. The rich people demand more of such commodities even at high prices. In case their price goes down, they no longer remain the articles of distinction and so have less demand.
(a) What is meant by migration?
Explain three ways by which migration impacts the ecosystem. 
- What is capital formation?
- What are three stage of capital formation?
- Explain three reasonssfor the low rate of capital formation in India. 
(a) Migration: Cities provide better employment opportunities. There is attraction of city life in view of more comfofts’and amenities available there. Therefore, a large number of persons migrate from villages and small towns to the larger cities for better prospects. Migration has led to overcrowding in cities. There has been change in the land use patterns to meet the basic needs for sheltering of migrating population.
Three stages of capital formation:
- Industrialisation: As a result of industrialisation, industrial activities are replacing agricultural activities as more income and wealth can be generated there. This has led to change in land use pattern. Industries have developed by occupying agricultural, grassland and forest areas. Industrialisation has disastrous impact on natural environment and atmosphere. It has also resulted in various types of industrial hazards like air and water pollution. Industrialisation has resulted in emission of greenhouse gases into the atmosphere, leading to rise in global temperature. It has polluted the air. Industrialisation has led to water pollution due to flow of chemical and industrial effluents into rivers and other water bodies.
- Population Growth: Large increase in human population is also responsible for change in the land use patterns. World population has been increasing at a very fast rate since the early eighteenth century. A very large track of forests and grasslands has been converted into agricultural land to provide food for the exploding population.
- Construction of Large Dams: Land use patterns have also changed because of construction of large dams on the upper catchment of rivers. Large dams have been constructed to provide hydropower and irrigation facilities on a large scale. Construction of large dams have submerged large areas of agricultural land and forests surrounding these dams, thereby reducing the area under agriculture and forested land. These large dams have also led to ecological disasters and loss of habitat species.
- Capital Formation: “Capital formation consists of both tangible goods like plants, tools and machinery and intangible goods like high standard of education, health, scientific progress and research.”
- The process of capital formation consists of the following steps:
- Creation of Savings: It is the first step in the process of capital formation. It is savings which are transformed into capital. If there is no saving, there cannot be any capital formation, even if all other conditions are favourable for capital formation. Savings are done by households and it depends on their income and willingness to save.
- Mobilization of Savings: If savings are kept in the form of idle cash at home, they will not lead to capital formation. In this case, the rate of investment in the country will be low, even though the rate of saving is high. The savings must be mobilized from the savers. In a modem society, financial and other institutions as well as the capital markets perform this function. People may keep their savings in the banks or other financial institutions. They can also buy shares or bonds issued by companies.
- Investment of Mobilized Savings: Even mobilization of savings is not sufficient for a high rate of capital formation. The mobilized savings must be actually used by producers for the purpose of investment. For instance, the money keptiby the people in the banks must be lent out by the banks to the producers who can use the money.
The causes of low capital formation in India are as follows:
- Lack of Ability to Save: The chief cause of the low rate of capital formation is the low rate of savings. The low rate of saving, in turn, is explained by a number of factors. Among these, the inability to save is the most important. Because of the problem of poverty, the vast majority of the people of India are not in a position to save more than a negligible part of their incomes.
- Lack of Willingness to Save: It is true that a significant part of the Indian ‘population does not have the willingness to save. Even today there are parts of the Indian economy where a feudal types of economic system prevails. Under this system even those who have the ability to save (for instance, the landlords) spend most of their incomes on consumption or on conspicuous consumption.
- Insufficient Opportunity to Save: In some cases people in India also do not have sufficient opportunity to save. Inadequate expansion of the public sector banks and other financial institutions in the rural areas, lack of faith of the people upon the indigenous bankers, lack of knowledge of the people regarding the secured savings opportunities, etc. are some of the reasons for such insufficient savings opportunity in India.
- Inadequate Mobilization of Savings: India also suffers from the problem of inadequate mobilization of savings. The savings that are made by the people are not always used for capital formation. People often keep their savings in the form of cash and gold at home. These are not productively used. This is partly due to inadequate development of the banking habits of the people and partly to the under developed state of the banking and financial network particularly in the rural areas.
(a) Who is an entrepreneur? Explain any three functions of an entrepreneur. 
(b) With reference to the taxation policy:
- Mention three differences between direct taxes and indirect taxes.
- Differenctiate between progressive and regressive taxes giving an example for each. 
(a) Entrepreneur: He undertakes all risks and organise the activities related to the business. He has all the qualities of leadership and an experienced and skilled person to guide and lead a company. He makes plans and gets it implemented. He is resourceful and tactful inorder to run the whole organisation. He is responsible for the success as well as for the loss. This is the fourth factor of production. In simple words, the person who takes up the risk and organizes the business is known as an “enterpreneur”. The entrepreneur act as a manager and also takes up the risk of the business, whereas the manager or an organiser only managers the work in a predetermined manner, but he is not liable for any risk or loss in business.
Functions of Enterpreneur:
- Risk Bearing: He has to bear the risks which can be non-insurable (changes in govt. policy).
- Innovator: The entrepreneur conceives new ideas, new products and new processes. He also develops new techniques with a view to avail to better opportunities of maximizing profit ability in the business. Thus, the entrepreneur always looks for changes and modification in business to further improvement.
- Organizing: The success of business depends directly upon properly planned organization. Organizing means determining and deciding about the entire group of persons who need to be employed to take up different responsibilities and duties to execute the projects-and plans off the entrepreneur. This is one of the most important functions, or to say the main functions which has to be performed by the entrepreneur. In modem times, the organization has become very important and a crucial factor due to complicated nature of present productive systems.
- Policy Maker: He is the one who makes plans on which the whole organization runs. He hold regular meetings and makes guidelines and distributes the work.
1. Differences between a direct tax and an indirect tax:
|Direct Tax||Indirect Tax|
|1. They are directly paid to the Government by the people on whom they are imposed.||They are paid to the Government by one person but their burden is borne by another person.|
|2. They cannot be shifted i.e. impact and incidence is on the same person.||They can be shifted i.e. impact is on one person and incidence is on an another person.|
|3. Taxes imposed on production or income are direct taxes.||Taxes imposed on consumption are indirect taxes.|
|4. These taxes are revised according to the ability of the tax payer.||These are the taxes in which tax paying ability of the tax payer is assessed indirectly.|
They generate social consciousness among people.
Examples: Income Tax, Wealth tax.
They do not generate social consciousness as they are taxes in the dark.
Examples: Sales Tax, Excise Duty.
2. Progressive taxes: A tax is called progressive when the rate of taxation increases as the taxpayer’s income increases, i.e. the higher the income, the higher is the rate of tax. For example: a person earning an income of? 5 lakh a year may be taxed at the rate of 20%.
Regressive taxes: A regressive tax is one in which the rate of taxation decreases as the taxpayer’s income increases. In this system the rate of tax falls with increase in income. For Ex., income of? 5 lakh a year may be tax at the rate of 20% and income of 10 lakh a year may be taxed at the rate of 20%.
(a) What do you understand by price elasticity of demand? With the help of diagrams explain the conditions when:
- EP > 1
- EP < 1
- EP = 1 
(b) With reference to the Central Bank of a country.
- State two reasons for the need of a Central Bank in a country.
- List two ways in which a Central Bank acts as a Banker to the Government.
- What is meant by open market operations? How does it act as method to control credit? 
(a) Price elasticity of demand is the responsiveness of change in quantity demanded in response to a given percentage change in the price of the commodity. It can be expressed as follows:
- Relatively Elastic Demand—When the percentage change in demand is greater than the percentage change in price, elasticity of demand is said to be relatively elastic. For example, if the price of a commodity falls by 10% but its demand rises by 20%, demand of the commodity will be said to be relatively elastic. The numerical value of price elasticity will be greater than one ( EP > 1).
In the above diagram, DD is an elastic demand curve as it is very clear that the change in demand ( OQ1) is much more than the change in price (PP1).
- Relatively Inelastic Demand—When the percentage change in demand is lesser than the percentage change in price, the demand is said to be relatively inelastic. For example, a fall in price by 10% may lead to a rise in demand by only 5%. The numerical value of price elasticity here will be less than unity (EP < 1).
- Unitary Elastic Demand—In this situation, percentage change in demand is equal to percentage change in price. For instance, if price of milk rises by 20% and consequently its demand also falls by 20%, price elasticity of demand will be unitary elastic. Generally, demand for comforts, such as sofa-set, desert-cooler, scooter etc. is unit elastic.
Elasticity of demand will be unitary when the demand curve takes the shape of a rectangular hyperbola as is shown in the alongside diagram.
- Two reasons for the need of a central bank in a country:
- Central bank is extrusted with the responsibility of developing and promoting the banking system of the country.
- Central Bank is the fiscal agent, banker and advisor to the government.
- Central Bank acts as a banker to the government:
- The government collects large sums of money through taxation. The government also spends equally large sums.
- RBI/Central bank revives the deposits of cash, cheques, drafts etc. from the government. It provides cash to the government for paying salaries and wages and other cash disbursements.
- Open Market Operations: It is one of the most important quantitative instruments to control credit. It refers to the sale and purchase of government and other approved securities by the central bank in the money and capital market. When RBI aims at expansion of bank Credit during the period of recession, it purchases securities from the market and vice verse. This is how credit is controlled in both boom and condition of recession.
(a) What is Perfect Competition?
Describe any three characteristics of Perfect Competition. 
(b) Give a reason for each of the following statements:
- The fixed income group is adversely affected during periods of inflation.
- Selling costs are higher in Monopolistic Competition.
- High rates of taxes reduce the savings capacity in an economy.
- The demand for newspaper is inelastic. 
(a) Perfect competition is a market structure where there are a large number of producers (firms) producing a homogenous product so that no individual firm can influence the price of the commodity.
The characteristics of a perfectly competitive market are as follows:
- Large number of sellers: The number of sellers is large and every individual seller sells a quite insignificant part of the total supply. No seller is able to influence the market price either by Withdrawing from the market or by supplying its entire stock.
- Large number of buyers: There are many buyers and no single buyer is able to influence the market price in any way. The quantity purchased by each buyer is too small to influence the market price.
- Homogeneous product: All sellers sell completely identical products, in respect of quality, colour, size etc. They are perfect substitutes of one another. The product sold by different firms in the market are equal in the eyes of buyers. All sellers are equal in the eyes of buyers. No seller can charge higher price otherwise he is liable to his customers.
- Free entry and exit of firms: There is no restriction on entry of new firms in the industry or exit of old firms from the industry.
- Wage earners and salaried class tend to lose dining inflation as their salary fails to keep pace with the rising, prices, second, even thought wages and salaries may eventually rise during inflation, there is a time lage between the price rise and increase in wages and salaries.
- To advertise the product, an organisation adapt sales promotion measures which give rise to selling costs. Selling cost is the expenditure incurred by a firm to promote the sale of its product. Thus, selling costs are high in monopolistic competition as there are close substitutes and many rivals.
- High rates of taxes reduces the savings capacity as an individual’s ability to work and save is adversely affected. Due to high cost of living, he is unable to save a part of his income.
- The demand for newspaper is inelastic. As individuals who are habituel and prefer to read newpaper for hours and hours, will not postpone its use. Thus, it is inelastic for them.
(a) Read the extract given below and answer the questions that follow:
PTI Jun 15, 2014
New Delhi: The Finance Ministry has asked the Department of Disinvestment to complete the groundwork for sale of shares in state-owned companies soon after the budget to take advantage of the bull phase in the stock market.
The government is expected to retain the disinvestment target of Rs. 36,925 crore proposed in the interim budget for 2014-15.
- What is disinvestment?
- How will privatisation lead to:
- Control of budgetary deficits
- Flow of funds to Public Exchequer
- Greater flexibility in decision making 
- Indicate the degree of elasticity on the Supply curves given below:
- Explain three determinants of Elasticity of Supply.
- Disinvestment: It implies transfer of a part of Government Shareholdings in the public sector enterprises to the private sector.
- Control of Budgetary Deficits: There would be no question of budgetary deficit, if the PSUs fielded a 10% return on investment. But in reality it is not so. The budgetary deficit have risen sharply from year to year. For instance, the budgetary deficit which was Rs. 1417 crores in 1983-84, has increased to Rs. 1,51,000 crores in 2005-06. Therefore, the Government can control its staggering budgetary deficit by using the sale proceeds on the shares in PSUs.
- Flow of funds to Public Exchequer: Operation of public sector enterprises has been putting a large burden on public exchequer because of huge losses incurred by a number of enterprises and growing subsidy payments. Privatisation would be helpful in reducing this financial burden upon the government.
- Greater flexibility in making decisions: Sometimes PSUs suffer losses just due to inadequate autonomy in the ‘decision making power’ of the management. If the PSUs are privatised, then the production and investment decisions qf,the management would be free from any Government intervention, and they would be purely guided by profit motive.
- Elastic supply
- Unitary elastic supply.
- Determinants of Elasticity of Supply:
Elasticity of supply depends upon a number of factors, some of which are as follows:
- Nature of cost of production: Elasticity of supply depends upon change in the cost of producing additional quantity of output. If an increase in output by the firms in an industry causes only a slight increase in their cost per unit or leads to decrease in cost per unit, we would expect supply to be fairly elastic. If, on the other hand, increase in supply leads to a large increase in cost of production, the supply would be relatively inelastic.
- Time element: Time period is an important determinant of elasticity of supply. Supply of a commodity, in the ultimate analysis, depends upon its production. A price change due to change in demand for a commodity may have a small response in the quantity supplied in the short-run since the production capacity may be limited.
- Nature of the commodity: Nature of the commodity is also an important determinant of the elasticity of supply. For instance, the supply of durable products is relatively elastic. Durable goods can be stored and hence producers can meet the market demand by running down their stocks.
- Nature of inputs: Elasticity of supply depends on the nature of inputs used for the production of a commodity. If the production of a product requires inputs that are easily available, its supply would be more elastic. On the other hand, if it uses specialised inputs, its supply will be relatively inelastic.
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