ICSE Economics Previous Year Question Paper 2017 Solved for Class 10
- 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) How does land differ from other factors of production with respect to its supply ? 
(b) What is meant by cost push inflation ? 
(c) With the help of a diagram define perfectly elastic demand. 
(d) Identify the type of division of labour in an automobile industry. Explain. 
(e) With suitable examples differentiate between complementary goods and substitute goods. 
(a) Land is limited in supply: The quantity of land is limited. Its supply can neither be increased nor be decreased by any human effort. Hence economists remark that land has no supply price.
(b) Cost push inflation occurs when rise in price is due to rise in the cost of production. In this type of inflation, demand factor remains unchanged and supply factor plays an important role. Once this type of inflation sets in one industry, it spreads to all other industries of an economy.
(c) Perfectly Elastic Demand: When no change or a very small change in price causes an enormous variation in demand of a commodity, it is known as perfectly elastic demand. But in reality, such demands do not occur. It is just an extreme condition. In this case e = ∞.
(d) In automobile industry, we see the incomplete division of labour. In such a division, work is divided into different processes and sub processes in such a manner that only a part or component of product is produced at each step.
|Complementary Goods||Substitute Goods|
|1. These are goods which are used together to satisfy a particular want.||1. These are goods which can be used in place of one another to satisfy a particular want.|
|2. Complementary goods have joint demand.||2. Substitute goods have competitive demand.|
|3. Examples : (i) Torch and Battery (ii) Car and Petrol.||3. Examples : (i) Tea and Coffee (ii) Coke and Pepsi.|
(a) Why is supply directly proportional to price ? 
(b) Explain briefly any one determinant of an exceptional demand curve. 
(c) What is meant by unproductive public debt ? 
(d) Mention one contingent function of money. 
(e) Explain briefly the impact of cost of production on elasticity of supply. 
(a) Supply is directly proportional to price because supply is caused by the decision of sellers in the market. The most important indicator that the sellers would look for while making their sales is price. Price of a commodity serves as an incentive for producers and sellers.
1. If the price of a commodity increases, it will motivate producers to produce more and sellers to sell more of the commodity.
2. If the price of a commodity falls, producers and sellers would like to decrease the supply of that commodity because it will reduce their profit margin.
Hence, the direct relation between price and supply.
(b) Possibility of future rise in prices : It is one of the most important determinants of an exceptional demand curve. If a consumer anticipates that the price of a commodity will rise in future he will purchase more of that commodity now. The consumer will purchase more even if current price is high.
(c) Public debt may be productive or unproductive, depending on the use of public loans. When government borrows for non-developmental uses such as war finance or extravagancy in public administration, the debt becomes unproductive. It does not create any real income in return. Such debts are dead weight debts.
(d) Assisting Production Decisions : The main objective of a producer or manufacturer is to maximize his sales, revenue or profit. Therefore, he wants to employ such an amount of factors of production (land, labour and other materials) which help in achieving the goals of profit maximisation. While employing any factor, the firm has to make payments to pay wages to the workers, interest to the owners of capital etc. All such factor payments are made in terms of money. Therefore, money prices of these factors help a firm in taking important production decisions.
(e) Elasticity of supply is greatly influenced by how costs of production respond to output changes. 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, supply will be fairly elastic. If, on the other hand, an increase in supply leads to a large increase in cost of production, the supply would be relatively inelastic.
(a) How does proportional tax differ from progressive tax ? 
(b) Capital depreciates. Explain. 
(c) What is meant by double coincidence of wants ? How does money overcome this problem? 
(d) Expand COPRA. What is its objective ? 
(e) Indirect taxes sometimes help in social reforms. Explain. 
|Proportional Tax||Progressive tax|
|1. Taxes in which the rate of tax remains constant, though the tax base changes, are called proportional taxes.||1. Taxes in which the rate of tax increases with the rise in tax payer’s income, are called progressive taxes|
|2. Ii is inequitable as it falls heavily on the poor incomes.||2. It is more equitable, as a large part is taxed on higher incomes.|
(b) When capital is used again and again, it depreciates. For example, if any machine is used for a considerable period of time, then it may not be suitable for future use due to depreciation and have to be replaced after some time. Therefore, the producer has to keep some fund every year for the replacement of machinery and this is known as depreciation fund.
(c) Double coincidence of wants means both the buyer and seller should be ready to exchange the goods. It is the major limitation of the barter system. By separating the act of sale and purchase, money has overcome the problem of double coincidence of wants.
(d) COPRA stands for Consumer Protection Act. The central government legislated it in the year 1986 which not only recognizes consumer rights but has also established a redressal system unique in the world. The objective of the Act is to provide for the better protection of the interests of consumers and for that purpose to make provisions for the establishment of consumer councils in each state by the respective state government.
(e) Indirect taxes sometimes help in social reforms. The statement is true. Heavy indirect taxes are imposed on articles which are undesirable and injurious to health like wine, cigarettes, opium etc. by the government and serve a great social purpose. It will restrict their consumption by the public. Curtailment of consumption of harmful goods increases social welfare.
(a) Distinguish between fixed capital and floating capital. 
(b.) How does money act as a standard of deferred payment ? 
(c) Define public expenditure. 
(d) What is meant by consumer awareness ? 
(e) Mention one difference between demand deposits and time deposits. 
|Flied Capital||Floating Capital|
|1. Fixed capital is that type of capital which is used again and again for further production of goods.||1. if the capital can be used in alternative lines of production. it is called floating capital or free capital.|
|2. Examples of fixed capital are machine. office furniture, factory building etc||2. Examples of floating capital are steel, wood, raw material, electricity etc.|
(b) Money acts as a standard of deferred payment. It means payment to be made in future can be expressed in terms of money. Money is accepted as a standard of deferred payment because it has a general acceptability and it can be expressed in definite and standardised units.
(c) Public expenditure is the expenditure incurred by the public authorities (central, state and local governments) to satisfy those common wants which, the people in their individual capacity are unable to satisfy efficiently. Public expenditure, thus tends to satisfy collective social wants. Expenditure incurred by the central authorities in running the government expenditure on administration and maintenance of law and order are the examples of public expenditure. Expenditure incurred on education, public recreation, public works, etc. are familiar examples of public expenditure incurred for the satisfaction of collective wants.
(d) Consumer: Someone who purchases goods for personal use.
Awareness : Having knowledge of; state of elementary or undifferentiated consciousness. Consumer awareness means consumer’s consciousness towards their rights and duties. It is a must for a consumer to follow these rights. It is implemented for the protection of the consumer, so that he/she is not exploited by the seller of the products.
(e) Demand deposits and time deposits :
(i) Demand deposits can be withdrawn at any time, whereas the time deposits can be withdrawn only after the expiry of a specific period.
(ii) There is no interest rate on demand deposits, whereas the time deposits carry a high interest rate.
(iii) Demand deposits are chequeable and can be withdrawn through cheques, whereas time deposits are not chequeable.
SECTION – B (40 MARKS)
(Attempt any four Questions from this Section)
(a) Define labour. Suggest three methods to improve the efficiency of Indian labour.
(b) What is meant by capital formation ? Explain three causes of low capital formation in India. 
(a) Acc. to Thomas, “Labour consists of all human efforts of body or mind, undertaken in expectation of a reward.” Labour is the human resource of production. It always indicates some kind of mental or physical exertion undertaken with a motive to earn money.
Following are the methods to improve the efficiency of Indian labour :
- The payment of wages should be fair and prompt. Bonus (i. e., a part of profit) must be given to workers as an incentive to hard work.
- Hours of work should not be more than eight hours. Other facilities like holidays, leaves etc. should also be provided to the workers without further delay.
- Social security measures such as insurance schemes, provident fund contribution, pensions etc. should be introduced.
- Working conditions in the factories/workplace should be improved.
(b) Capital Formation :
Capital formation means the creation of capital. A change in the stock of any capital during a particular period of time is called capital formation. Three important stages of capital formation are creation of savings, mobilisation of savings and investment of mobilised savings.
Reasons for the slow rate of capital formation in India :
(i) Lack of ability to save : Because of poverty, poor people are unable to save more than a negligible part of their earnings. Hence, a low rate of savings leads to a low rate of capital formation in the’Indian economy.
(ii) Lack of willingness to save : In certain parts of the country, there still exists a feudal economic system. Even people who have the ability to save money are not willing to save and spend all their money on day-to-day consumption.
(iii) Insufficient mobilisation of savings: People are not mobilising the savings for capital formation. Most of their savings are kept in the form of gold and cash at home. These savings are not used productively because of poor banking knowledge and a poor banking network in underdeveloped states.
(a) Mention an important difference between a Commercial Bank and the Central Bank. Explain briefly three methods adopted by Commercial Banks to advance credit to borrowers. 
(b) Define the term ‘Entrepreneur’. Discuss three ways by which an entrepreneur promotes economic growth. 
(a) Central bank is the apex monetary institution which has been specially empowered to exercise control over the banking system of the country. On the other hand, the commercial banks, are the constituent units of the banking system. Central bank does not operate with profit motive, like commercial banks.
Methods adopted by Commercial Banks to advance credit to borrowers are as follow :
1. Cash Credit : In cash credit, the bank advances a ‘cash loan’ a specified limit to the customer, against a bond or any other security. A borrower is required to open a current account and bank allows the borrower to withdraw upto the full amount of the loan. The interest is charged only on the amount actually utilized by the borrower and not on the loan sanctioned.
2. Loans : A loan is a specified amount sanctioned to the credit of a borrower for a fixed period, However, before sanctioning the loan, the bank is required to ascertain and satisfy itself about the ability of the borrower to repay according to the soundness of his scheme or business, and the genuineness of his purpose. Invariably, a loan is granted against some kind of security of assets or personal security of the borrower and the interest is charged on the full amount sanctioned as loan, irrespective of the fact, whether full amount or part of it has been used. In case of loans, the borrower is provided with the facility to repay the loan in installments or as a lump-sum.
3. Discounting of Bills of Exchange : The banks provide financial help to the merchants and exporters by way of discounting their bills of exchange. However, these merchants and exporters must be the customers of that bank. In such facility; the bank pays the amount of bill presented by the customer, after deducting the usual bank discount. In this way, the customer gets the amount of the bill before the date of its maturity.
As such the bank assists its customers to a great extent by accepting their bills and providing them with liquid assets (money). Usually a bill matures after 90 days or so and then the bank present it to the acceptor and receives full amount of the bill.
(b) Acc. to Richard Cantillon, “An entrepreneur is a person who pays a certain price for a product to resell it at an uncertain price, thereby making decisions about obtaining and using the resources while consequently admitting the risk of enterprise. ”
Entrepreneur promotes economic growth in the following ways :
(i) Increasing Production : Entrepreneurship results in harnessing the various factors of production such as land, labour, capital and technology to the fullest extent. Entrepreneurs take up production of goods and services for meeting the demand of consumers, import substitution and exports.
(ii) Employment Generation : Entrepreneurship creates job opportunities in an economy. When economies are into recession, large business units retrench their labour force and workers search for job in small business units.
(iii) Innovation : Entrepreneurship results in new technologies and products that displace older methods and products. It results in higher income and wealth.
(iv) Increasing Competition : Entrepreneurship results in innovation which leads to the development of new products, services and methods of production. Consequently competition increases in the industry as a whole leading to better products and lower prices.
(a) With the help of a suitable diagram explain the meaning of rightward shift in the demand curve. Explain briefly any two of its determinants. 
(b) Name the institution which enjoys the monopoly of note issue. Explain the following functions of this institution:
(i) Bankers Bank
(ii) Banker to the Government 
(a) Rightward shift in the demand curve (increase in demand) refers to a situation when quantity demanded of a commodity increases, even when own price of the commodity is constant. In other words, increase in demand occurs when quantity demanded of a commodity increases because of the factors, other than ‘own price of the commodity’. It is illustrated by following table and diagram.
|Of px (₹)||Qx (Units)|
The diagram shows that demand curve shifts from D, to D2, even when own price of the commodity remains constant at ? 10 per unit.
Determinants of rightward shift in demand curve are :
1. Change in income : With the increase in income demand curve shifts to the right.
2. Change in tastes and preferences: If the tastes of the consumer change in favour of the good then demand curve will shift to the right.
(b) ‘Central Bank’ is the institution which enjoys the monopoly of note issue.
Functions of the Central Bank :
(i) As ‘Bankers’ Bank’: There are usually hundreds of banks in a country. There should be some agency to regulate and supervise their proper functioning. This duty is discharged by the Central Bank. Central Bank acts as Banker’s Bank in three capacities : (i) It is custodian of their cash resources. Banks of the country are required to keep a certain percentage of their deposits with the Central Bank; and in this way the Central Bank is the ultimate holder of the cash reserves of commercial banks, (ii) Central Bank is lender of last resort.
Whenever banks are short of funds, they can take loans from the Central Bank. Tlius Central Bank is a source of great strength to the banking system, (iii) It acts as a bank of central clearance, settlements and transfers. Its moral persuasion is usually very effective, so far as commercial banks are concerned.
(ii) As ‘Banker to Government’: Central Bank functions as a banker to the government – both central and state governments. It carries out all banking business of the government. Government keeps their cash balances in the current account with the Central Bank. Similarly Central Bank accepts receipts and makes payment on behalf of the governments. Also Central Bank carries out exchange, remittance and other banking operations on behalf of the government. Central Bank gives loans and advances to governments for temporary periods, as and when necessary, and it also manages the public debt of the country.
(a) State the law of supply. Explain any three factors other than price which determine supply in the market. 
(b) Explain the meaning of the following terms : 
To which tax are these terms relevant ? Explain any one merit and two demerits of this tax.
(a) The Law of Supply states that other things being equal, quantity’ supplied increases with increase in price and decreases with decrease in price of commodity.
The factors determining supply in the market are :
(i) Goal of the Firm : If goal of the firm is to maximise profits, more quantity of the commodity will be offered at a higher price. On the other hand, if goal of the firm is to maximise sales (or maximise output or employment) more will be supplied even at the same price. ,
(ii) Expected Future Price : If the producer expects price of the commodity to rise in the near future, current supply of the commodity will reduce. If, on the other hand, fall in the price is expected, current supply will increase.
(iii) Change in Techonolgy : Change in technology also affects supply of the commodity. Improvement in the techniques of production reduces cost of production. Consequently, more of the commodity is supplied at its existing price.
(b) (i) Impact : The term impact is used to express the immediate result of or original imposition of the tax. The impact of a tax is on the person on whom it is imposed first. Thus, the person who is liable to pay the tax to the government bears its impact.
(ii) Shifting: The burden of the tax can be transferred to others through a process of shifting. It may be noted that the whole burden of the tax may not be shifted to others. It may be that a part of the tax may be shifted to others and a part be borne by the one who initially pays the tax.
(iii) Incidence : The incidence of a tax refers to the money burden of a tax on the person who ultimately pays it. The impact and the incidence of tax is on the same person. He cannot shift or transfer the burden on some other person, he has to pay it himself.
These terms are relevant to direct tax.
Merit of direct tax :
Equitable : A direct tax is an equitable tax. It is equitable in the sense that, it is levied according to the taxable capacity of the people. The rates of direct taxes, like the income tax, can be fixed in such a way that the higher the income of a man, the greater is the rate at which he has to pay the tax. Such a system is known as progressive taxation.
Demerits of direct tax:
1. Inconvenient: The greatest drawback of direct taxes is that they put the tax-payer to a lot of botheration and inconvenience. Sometimes, the tax-payer is called to pay the entire tax in one installment. Besides, the tax-payers have to maintain elaborate accounts for the satisfaction of the tax officials.
2. Evadable : By submitting false returns of income, some people evade the tax. That is why a direct tax is “A Tax on Honesty”.
(a) Mention one way by which consumers are exploited in the market. 
Explain clearly three reasons as to why consumers are exploited.
(b) Public expenditure in India has increased over the years. Explain four principle reasons for its increase. 
(a) Consumers are exploited in the market in the following ways :
- By giving defective goods : The consumers can be exploited by the seller of the product by giving defective goods, i.e., which are not upto mark.
- Charging high prices : The consumers can be exploited by charging high prices. Prices can be charged high when customer is not aware or shortage of product prevails.
Reasons for consumers exploitation are :
- Shortage of supply : In most of the developing or under-developing economies population is very high. So demand for the products is also very high. But due to under-development of industry there is a shortage of supply. This gives rise to hoarding and price rise.
- Limited competition : Due to under-development of industry there is lack of competition in the market. This may lead to exploitation of the consumer.
- Illiteracy and ignorance of the consumers : In most of the developing and under-developed economies illiteracy rate is very high so consumers can be easily cheated by the producer.
(b) Four principle reasons for increase in public expenditure are as follow :
(i) Defence : An important factor responsible for increase in public expenditure is the large defence expenditure that the government allocates to defend its country from the attack of other countries so as to maintain its sovereignty
(ii) Population growth : In India, the population has increased at an alarming rate. It has increased from 36 crores in 1951 to 125 crore in 2011. As a result, the government has to incur great expenditure to meet the requirements of increasing population.
(iii) Developmental work : Modem state has also taken up developmental work in addition to their primary functions of administration and defence. It require huge public expenditure.
(iv) Rise in price level : As a result of the rise in price level, the public expenditure has gone up everywhere. The reason is that, the private individuals and also the government have to buy goods and services from the market at higher prices.
(a) (i) What is meant by the term ‘Inflation’? What is its impact on debtors ? 
(ii) Explain the following :
1. Creeping inflation
2. Walking inflation
(b) With the help of a suitable example explain the meaning of geographical or territorial division of labour. Discuss any three advantages of division of labour. 
(a) (i) Inflation is generally defined as the process of persistent and appreciable rise in the general price level.
Impact on debtors: Debtors gain when they pay back their debt during inflation. It is because the value of money was high when they borrowed but came down when they repaid their debts. As against this, the creditors are losers during inflation. However, if debtors take loans dining inflationary period, the position is reversed. In that case, the debtors are losers and the creditors are gainers.
(ii) 1. Creeping Inflation : Creeping inflation occurs when there is a sustained rise in prices over time at a mild rate, say around 2 to 3 per cent per year. It is also known as ‘mild inflation’. This type of inflation is not much of a problem. It is generally known as conducive to economic progress and growth. In this form the prices rise imperceptibly over a’ long period.
2. Walking Inflation : When the rate of rise in inflation is of international range of 3 to 6 per cent per annum, it is called walking inflation. It is an alarming signal for the 1150 government to control it before it 125 worsens.
3. Hyper or Galloping Inflation : Hyper inflation occurs when monthly increase in prices is 20 per cent to 30 per cent or more. At this stage there is no limit to price rise, and price rise goes out of control. Money become almost worthless, causing severe hardship to people. There is complete collapse of currency, the monetary system collapses and the economic and political life gets disrupted.
(b) Geographical (or Territorial) Division of Labour : Sometimes, due to some reasons, the production of certain goods takes place in a particular place, state or country. This particular type of division of labour is called geographical division of labour. For example, concentration or localisation of textiles in Bombay (Mumbai), jute industry in Bengal and sugar industry in U.P. are good examples of territorial division of labour. Some regions are famous for some specific types of activities. For example, Moradabad is famous for brassware, Jaipur for diamond jewellery, etc.
Advantages of Division of Labour :
Division of labour has the following advantages :
(i) Right Man at the Right Job : Since work is divided into a number of parts or sub-parts, each worker can be given a job according to his taste and preference.
(ii) Increase in Efficiency of Labour : When a worker does the same work again and again, he gets specialisation in it. In this way, the division of labour leads to a great increase in efficiency and hence production.
(iii) Saving of Time and Tools : Division of labour saves both time and tools. It reduces the time period required for completing the work. Likewise, there is better use of tools and implements. For example, it is not necessary to provide each worker with a complete set of tools. He can be given only those tools that he requires.