Ans. 8 (a) (i), 2016.<\/strong><\/a><\/p>\n(b)<\/strong> Two advantages of depositing money with the commercial banks are:<\/p>\n\n- Money remains safe in the bank.<\/li>\n
- We earn interest on the money deposited with the banks.<\/li>\n<\/ol>\n
(c)<\/strong> The Government can reduce the disparity in income and wealth distribution of its citizens in a developing economy by using progressive system of taxation under which the rich are made to pay the taxes at a higher rate in comparison to the poor who pay at a lower rate.<\/p>\n(d)<\/strong> Product differentiation<\/strong> implies that a consumer perceives products of different producers as not being totally identical and as such less than perfect substitutes. The producers try to reinforce this impression by giving separate brand names and making use of such trade practices as packaging, colour, design, advertisement etc. Product differentiation is relevant to monopolistic competition.<\/p>\nSECTION-II \u00a0(60 Marks)<\/strong><\/span>
\n(Answer any four<\/strong> questions from this section)<\/em><\/p>\nQuestion 5:<\/strong>
\n (a)<\/strong> Explain the law of demand with the help of assumptions, a diagram and a schedule. How does demand differ from want? [8]<\/strong>
\n(b)<\/strong> Public sector units made a commendable contribution, to the Indian economy in the early phase of planned development. What are public sector units? Explain any four contributions of PSUs to the Indian economy. [7]
\n<\/strong>Answer:<\/strong>
\n (a)<\/strong> Law of Demand states that \u201cOther things remaining the same, quantity demanded is more at a lower price and less at a higher price\u201d therefore has a inverse relationship.
\nLaw of demand explains the inverse relationship between quantity demanded of a commodity and its price.
\nIt is based on the following assumptions:<\/p>\n\n- There should be no change in the income of the consumer.<\/li>\n
- There should be no change in the taste and preference of the consumer.<\/li>\n
- Prices of the related commodities should remain unchanged.<\/li>\n
- Size of population should not change.<\/li>\n
- The distribution of income should not change.<\/li>\n
- The commodity should tie a normal commodity.<\/li>\n<\/ol>\n
The above mentioned assumptions are the factors influencing demand (other than price) that should remain unchanged if the Law of Demand is to be proved true. Demand Schedule is a table that shows different quantities of a commodity that would be demanded at different prices.
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\n<\/p>\n
From the above table, we observe that quantity demanded of apples is increasing with a fall in the price of the apples. Thus it is clear that quantity demanded of a commodity is inversely related to its price.
\nDemand curve is a graphic presentation of the Law of Demand. It shows different quantities demanded at various alternative prices during a given period. Demand curve is negatively sloping i.e. it always slopes downward from left to right.
\nDifference between \u2018Want\u2019 and \u2018Demand\u2019<\/strong>
\nA consumer\u2019s desire to have a commodity is his want for the commodity.
\nA demand is an effective desire. A want becomes an effective desire when it is backed by the following:<\/p>\n\n- Ability to pay<\/li>\n
- Willingness to pay.<\/li>\n<\/ol>\n
(b)<\/strong> Public Sector Units:<\/strong> The enterprises which are completely owned, controlled and regulated by the Government are known as public sector units or PSUs.
\nPublic sector units made a commendable contribution to the Indian economy. Four contributions of PSUs to the Indian economy are as follows:<\/p>\n\n- Share in National Income\u2014<\/strong>About one fourth of India\u2019s National Income is generated in the public sector.<\/li>\n
- Share in Capital formation\u2014<\/strong>The share of the Public Sector in total capital formation reached a peak of 63.7 during the Third five Year Plan. Presently, it has been around 30 per cent.<\/li>\n
- Public Sector Enterprises and Employment\u2014<\/strong>The expansion of the public sector has witnessed a considerable increase in employment. Of the total employment in the organized segment, the public sector accounts for about 70 per cent and the private sector only 30 per cent.<\/li>\n
- Command heights of the economy\u2014<\/strong>The public sector is in command in almost all the strategic sectors of the economy like coal, oil refining, electricity, iron and steel, paper and newsprint etc. In all, it holds a dominating position in the production of 50 types of industrial commodities and services which are of decisive significance for the economic development of the country.<\/li>\n<\/ol>\n
Question 6:<\/strong>
\n (a)<\/strong> Many a time the inverse relationship between price and the amount purchased does not hold good. Explain this statement giving four reasons. [8]<\/strong>
\n(b)<\/strong> Differentiate between mental and physical labour. State four ways in which division of labour will influence production in an economy. [7]
\n<\/strong>Answer:<\/strong>
\n (a)<\/strong> Many a times the inverse relationship between price and the amount purchased does not hold good.
\nThis statement means that sometimes quantity demanded of a commodity does not fall with a rise in price and vice-versa. Sometimes a consumer may demand more of a commodity at a higher price and less at a lower price. Such situations are termed as exceptions to the law of demand. It leads to an abnormal demand curve which is positively sloping.
\n<\/p>\n\n- Giffen Effect\u2014<\/strong>Sir Robert Giffen observed that a typical inferior commodity consumed by the poor people may display an odd behaviour. When the price of such a commodity rises, the poor people may cut down on their purchases of other (more expansive) items and increase the purchases of this commodity. Example of Giffen goods Maize, Bajra.<\/li>\n
- Conspicuous consumption\u2014<\/strong>Some persons may consume a very expensive commodity just to show off and attract the attention of other people. In that case, its price and demand may more in the same direction. Diamond ornaments and expensive motor cars are examples of such goods.<\/li>\n
- Snob effect\u2014<\/strong>A consumer may try to show that he no longer belongs to a particular social class. This is known as snob effect. In case of a good typically consumed by the poor people, when its price falls, the consumer may decrease his purchase of this good in order to show that he no longer belongs to the class of the poor.<\/li>\n
- Veblen Effect\u2014<\/strong>Some people consider the price of a commodity as the true indicator of its quality. Hence, they purchase more of a commodity, with the increase in its price. They think that they are paying higher prices for having better quality goods. This is called the Veblen Effect.<\/li>\n<\/ol>\n
(b)<\/strong> Labour which involves mainly physical effort and very little mental effort is categorized as physical labour.
\nOn the other hand, labour requiring intensive mental or intellectual effort is categorized as mental labour.
\nThe labour of a coolie (porter) is an example of physical labour, while that of a teacher or lawyer is mental labour.
\nThe four ways in which Division of Labour will influence production in an economy are as follows:<\/p>\n\n- Quality of Production Improves\u2014<\/strong>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.<\/li>\n
- Large Scale Production\u2014<\/strong>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.<\/li>\n
- Reduced Average Cost\u2014<\/strong>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.<\/li>\n
- Lower Prices of Output\u2014<\/strong>The reduced average costs of the products leads to reduced prices of the outputs in the market. As a result, consumers are benefited.<\/li>\n<\/ol>\n
Question 7:<\/strong>
\n (a)<\/strong> Define capital formation. Explain any four causes of low capital formation in a developing economy. [8]<\/strong>
\n (b)<\/strong> With the help of a diagram define decrease in supply.
\nDiscuss four factors which determine this phenomenon. [7]<\/strong><\/p>\nAnswer:<\/strong>
\n (a)<\/strong> Capital formation means the creation of capital. A change in the stock of capital in any economy during any particular time period is called capital formation.
\nFour causes of low capital formation in a developing economy:<\/p>\n\n- Lack of Ability to Save:<\/strong> 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.<\/li>\n
- Lack of Willingness to Save:<\/strong> 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.<\/li>\n
- Insufficient Opportunity to Save:<\/strong> 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 borne of the reasons for such insufficient savings opportunity in India.<\/li>\n
- Inadequate Mobilization of Savings:<\/strong> 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 due to the underdeveloped state of the banking and financial network particularly in the rural areas.<\/li>\n<\/ol>\n
(b)<\/strong> Decrease in supply may be defined as a situation when less is demanded at the same price or same quantity is demanded at a higher price. In this diagram SS is the original supply curve and S1<\/sub>S1<\/sub> is the new supply curve showing a leftward shift in the supply curve which indicates a decrease in supply.
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\nFour factors causing decrease in supply:<\/strong><\/p>\n\n- Change in Prices of Inputs:<\/strong> If the prices of inputs will rise, the profit from making of that product will fall due to a rise in the cost of production. Hence, if there is a rise in the price of inputs the producers will produce and sell relatively less amounts of X at a given price. This would cause a decrease in supply.<\/li>\n
- Changes in Technology:<\/strong> At any time, what is produced and how it is produced depends on the technology in use. A degradation in production technology, will lead to a rise in the average cost of production and reduce a firm’s profit. So the firms will supply less at a given price. This will cause a decrease in supply.<\/li>\n
- Changes in the Goals of the Firm:<\/strong> The main goal of a firm is to maximise its profits. However, different firms may have other goals also. For example, some firms may want to avert risk and they may follow some safer lines of activity, although these lines promise lower probable profits. In this case, at each level of price, they may produce less than before causing the supply to decrease.<\/li>\n
- Changes in the number of firms:<\/strong> If the number of firms supplying similar products increases in the market, then at each price level, the share of each firm in the market supply may fall. In that case, the individual supply curve would shift in a leftward direction.<\/li>\n<\/ol>\n
Question 8:<\/strong>
\n (a)<\/strong><\/p>\n\n- Define a tax. State two differences between income tax and commodity tax.<\/li>\n
- Explain how tax can be used as an instrument to regulate consumption and production in any economy. [8]<\/strong><\/li>\n<\/ol>\n
(b)<\/strong> Define the terms liberalization and globalization. Discuss any two measures adopted by the state to promote economic development. [7]<\/strong><\/p>\nAnswer:<\/strong>
\n (a)<\/strong>
\n1.<\/strong> A