SOLUTION Model Specimen Paper 3 - Oswal Publishers€¦ · date i.e., maturity date along with interest payments. For example, if government borrows money through bonds, then the

Economics | 1 |

SECTION - A Answer 1. (a) The two characteristics of land are : (i) Land is a Free Gift of Nature : The availability of land on Earth is limited. Therefore, the

supply of land is fixed. (ii) Land is Immobile : This implies that land cannot be physically moved from one place to

another. (b) The two determinants of demand are : (i) Price of the Commodity : Demand for a commodity increases when the price falls, and

decreases when the price rises, i.e., there is an inverse relationship between the price of the commodity and its demand.

(ii) Price of Related Goods : Related goods can be categorised as substitutes and complementary goods. In case of substitutes, if the price of one commodity increases, it results in increase in demand of another commodity, i.e., there is a direct relationship between the price of one commodity and the demand of another commodity.

In case of complementary goods, if the price of one commodity decreases, the demand for another commodity will increase, i.e., there is an inverse relationship between the price of one commodity and the demand of another commodity.

(c) Debt redemption refers to returning the amount borrowed from the borrower at a certain date i.e., maturity date along with interest payments. For example, if government borrows money through bonds, then the government redeems the debt by paying the face value and the interest to lenders on the maturity date.

(d) The two advantages of bank account are : (i) Bank accounts are safe for keeping money. (ii) Bank accounts help you access credit from anywhere by providing ATM facilities and

mobile banking services. (e) The difference between individual supply schedule and market supply schedule are :

S. No. Individual Supply Schedule Market Supply Schedule1. It shows the quantity supplied of a

good by one seller at different prices in the market.

It is the sum of quantity provided by different sellers at different prices in the market.

2. Only one producer is there. More than one producers are there.Answer 2. (a) The differences between ‘decrease in demand’ and ‘contraction of demand’ are :

S. No. Decrease in Demand Contraction of Demand1. A decrease in demand indicates a

leftward shift of the demand curve.A contraction of demand indicates an upward movement along the demand curve.

2. The demand for goods decreases when factors other than price change.

A contraction of demand is a result of change in its own price, other factors remaining constant.

Model Specimen Paper Economics

3SOLUTION

| 2 | ICSE Model Specimen Papers, X

(b) Transferable public expenditure refers to the expenditure which is incurred to purchase current national resource service. The expenditure incurred on payment of interest on government debt, pensions, sickness benefit, etc. is included in the transferable public expenditure.

(c) The kinds of inflation are : (i) Creeping inflation (ii) Walking inflation (iii) Running inflation (iv) Hyper inflation (v) Open inflation (vi) Suppressed inflation (d) Unbalanced economic growth is defined as a situation in which certain sectors of an economy

grow at a faster rate than others. For example, service sector may be growing at a higher rate, while agricultural sector may be growing at a lower rate or could be facing negative growth. Unbalanced growth is likely to trigger a slowdown or a recession in an economy.

(e) Commercial revenues refer to the revenue generated from the sale of the goods and services produced by the government. For example, postal charges, tolls, interest on loans of state financial institutions and nationalised banks, tuition fee for public education institutions.

Answer 3. (a) Risk bearing is the most important and specific function of an entrepreneur. Every business

involves same amount of risk. The production of goods and services is always related to future demands. The future demand is uncertain and unpredictable because it is influenced by the changes in fashion, taste and liking of the consumers. The price structure, value of money, climatic conditions and government policies are some other important factors that affect the demand of a commodity. All these factors are variable and as such an exact estimation of these factors is a difficult exercise to work out. Since this unpredictable task is undertaken by the entrepreneur, he must bear the risk.

(b) Two merits of progressive tax are : (i) Progressive taxes help to reduce the inequality arising because of income difference. (ii) Progressive taxes help to ensure an equitable distribution of income among people. (c) Two functions of Central Bank are : (i) Banker to the Commercial Banks : The Central bank acts as a banker to all the commercial

banks in the country. During difficult financial situations, commercial banks might face the threat of shutting down. This might generate panic among depositors, making them to withdraw their money from the bank. The Central Bank prevents such situations by providing loans to commercial banks whenever they face any financial difficulty.

(ii) Controller of Money Supply and Credit : Credit serves as a fuel for all economic activities in an economy. For the stabilised and smooth working of an economy, it is very essential to regulate the money supply and credit granting capacity of the entire banking system. Every commercial bank offers large sums of money as credit every day. However, uncontrolled credit creation by commercial banks may lead to inflation. The Central bank uses credit control measures to keep money supply and inflation under control.

(d) The term COPRA stands for Consumer Protect Act. COPRA was introduced by the government of India in 1986. The Act aims to protect the interests of consumers and their rights. It also ensures that the sellers and producers do not exploit consumers. Under the COPRA Act, consumer forums have been established at district, state and national level.

(e) The two demerits of division of labour are : 1. Lack of Mobility of Workers : As workers are trained for a particular type of job,

it becomes challenging for them to take up jobs that demands different set of skills. Therefore, the mobility of workers reduces because of division of labour.

2. Lack of Responsibility : As the production process is divided into various stages and workers are responsible for different jobs, it becomes difficult to fix responsibility for defect in the product.

Economics | 3 |

Answer 4. (a) Two suggestions to increase the rate of capital formation are : (i) Tax Relief : The taxation policy should be revised and adequate tax reliefs should be

allowed to salaried persons and industrialists. A tax relief will increase individual’s disposable income and allow them to save more, which will help in capital formation.

(ii) Encourage Savings : Steps should be taken to intensify and motivate small savings for which rate of interest on savings should be attractive. Saving schemes like P.F., compulsory insurance, compulsory deposits, etc., should be encouraged and extended. Individual’s savings should be further invested in capital markets, which increases capital formation in an economy.

(b) An entrepreneur is a person who performs dual functions of risk taking and control. He is a person who organises production, takes important decisions regarding production, hires/purchase factors of production and bears the risk and uncertainty involved in production.

(c) Two measures to control inflation are : (i) Control Over Money Supply : To check inflation, it is suggested that government should

impose strict restriction on the issue of money by the Central Bank. (ii) Increase in Taxes : To cut private consumption expenditure, there should be increase in

taxes. Both direct and indirect taxes can be used for this purpose. (d) Three nationalised banks are Canara Bank, Punjab National Bank, State Bank of India. (e) By capital formation we mean the increase in the stock of capital goods e.g., machines,

equipments, buildings, means of transport, factories, etc. which are used for more production. It refers to net production.

SECTION - B Answer 5. (a) Mobility of labour refers to ease with which labours can move within an economy and in

different economies. Labour is less mobile in comparison to other factors of production except land. The factors affecting labour mobility are listed below :

(i) Means of Transport : Well-developed means of transport and communications encourage mobility of labour. The worker knows that in case of emergency at home, he can easily communicate with his family or phone or travel back by train within the country or by aeroplane if he is abroad.

(ii) Trade : The development of business and trade leads to the spread of their offices and institutions related to them in different parts of the country. As a result, workers move from one place and occupation to another to work in trade and business offices, banks, insurance companies, etc.

(iii) Education and Training : The mobility of labour depends on the extent to which labour is educated and trained. The more a person is educated and skilled, the greater his chances of moving from an occupation or place to another. Geographical and vertical mobility depends on education and training.

(b) The main causes of slow rate of capital formation in India are : (i) Low Saving Ability : Indians have lower per capita income, which leads to low savings

and lower rate of capital formation. Though people have the desire to save for old age and their family needs, they are not able to save owing to low per capita income.

(ii) Habit of Hoarding : People tend to hoard money rather than saving the money in financial institutions. Such savings cannot be utilised in any productive activity and do not help in capital formation.

(iii) Inflation : Inflation causes the price of necessities to increase. As a result, most of the middle class people tend to save more on their daily needs and are left with less money to save. Under such conditions of inflation, the majority of middle class is contributing very little for capital formation.


(iv) Inadequate Investment Channels : The banking and financial channels are not adequately linked in India. Though, several branches have been opened in remote areas after nationalisation of banks, but a wide gap in rural and urban banking sector persists. There is also lack of means of transport and communication. These inadequacies adversely affect the mobilisation and investment of savings.

(v) Taxation Policy : The imposition of high taxes on property in India adversely affects the savings and capital formation. The industrialists and businessmen believe that level of taxation should be reduced so that people’s capacity to save is improved. An improvement in savings will lead to an improvement in rate of capital formation.

Answer 6. (a) There are five degrees of elasticity of demand. (i) Perfectly Inelastic Demand : When quantity demanded does not change at all as a result

of change in price of the commodity, demand of that commodity is said to be perfectly inelastic. Ed = 0.

Fig. 1 (ii) Relatively Inelastic Demand : When percentage change in price is more than the

percentage change in demand, then, demand of that commodity is said to be relatively inelastic. Ed < 1.

Fig. 2 (iii) Unitary Elastic Demand: When percentage change in price is equal to percentage change

in quantity demanded, then, demand of that commodity is said to be unitary elastic. Ed = 1.

Fig. 3

Economics | 5 |

(vi) Relatively Elastic Demand : When percentage change in quantity demanded is more than the percentage change in price, then, demand of that commodity is said to be relatively elastic. Ed > 1.

Fig. 4 (v) Perfectly Elastic Demand : When price of a commodity does not change at all as a result

of change in demand of a commodity, then, it is said to be perfectly elastic demand. Ed = ∞.

Fig. 5 (b) The factors responsible for change in the supply of the product are : (i) The Prices of Related Goods : Sometimes producers produce more than one good.

Suppose a producer produces butter. If the price of butter increases, the supply of butter and buttermilk also increases. This is because butter is made from buttermilk and both are related goods. Therefore, an increase in price of butter will lead to an increase in price of buttermilk.

(ii) The Prices of Factors of Production : If the cost of any of the factors of production such as land, labour, capital or entrepreneurship rises, the cost of producing a good also rises. As a result, the supply of the good decreases. On the other hand, a decrease in the price of factors of production will reduce the cost of production and increase the supply of a good.

(iii) Changes in Technology : An improvement in technology reduces the time, effort and labour needed to produce the good. Therefore, an improvement in technology increases the supply of the good.

(iv) Government Policy : Government policies significantly affects the supply of a good or service. If the government imposes taxes on production of a good, the supply of the good reduces. However, if the government provides subsidy for the production of a good, the supply of the good increases.

(v) Natural Events : Natural conditions can impact the supply of goods, especially the agricultural products. If there is a flood in a region, the agricultural products of the area get affected. This reduces the supply of the agricultural goods.

Answer 7. (a) The objectives and significance of taxation are as follows : (i) Raising Revenue : The government needs money to carry out various public works

such as construction of roads, dams, power projects, maintenance of infrastructure, law and order, defence in the country. To be able to pay these expenditures, the government levies different types of taxes, so that their revenue may increase.


(ii) Equal Distribution of Income : Taxes are also imposed to reduce the inequality of income distribution in an economy. India is a mixed economy, and a majority of factors are privately owned. Therefore, a huge gap exists between the income of the owners of the factors of production and income of the working class. The government tries to attain an equitable distribution of income by levying higher taxes on the income of the rich community. This is because their taxable capacity is more than that of the poor or the middle class.

(iii) Regulation : Taxation policy is also needed to regulate consumption and production in an economy.

(iv) Higher Growth : Revenue generated from taxes are used for developmental activities in the economy, which leads to higher production of goods and services and higher growth of the economy.

(v) Pushing up Rates of Savings and Investment : The rate of saving and investment can be pushed up through tax policies. The Government can design its tax system in such a way that investors and savers are taxed at lower rates than others in the society.

(b) Public debt can be classified into internal and external debt, productive and unproductive debt, compulsory and voluntary debts, redeemable and irredeemable debts, short term, medium term and long term debts, funded and unfunded debts.

(i) Internal and External Debts : Internal debts refer to government borrowings from individuals and private sector within the country through bonds. External debts refer to government borrowings from foreign countries and international bodies such as IMF.

(ii) Productive and Unproductive Debts : Some government debts can be productive or unproductive depending on the purpose for which the debt is used. The debt is productive when the government uses the debt to carry out developmental activities, such as construction of roads and highways which generates revenue and employment. On the other hand, debt is unproductive when the government uses the debt for non-developmental activities such as financing public administration.

(iii) Compulsory and Voluntary Debts : Compulsory debts are raised by the government by coercive methods. When compulsory debt schemes are used, taxpayers have to pay a prescribed amount, and the defaulters are punished. When government borrows loan by issuing securities and bonds, the loan is voluntary. Generally, government loans are voluntary in nature.

(iv) Redeemable and Irredeemable Loans : On the criteria of maturity, public debts may be classified as redeemable or irredeemable. Loans which the government promises to pay off at some future date are called redeemable loans. In contrast, the loans for which no promise is made by the government regarding the exact date of maturity, and all the government does is to agree to pay interest regularly for the bonds issued are called irredeemable loans.

(v) Short Term and Long Term Debts : Short term debts mature within a short period of 3 to 9 months. Long term debts are those debts which are repayable after a long period of time, generally ten years or more.

Answer 8. (a) The evolution of money has seen five stages, which are : (i) Commodity Money : In ancient time, commodities were used as money. People used to

exchange goods for goods which was known as ‘Barter exchange’. Goods like animals, rice, utensils, weapons, salt etc. were exchanged in the process.

(ii) Metallic Money : With the progress in civilization, commodity money changed into metallic money. People started using metals like gold, silver, copper etc. as a medium of exchange. They were used because they could be used easily and handled properly.

Economics | 7 |

(iii) Paper Money : Later on people started feeling that carrying gold and silver coins from one place to another is not safe. Thus invention of paper money marked as an important development in the evolution of money. Paper money is issued and controlled by the Central Bank of the country.

(iv) Credit Money : The emergence of credit money took place along with paper money. People started keeping a part of their money in banks as deposits which they can withdraw wherever they need it. For example, cheque (which is known as credit money or bank money) is not money itself but performs the same functions that of money.

(v) Plastic Money : The lastest stage in the evolution of money is plastic money. It is in the form of credit cards or debit cards. They are used so that the need of carrying paper money to make transaction reduces.

(b) The main causes of inflation are : (i) Increase in Public Debt : When government expenditure exceeds the revenue generated

by the government, there is an increase in public debt. To reduce the gap between earning and expenditure, government may print currency. This is known as deficit financing. When government prints new currency, there is excess money in the economy and that causes inflation in the economy.

(ii) Increase in Income : When the income of people increases, the quantity demanded of goods and services also increases. Hence, there is a rise in general price level and as a result inflation occurs in the economy.

(iii) Hoarding of Black Money : Black money refers to unaccounted money, i.e., money which is created by tax evasion. Individuals are likely to spend black money on luxury items, real estate and illegal activities such as gold smuggling. Black money in an economy inflates the demand of certain goods and services and causes inflation in the economy.

(iv) Increase in Wages : The rise in the general price level raises the cost of living, which leads to demand for higher wages by workers. When the demand for higher wages is met, it leads to further rise in cost of production and prices of goods and services. This rise in prices will again be compensated by giving higher wages to the workers. This is termed as ‘wage push inflation’.

(v) Increase in Oil Prices : A rise in global oil price leads to inflation in different countries as oil is needed for carrying out all the production processes. Oil is imported by many countries including India. Therefore, a rise in oil price globally results in an increase in prices of diesel, petrol and other petroleum products in India. This leads to higher transport costs, electricity costs and production costs.

Answer 9. (a) The differences between Central Bank and Commercial Bank are :

S. No. Central Bank Commercial Bank1. Central Bank is an apex institution of

the monetary and banking structure of the country. It regulates the entire banking system of the country.

Commercial bank is a bank which deals in money and credit for purposes of earning profit. It just operates under the guidelines of the Central Bank.

2. Its main object is to provide social welfare.

Its main object is to earn profit.

3. It is generally government owned institution.

These may be both privately owned or government owned institutions.

4. It has got the monopoly right of note issue.

Commercial banks do not have such rights.

5. It is a banker of the government. It is also the banker of the commercial banks. It does not have public dealing.

Commercial bank is a banker only of the general public. It has direct public dealing.


(b) The functions of modern commercial banks are : (i) Acceptance of Deposits : A commercial bank accepts deposits from the people for

making investments and granting loans to various economic investors. The money is deposited in banks for the sake of safety as well as to earn interest. The money can be deposited in different types of accounts such as fixed deposit account, current account, savings account and recurring deposit account.

(ii) Lending of Money : The commercial banks perform the function of lending money to individuals, traders and businessmen. They get this money as deposits from the public. Various types of methods and procedures to lend money include cash credit, loans, overdraft and discounting of bills of exchange.

(iii) Agency Functions : The commercial banks also render, add on services to their customers and act as agents of the customers in such functions. The services so rendered are termed as ‘agency functions’ of the bank. The services provided by the banks include collection and payments for credit instruments, collection of dividend, sale and purchase of securities, income tax and premium collection, remittance of funds and act as a trustee or executor.

(vi) General Utility Functions : In addition to agency functions, banks also provide certain general utility services like locker facility, use of cheque system, Letter of credit, facilitate transportation of goods, underwriting of securities, collection of statistics and foreign exchange business.

(v) Credit Creation : It is a unique function of commercial banks. In the process of accepting deposits and advancing of loans, commercial banks are able to create credit. They are able to lend more funds than they have with them as cash deposits. This is called credit creation.

Answer 10. (a) The Indian laws have accepted the following as the rights of the consumers : (i) Right to Safety : The consumers have the right to be protected against marketing of

goods and services, which are hazardous to life and property. (ii) Right to be Informed : All the consumers have the right to be informed about the

particulars of goods and services that they purchase. They have the right to be informed about the quality, quantity, potency, purity, standard and price of goods.

(iii) Right to Choose : It means assurance of access to variety of goods and services at competitive price. In case of single supplier, the consumer has the right to be assured of satisfactory quality and service at a fair price.

(vi) Right to be Heard : The consumer’s interests should receive due consideration at appropriate forums relating to consumer welfare.

(v) Right to Seek Redressal : The consumer has the right to seek redressal against unfair trade practices or exploitation and right to fair settlements of the genuine grievances.

(b) The important functions of an entrepreneur are : (i) Risk Bearing Function : It is the most important and specific function of an entrepreneur.

Every business involves some amount of risk. The production of goods and services is always related to future demands. The future demand is uncertain and unpredictable, because it is influenced by changes in fashion or taste and liking of the consumers. The price structure, value of money, climatic conditions and government policies are some other important factors that affect the demand of a commodity. All these factors are variable and estimating their exact impact on demand is not possible. Since this unpredictable task is undertaken by the entrepreneur, he has to bear the risk.

Economics | 9 |

(ii) Administrative Functions : The administrative functions of an entrepreneur include conceiving business ideas, estimation and implementation of details of business, supervision and control of business activities and innovation. All these functions are necessary for the continuous growth of business.

(iii) Distributive Functions : The entrepreneur organises different factors of production and sets them to work. It, therefore, becomes his responsibility to make proper allocation of funds for each factor of production, i.e., each factor of production must be properly remunerated.

Activities of an entrepreneur are different from that of labour in the following ways :Basis of

Difference Entrepreneur Labour

1. Nature of work Performs all jobs right from the selection of business to selling of product.

He has to do only few fixed activities.

2. Income Gets profit only at the end of selling the product.

Gets his wages for labour, irrespective of sales.

3. Responsibility Has the responsibility of the end product.

Does not feel such type of responsibility.

oo

SECTION - AAnswer 1. (a) Two factors on which the supply of labour depends are : (i) Size off Population : The most important factor affecting the supply of labour is its

population. The larger the population, larger will be the number of persons who will have capacity to perform physical and mental work. Hence the larger will be the supply of the labour.

(ii) Barriers to Entry : Industries which impose artificial barriers to labour’s entry by introducing minimum skill requirement will see lower labour supply than the industries with no barriers to entry.

(b) The two important functions of capital are : (i) Generation of Employment : This function of capital is of utmost importance for less

developed and developing countries. The use of capital in agriculture, transport, industry and trade generates work and employment in farms, roads, railways and in factories.

(ii) Increase in Production : With increase in technology and specialisation, capital has become an integrated part of production process. The use of capital can help increase in production level of an economy. Capital also catalyses the productivity of labour. For example, in developed countries like U.S., labour productivity is high because of extensive use of capital such as medicine and tools.

(c) Two factors that govern the supply of commodities are : (i) Price of Inputs : If the price of inputs used in the production processes increases, the

cost of production goes up. As a result, the supply of commodity decreases due to fall in margin of profit. On the other hand, if the price of inputs used in production process decreases, the cost of production also decreases, which in turn increases the production and supply due to rise in margin of profit.

(ii) Price of Other Commodities : When price of all other commodities increases, it becomes more profitable for the producers to produce those commodities. Consequently, the supply of the existing commodity falls and vice-versa. Thus, the supply of a commodity depends upon the prices of all other commodities.

(d) The differences between physical labour and mental labour are :

S. No. Physical Labour Mental Labour1. Physical labour is an activity that

involves physical and mechanical effort.Mental labour is an activity that involves mental or cognitive effort.

2. Examples: Wood cutting, receiving and directing phone calls and assembling information to type reports.

Examples: Copy writing, problem solving, client handling and innovation.

(e) The income effect indicates the relationship between a change in individual’s income and how that change affects the quantity demanded of goods and services by him. The relationship between change in income and quantity demanded of goods is positive (direct). Therefore, when the income of an individual increases, the quantity demanded of goods and services by him also increases and vice-versa.


6SOLUTION

Economics | 11 |

Answer 2. (a) Two characteristics of capital are : (i) Capital is Durable : An important characteristic of capital is its durability. Capital goods

(e.g. machinery, plants, factory buildings) are durable goods. Some capital goods might last for few years, while others might last for decades.

(ii) Capital is a Passive Factor of Production : Like land, capital is also a passive factor of production. It cannot produce anything by itself. It becomes effective only when it is used by labour.

(b) A demand curve is a graphical representation of a demand schedule. It is the curve which shows the relation between the price of a commodity and the amount of that commodity the consumer wishes to purchase is called is demand curve.

(c) The difference between an increase in supply and extension of supply are as follows :S. No. Increase in Supply Extension of Supply

1. An increase in supply indicates a rightward shift of the supply curve.

An extension of supply indicates an upward movement along the supply curve.

2. The supply of good increases when factors other than price increase.

An extension along a supply curve occurs when price increases, other factors remaining constant.

(d) The two features of money are : (i) Divisibility : Divisibility is an important characteristic of money. Money should be

easily divisible into smaller parts and thus must facilitate small transactions. (ii) Durability : Money also possesses the characteristics of durability. Currency notes and

coins are being used repeatedly and shall continue to do so for years together. (e) A supply schedule is a table that shows different quantities of a good and service that a seller

is willing to sell at different prices at a given time, ceteris paribus. On the other hand, supply curve is a graphical representation of a supply schedule. The price of good is measured on y-axis and the quantity supplied is measured on x-axis.

Answer 3. (a) The term COPRA stands for Consumer Protection Act. COPRA, was introduced by the

Government of India in the year 1969. The Act aims to protect the interest of consumers and protect their rights. It also ensures that the sellers and producers do not exploit the consumers. Under the COPRA Act, consumer forums have been established at district, state and national level.

(b) The income elasticity of demand is the responsiveness of quantity demanded of a good due to change in the income of the consumer. If other determinants of demand i.e., price of commodity, taste preference of the consumer, price of related goods remains constant. Income elasticity of demand is calculated as a percentage change in quantity demanded in response to change in individual’s income.

Ei = Percentage change in incomePercentage change in demand

(c) The expenditure incurred by the government on activities that directly increase the productive efficiency of an economy is known as productive expenditure. For instance, the expenditure incurred by government on construction of roads is a productive expenditure as it generates income and facilitates transportation of goods and services in a country. However, the expenditure incurred by the government on defense is unproductive as these expenditures do not directly increase the productive efficiency of an economy.

(d) Unbalanced growth of economy is defined as a situation in which certain sectors of an economy grow at a faster rate than others. For example, service sector may be growing at a higher rate, while the agriculture sector may be growing at a lower rate or could be facing negative growth. Unbalanced growth is likely to trigger a slowdown or a recession in an economy.


(e) The difference between sunk capital and floating capital are :

S. No. Sunk Capital Floating Capital1. The capital which can be used only to

produce one type of good or service is called sunk capital.

The capital which can be used in the production of different goods and services is called floating capital.

2. Sunk capital is also known as specialised capital.

Floating capital is also known as free capital.

Answer 4. (a) The term supply indicates the amount of goods and services that are available for sale to

consumers at different prices. (b) Debt redemption refers to returning the amount borrowed from a borrower at a certain date,

i.e., maturity date, along with interest. For example, if government borrows money through bonds, then the governments redeems the debt by paying the face value and the interest to lenders on maturity date.

(c) Demand Pull inflation refers to a situation in which prices rise because the demand for goods and services exceeds their total supply available at current prices. The demand pull inflation may be defined as a situation where the aggregate demand exceeds the economy’s ability to supply the goods and services at the current prices, so that the prices are pulled up by the excess demand.

(d) Nationalisation of banks refers to the government or state taking over the organisation, functioning and assets of a private bank into public ownership. Reserve Bank of India was nationalised in 1949 after the act of nationalisation of banks was passed in 1948. When a bank is nationalised, Government takes up the ownership and control of the bank.

(e) A tax is an involuntary fee levied on the residents of a country by the government. Taxes are levied on income, wealth, entertainment, etc. The taxes collected by the government are used to provide public facilities such as roads and railways for the residents of a country.

SECTION - B Answer 5. (a) The factors affecting the creation of savings in an economy are : (i) Interest Rates : When interest rates are high in an economy, individuals are encouraged

to save more. (ii) Inflation : When an economy has high inflation, savings of individuals decline in the

economy. This is because during inflationary periods a major part of individual’s disposable income is spent to satisfy their needs, and they are left with less money to save.

(iii) Future Expectations: If individuals expect an income downturn or high risk of unemployment in future, they may save more today.

(iv) Size of Disposable Income: Disposable income is the amount of income left with individuals after paying taxes. If individuals have higher disposable income, they are likely to save more.

(v) Fiscal Policy : If public expenditure increases, it is likely to cause a decline in savings of public. Also, to cover expenditures, government is likely to raise taxes in the future. In such a case, private savings are likely to increase so that a reverse can be created to bear the burden of increased taxes in the near future.

(b) The main causes behind the low efficiency of Indian Labour are : (i) Hot Climate : India is a subtropical country and its climate is hot. This is the most

important natural cause of low efficiency of Indian labour. (ii) Low Wages : The wages of labour in general are low and so is the standard of living.

Indian workers are poorly fed and ill clothed. As such, the workers are not in a position to keep themselves physically and mentally fit. This in turn affects their efficiency.

Economics | 13 |

(iii) In congenial Environment : Indian workers have to work under very unhygienic conditions. Many factories in India have unhygienic condition. The facilities of canteens, recreation and relaxation are also not provided. All these have adversely affected the efficiency of Indian workers.

(iv) Poor Technology : The machines are either outdated and of poor standard. Besides, frequent breakdown of machines and electricity, causes the downfall in the efficiency of Indian workers.

(v) Education and Training : It is found that the Indian workers do not have proper education and training about the work. This lowers their efficiency.

Answer 6. (a) Factors affecting the elasticity of demand are : (i) Nature of the Commodity : It is an important determinant of price elasticity of demand.

Elasticity of demand for necessities of life, such as food grains, medicines, etc. is very low in comparison to luxury goods where price elasticity is quite high. The consumers will buy almost the same quantity of a necessary commodity per unit of time whether its price is somewhat higher or lower.

(ii) Availability of Substitutes : Demand for commodity will be more elastic, if its close substitutes are available in the market.

(iii) Number of Uses : The elasticity of demand for a commodity also depends upon the number of uses of a commodity. The greater the number of uses of a commodity, the higher is the price elasticity of demand.

(vi) Habits : Those goods which have become habitual necessities for the consumers, have low price elasticity.

(v) Time Period : Elasticity of demand is always related to period of time. It varies with the length of time period. The longer the duration of period, the greater will be the price elasticity of demand and vice-versa.

(b) The five determinants of change in demand are as follows : (i) Price of a Commodity : The demand of a commodity increases when its price falls and

decreases when price rises. It is not only the existing price, but also expected changes in it also affect demand.

(ii) Income : When the income of the consumer increases, the demand for a good increases. When the income of the consumer decreases, the demand of the good decreases.

(iii) Price of Related Goods : The demand for a commodity depends not only on its own prices, but also on the prices of related goods.

In case of complementary goods which are demanded jointly to satisfy a particular want, there will be an inverse relationship between the price of one commodity and the demand for another commodity. For example, car and petrol, if the price of petrol increases, the demand of car will decrease.

In case of substitute goods which are used in place of one another, there will be a direct relationship between the price of one commodity and the demand of another commodity. For example, tea and coffee, if the price of tea increases, the demand for coffee will increase as the customer will shift his preference to relatively cheaper good.

(vi) Number of Buyers : The number of buyers in a market affects the overall demand of a good. An increase in the number of buyers increases the demand for the good.

(v) Consumer Credit Facility : If credit facilities provided at low rates of interest by the banks, or sellers of the commodity households would be encouraged to buy more than what they would buy in their absence.

Answer 7. (a) Both direct and indirect taxes are important for an equitable tax system as there are certain

advantages of both types of taxes. Direct taxes help government to ensure social and economic


equity and control inflation. Indirect taxes are non-evadable and help government ensure an equitable tax system when imposed on luxury goods. Let us see the advantages of direct and indirect taxes that help government maintain an equitable tax system.

Direct Taxes : (i) Social and Economic Equity : Direct taxes are based on an individual’s ability to pay

tax. The progressive nature of direct taxes, which mean higher tax rate for higher income individuals, help to lower income inequalities.

(ii) Control inflation : Direct taxes can help to control inflation. When inflation is increasing in an economy, government can increase the tax rate to lower aggregate demand, which in turn help to lower inflation.

Indirect Taxes : (i) Non Evadable : Indirect taxes cannot be evaded as they are part of the price of a good or

service and helps government to raise revenue from everyone who consumes the goods or services.

(ii) Equitable : Government can impose indirect taxes on luxury goods to ensure that rich people pay taxes on luxury goods and services they consume.

(b) Some causes to increase in public expenditure are listed below : (i) Developmental Work : Governments undertake developmental work in addition to

their primary functions of administration and maintaining defense. For instance, Central and State Government in India, carry out several developmental functions such as maintaining and constructing national highways and roads, sanitary facilities in villages, etc.

(ii) Rise in Price Level : When the price level increases, the Government has to buy goods and services, such as raw materials for construction projects and labour, from the market at higher prices. Therefore, an increase in price level leads to an increase in public expenditure.

(iii) Social Welfare : The Government has to ensure social welfare. Therefore, expenditure is incurred on social insurance, unemployment relief, free medical aid, free education, etc. to improve and socio-economic welfare of the country. With the increasing population and rising need to fulfill the requirements of the citizens, higher public expenditure is incurred.

(iv) Growth of Public Sector : Along with the private sector, the public sector is increasing in size in terms of functions and employment opportunities. The growth of public sector has led to an increase in public expenditure. Higher amounts of money are needed to perform public works and remunerate employees in public sector.

(v) Economic aid to Private Sector : The government provides assistance to various private sector industries that are involved in development programs or social welfare and helps to improve employment opportunities in the country.

Answer 8. (a) Inflation in an economy affects the production level and distribution of income in an economy.

Some effects of inflation are discussed below: (v) Misallocation of Resources and Disrupted Price Mechanism : Inflation disrupts the

functioning of price mechanism. During inflation, producers tend to produce more of luxury goods, which are non-essential and reduce the production of essential commodities. This is because producers expect higher profits from luxury goods.

(ii) Reduction in Saving : Inflation adversely affects savings. When prices rise rapidly, more money is now needed to buy the same amount of goods and services than before. It, thus, reduces saving and hence investment. As a result, production is adversely affected.

(iii) Hoarding : During inflation, the hoarding of larger stocks of goods becomes profitable. As a result of this, the available supply of goods in relation to increasing monetary demand decreases. This results in black marketing.

Economics | 15 |

(iv) Effect on Debtors and Creditors : Debtors gain and creditors loose when debtors pay back the borrowed amount during inflation. It is because the value of money was high when they borrowed. But, inflation reduces the value of money, which means the money returned by borrowers is less valuable. However, if debtors take loans during inflationary period, the position is reversed. In that case, the debtors are losers and the creditors are gainers.

(v) Wage Spiral : Wage and salary earners suffer during inflation. It is due to the reason that wages and salaries do not increase in the same proportion in which the prices or the cost of living rises.

(b) The factors highlighting the importance of money are : (i) Use of Money in Production : Producers cannot carry out any production activity

without the availability of money. A producer’s decision to execute and manage production processes is based on the amount of money he has. Producers need money to purchase machines, equipments, raw material and for paying labour charges.

(ii) Use of Money in Consumption : The consumption decisions of what to consume and how much to consume are based on the availability of money with the consumers. You can definitely not consume a pizza if you have money available for sandwich, which costs less than pizza. On the basis of prices of various goods and services consumers are able to allocate their income in such a way so that they derive maximum satisfaction from their consumption.

(iii) Use of Money in Capital Formation : Money is essential to facilitate capital formation. Savings of people can be mobilised in the form of money. These savings can be invested in more profitable ventures, such as bonds and mutual funds with the help of different financial institutions. The financial institutions mobilise the savings and channelise them into productive use.

(iv) Use of Money in Public Finance : Public finance deals with the income and expenditure of the government. Government receives its income in the form of money through taxes and other means, and incurs expenditure in development and administrative processes.

(v) Use of Money in External Trade : Money facilitates domestic and international trade. With the use of money, goods and services can be exchanged easily. For external trade, foreign currencies are needed to make payments. Foreign currency is obtained in exchange of domestic currency in foreign market.

Answer 9. (a) The need for consumer awareness and protection was first talked by Kautilya in his

Arthashastra. With the growing private sector, the need for discipline and regulation of the market has increased. The process of development, along with globalization and liberalisation process has increased the number of consumer related issues.

Today, consumers have become aware of not only the sale and purchase of goods but the health and security aspects also. They try to ensure the safety of food items they consume. Consumer protection has earned an important place in the political, economic and social agendas in many nations. In India, the Government has taken many steps to protect consumers. Media has also played an important role in accelerating the growth of consumer awareness. Awareness rising advertisements such as ‘Jaago Grahak Jaago’ and others are aired on national television and broadcasted on radio also.

One of the most important methods by which consumer awareness can grow and make consumers more aware of their rights is consumer’s education. Consumer education is defined as education given to consumers about various consumer goods and service, covering price, what the consumer can expect, standard trade practices, etc.

In addition to that, consumer education can help to make consumers aware of their rights. Market resources are growing and so is the awareness of consumer rights among consumers. Government agencies, consumer courts and voluntary organizations have been established to safeguard consumer rights.


(b) Five unfair trade practices are : (i) Under Weight and Under Measurement : Sellers tend to under weigh or under measure

the goods that they sell by using incorrect weighs. For example, when consumers buy pulses or vegetable, sellers can under weigh the goods being sold.

(ii) High Prices : Several times, sellers charge consumers a price higher than the retail price. For example, you may have paid higher price for a packet of chips or a bottle of water at railway station and bus stands.

(iii) Adulteration and Impurity : Sellers tend to make adulteration in edible items, especially in oil, ghee and pulses. Adulteration of food causes heavy loss to the consumers in the form of monetary loss and health issue.

(iv) Artificial Scarcity : To make profits, sellers tend to hoard certain goods to create artificial scarcity. This causes the price of the good to increase, which leads to exploitation of consumer. They sell the products at a latter stage at a higher price.

(v) False or Incomplete Information : Sellers easily mislead the consumers by providing inaccurate information about a product, price, quality, reliability, life cycle, expiry date, durability and its effects on health and environment.

Answer 10. (a) Types of Public Debt are : (i) Internal Debt : Internal debt is that debt which is raised by the government from

individuals and institutions, etc. within the country. It is taken mainly for internal purposes as financing of development expenditure within the country.

(ii) External Debt : In external debt, the government borrows from persons, institutions or government of the foreign countries. It is incurred both for development purposes and for meeting the balance of payment deficits. It imposes a great burden on the domestic economy. But, the same should not be considered bad if the same are used for productive purpose.

(iii) Productive Debt : Productive debts are those debts which are used by the government for those projects which yield income. A debt is said to be productive when it is used to finance a project which brings revenue to the government. The income earned from these projects is enough to pay the interest of the loan along with the principal.

(iv) Unproductive Debt : Unproductive loans refer to those projects which do not yield income. Such loans do not add to the productive capacity of the economy. Unproductive debts are considered as a dead weight upon the government.

(v) Redeemable Debt : Redeemable debt is that which is repayable by the government after a fixed period of time. The interest on this loan is paid by the government regularly. When the debt matures, the government pays back the principal amount to lenders.

(b) Money plays a significant role in modern economic life : (i) Employment of Factor Inputs : A producer’s decision on how many units of different

factors of production should be employed in the production process is based on the availability of money. Every producer wants to maximise profit for which he or she equates marginal productivity of an input with its price, which is expressed in terms of money. Thus, money helps producers in taking decisions regarding employment of units of factors of production.

(ii) Distribution of National Income : Distribution of national income among the various factors of production can be easily made with the use of money. Without the use of money, the distribution of national income among the factors of production would become impossible.

(iii) Money and Economic Development : Supply of money in a country affects its economic development. If the money supply is more, then it may lead to inflationary situation in the economy which may hamper growth. Similarly, if the supply of money is less

Economics | 17 |

than there will be shortage of liquidity, which will lead to lesser investment and lower employment.

(vi) Credit System : Money has facilitated the application of credit system in the economy. Various commercial and business transactions take place on credit. It is the money which provides the basis of entire credit system. Without the existence of money, important credit instruments like cheques and bills of exchange cannot be used.

(v) Productivity of Capital : Money also increases the productivity of capital as it is the most liquid type of capital. It can be put to any use. It is because of the liquidity of money that capital can be easily transferred from less productive use to more productive use.

oo


SECTION - A Answer 1. (a) Any person who buys goods and services by making full or part payment without any

objective of using them for commercial purpose is called a consumer according to Consumer Protection Act,1986.

(b) The bank rate is the rate at which a Central Bank lends money to member commercial banks against approved securities or eligible bills of exchange. A change in the bank rate leads to change in other interest rates prevailing in the market. An increase in the bank rate will result in the increase rise in interest rate at which they lend. This will discourage people to borrrow from them, leading to the reduction of credit.

(c) Thesupplyoflabourisdifferentfromthesupplyofothergoodsinthefollowingways: (i) The supply of the labour increases initially with increase in wage rate, as worker may

prefer income to leisure, with further increase in the wage rate the supply of labour starts decreasing. The labour supply curve is backward bending in nature. However, in the case of goods, the quantity supplied increases with increase in the price. In case of goods the supply curve is upward rising.

(ii) The supply of labour changes slowly because it depends upon the population to grow and get trained whereas the supply of goods can be increased or decreased quickly depending upon the demand of the goods.

(d) (i) Credit System : Money has facilitated the application of credit system in the economy. In modern economy, various commercial and business transactions take place on credit. It is the money which provides the basis of entire credit system. Without the existence of money, important credit instruments like cheques, bills of exchange cannot be used.

(ii) Distribution of National Income : Money helps in the distribution of national product through the system of factor prices, e.g., wage, rent, interest and profit, which areexpressed in terms of money. These factors contribute in the process of production. Thus, production is the outcome of various factors.

(e)

Fig. 1Answer 2. (a) Income elasticity of demand relates to the changes of demand in response to change in income

of an individual for a particular commodity, other factors remaining constant. In other words, the income elasticity of demand represents the degree of responsiveness of the quantity of a commodity demanded by an individual when there is a change in his real income.


1SOLUTION

Economics | 19 |

(b) When prices rise very fast at double or triple digit rates from more than 20 to 100 percent per annumormore, it isusuallycalledhyper inflationorgalloping inflation.Suchasituationbrings total collapse of the monetary system because of the continuous fall in the purchasing power of money.

(c) Thiscanbeexplainedbythedifferencebetweenentrepreneurandlabourer: (i) Nature of Risk : Labours are not involved in bearing the risk of the business. They only

receive the reward for their labour in the form of wages. On the contrary, entrepreneurs have to bear all the risk in the business.

(ii) Nature of Activities : The labours have to perform only fixed activities while theentrepreneurs perform variety of works.

(iii) Nature of Work :Labourgetswagesfortheirworkwhileentrepreneurgetsprofit. (d) Thetwoconditionsonwhichdivisionoflabourdepends,are: (i) The Size of the Market: The extent to which division of labour can be adopted depends

upon the size of the market for a particular product. If the product has limited market, it cannot be produced on large scale. Therefore, only a few workers will be employed and hence scope for division of labour will be limited.

(ii) Attitude of Workers: If the workers involved in the production process are not cooperativeanddonotadjusttothechanges,divisionoflabourwouldbecomedifficult.

(e) Differencebetweenproductiveandunproductivedebtare:

S. No. Productive Debt Unproductive Debt1. Productive debts are those debts

which are used by Government for those projects which yield income. For e.g. loans used for the construction of railways, irrigation and power projects, etc.

Unproductive debts are those debts which are incurred on those projects which do not yield any income. For e.g. loans taken bytheGovernmenttofinanceawarandforcoveringthebudgetarydeficit.

2. These are self liquidating in nature, this means the principal amount and interest are normally paid out of the revenue generated from the project for which loans were used.

These are a net burden on the community. The government will have to resort to additional tax for their repayment.

Answer 3. (a) Thetwoimportantcharacteristicsofcapitalare: (i) Capital is a Passive Factor of Production: Like land, capital is also a passive factor of

production. It cannotproduceanythingby itself. Itbecomeseffectiveonlywhen it isused by labour.

(ii) Capital is Man-made : Capital is the result of savings which are made by man. Capital is the mixed result of past labour of workers working on natural resources. Thus, when human labour is applied to natural resources, then capital items are generated. Thus, capital involves cost.

(b) Developmentbanksarethosefinancialinstitutionswhichperformtwinfunctionsofprovidingmedium term and long term loans to the private entrepreneurs and performing various promotion roles conducive to economic development.

(c) Meritsofprogressivetaxaregivenbelow: (i) Progressive taxes are more economical, as the cost of collection does not rise when the

rate of tax increases. (ii) Progressive taxation has greater revenue productivity than proportional tax. (iii) Progressive tax system is an engine of social improvement. The strong should assist the

weak and the rich should aid the poor. This social morale is well sustained by progressive taxation.


(d) Thevariouswaysinwhichconsumerisexploitedbymanufacturerandtraderare: (i) Adulteration and Impurity : In case of costly consumer items such as oil, ghee and

spices,adulterationismadeinordertoearnhigherprofits.Thiscausesheavymonetaryloss to the consumers as well as it also spoils their health.

(ii) Sub-standard Quality : Thegoodssoldaresometimesofsub-standardquality.Sellingof medicines beyond their expiry dates and supply of defective home appliances are generally the regular grievances of consumers.

(e) Demandpullinflationreferstoasituationinwhichpricesrisebecausethedemandforgoodsand services exceed their total supply available at current prices i.e., aggregate demand greater than aggregate supply.

Increase in general price level or money supply, increase in income, increase in the number of consumers, increase in public expenditure are important factors causing demand pull inflation.

Answer 4. (a) Followingtypesofutilitiescanbecreatedinacommodity: (i) Place Utility (ii) Form Utility (iii) Time Utility (iv) ServiceUtility (v) Possession Utility (b) Unlimited legal tender money refers to that money which is legally bound to be accepted as

a means of payment. Legal actions can be taken against a person who refuses to accept this money. In India all coins of 50 paise and above and all currency notes are unlimited legal tender money.

(c) The Law of Demand is the functional relationship between price and the quantity of a commodity. It states that other things remaining constant, a rise in the price of a commodity or service results in fall in its demand and vice versa. There is inverse relationship between price of a commodity and its demand.

Demand SchedulePrice (`) Quantity Demanded (units)

10 1009 1508 200

The demand schedule shows that when the price is ` 8 the quantity demanded is 200 units. and when price increases to ` 10 the demand fall to 100 units.

(d) PublicExpenditureservesthefollowingobjectives: (i) Provision of collective wants in order to enhance society’s consumption is a traditional

way to maximise social and economic welfare. (ii) To reduce inequalities of income and wealth in an economy. (e) These are another type of fixed deposits. Under a recurring deposit account, money is

depositedinmonthlyinstallmentsforafixedperiodoftime.Thepurposeofsuchaccountsisto encourage regular saving habits among the people. The rate of interest on these deposits is nearlythesameasonfixeddeposits.Itisagoodandprofitableformofsaving.

SECTION - B

Answer 5. (a) 1. House Tax : It is direct tax because it is levied on house owner who pays the tax from his

own pocket. 2. Excise Duty : It is an indirect tax because it is levied on production of goods and services.

Althoughitispaidbytheproducersbutitsburdenisshiftedpartiallyorwhollytotheirconsumers.

Economics | 21 |

3. Income Tax : It is a direct tax because the impact and incidence of the tax remains on the same person.

4. Passenger Tax : It is an indirect tax. It is collected by the government from transporters. But actually this is borne by the passengers.

5. Sales Tax :Itisanindirecttaxbecausetheburdencanbeshiftedovertotheconsumers/buyers of the product.

(b) The rate of capital formation in India is very low as compared to many advanced countries likeU.S.A. , Japan, etc. Some important reasons for lower rateof capital formationare asfollows:

(i) Lower Saving Power (Ability) : The people in India have a desire to save and possess. All those factors, which motivate the ‘will to save’, are old age considerations, family affection,socialandpoliticalinfluence,buttheyhavelowpercapitaincome.Moreover,the margin between production and consumption is very narrow so the saving capacity isverylittle.Ultimately,itresultsinlowerrateofcapitalformationwhichfurtherleadsto lower standard of living.

(ii) State of Economy : Majority of people in India are agriculturists, who follow old methods of cultivation and also have uneconomic agricultural holdings. All these factors leave verylittleornosurpluswiththem.

(iii) Habit of Hoarding :Mostoftheilliteratepeoplewithlittlecapacitytosave,areinthehabit of hoarding their savings in their houses and not opening bank accounts. But such savings are of no use as far as capital formation is concerned, because these hoardings cannot be utilised for any productive purposes.

(iv) Inflation :Due to inflationary trend, thepricesofcommoditiesgoveryhighand themiddleclasspeoplefinditverydifficulttosaveanyamount.Undersuchconditionsofinflation,themajorityofmiddleclassisnotcontributingtocapitalformationbecauseoflack of savings.

(v) Inadequate Investment Channels :ThebankingandfinancialfacilitiesareinadequateinIndia.However,afternationalisation,largenumberofbankshavebeenopenedevenin remote areas and villages, but a very wide gap still exists. The means of transport and communicationarenot fullydeveloped.These inadequacies adversely affect themobilization and investment of savings.

(vi) Taxation Policy : High level of taxes on property in India, affects the savings andaccumulation of capital adversely. The industrialists and businessmen believe that level of taxation should be reduced so that the people’s capacity to save is improved. Simultaneously,improvingtheircapacitytoinvest.

Answer 6. (a) Thefollowingaretheimportantfactorswhichaffectthesupplyoflabourinacountry: (i) Population of a Country : The total labour force of a country depends upon the size and

growth of its population. The countries with large population can manage abundant supplyof labour.Thegrowthofpopulationreferstothenetdifferencebetweenbirthand death rates. With high birth rates and low death rates, the population growth will be more rapid increasing the suppy of labour. On the other hand, if both the birth and death rates are low, the growth of population, as well as the supply of labour will decrease. InU.S.A.,U.K.andotherwesterncountries,thesupplyoflabourisincreasingslowlywhereas, in India, China, Bangladesh, etc., the supply of labour is increasing rapidly, on account of the reasons given above.

(ii) Migration and Immigration : When people migrate from a country, the supply of labour in that country reduces. On the other hand, when people immigrate into a country, the supply of labour improves in that country. Since the process of migration andimmigration continues simultaneously, the increase and decrease in supply of labour dependsdirectlyonthedifferencebetweenthenumberofimmigrantsandmigrants.


(iii) Social Traditions and Conventions : The supply of labour in a particular country is affected over to a great extent by the social standards, traditions and conventionsprevailing over there. The social standards determine and decide as to who should take up a particular job and who should not.

(iv) General Level of Wages : Wage rate is another important determinant of the number of hours worked. The higher is the wage rate, the larger is the supply of labour. This is because a rise inwage ratemakeswork economicallymore attractive.Hence, thewillingness to work increases with a rise in the wage rate.

(v) Laws of the Country :Thegovernmentlawsandregulationsalsoeffectthesupplyofthelabour. If the government imposes some kind of restrictions on employing women and children in some jobs then supply of the labour will be reduced. The supply of labour willalsoaffectedifthegovernmentenforcesthelawregardinghoursofwork,numberof holidays and retirement age.

(b) (i) Centralised Planning : The centralised planning refers to complete central control over major part of the economics activities. All major and important decisions are taken by the centralplanningauthority. Someof thedecisions are related to investment indifferentsectorsofeconomy,fixationofpricestructure,rateofwages,andtheamountofproductionofaparticularcommodity.Finaldecisionsare takenonlyaftermakingconsultations with concerned administrative bodies, and unit of enterprises.

Decentralised Planning : Important decisions are taken by the central authority, public enterprises,andprivateenterprisesoperatinginthecountry.Suchplanningisadoptedin U.K. and France. However, planning in India ismore or less decentralised, eventhoughinearlierstages,afterIndependence,itwascentralised.

(ii) Consumer Right – Right to Safety : It implies the right to be protected against the marketing of such goods and services which are hazardous to our life and property. The goods and services purchased by any consumer should not only meet his immediate needs but, also fulfill his long term interest. The right to safety aims at providingsafeguards against such happenings.

Answer 7. (a) Followingarethedifferencesbetweenprivateandpublicdebts:

S.No. Private Debt Public Debt1. No private individual can force or

compel another private individual to lend money.

The Government may force the people or institution in the country to lend funds to it.

2. Private or individual cannot under any circumstances refuse repayment of loans to another private individual without initiating legal action.

The Government can refuse the payment of loans taken by it from the public.

3. Privatedebtisoftentakenforashortperiod.

The government generally borrows funds for long periods.

4. High rate of interest is payable by the private individual.

Low rate of interest is payable by the Government.

5. Private borrower can borrow only from within the country.

The Government can take loan within the country and also from outside the country.

(b) Moneyplaysasignificantroleinmoderneconomy.Ithasanactiveroleineconomicactivities.Importanceofmoneyinaneconomyisdiscussedbelow:

(i) Money and Production : Money helps in various ways in the process of production. Producerspurchase/hirevariousfactorsofproductionwiththehelpofmoney.Factorprices enable them to take decisions about their quantity to be bought. Moreover, the

Economics | 23 |

existence of money helps the producers to discover what people want and how they want.

(ii) Money and Consumption : Money provides freedom of choice of consumption. On the basis of prices of various goods and services consumers are able to allocate their income in such a way so that they derive maximum satisfaction from their consumption.

(iii) Money and Distribution : Money has made it possible to distribute accurately and conveniently the reward among various factors of production. The reward can be distributedintermsofwages,rent,interestandprofitintheformofmoney.

(iv) RemovaloftheDifficultiesofBarter:Thereweresomedifficultiesattachedtothebartersystem of exchange, i.e., lack of incidence of wants, problem of measurement of value, problemoffuturepayment,etc.inventionofmoneyhasovercomeallthedifficultiesofbarter system.

(v) Money and Capital Formation :Moneyisessentialtofacilitatecapitalformation.Savingsof people can be mobilised in the form of money and these mobilissed savings can be investedinprofitableventures.Financialinstitutionsareapartofthisprocess.Theymobilise the savings and channelise them in productive processes.

(vi) Money and Public Finance : Public finance dealswith the income and expenditureof the government. Government receives its income in the form of money and makes expenditures in development and administration purposes.

(vii) Money and Trade : Money has facilitated trade not only inside the country but also between countries. With the use of money, goods and services can easily and rapidly be exchanged which helps in gaining revenue for the government. Money constitutes the basis of price mechanism through which the economic activities of the community are adjusted.

Answer 8. (a) Taxation plays a very vital role in the economy of a country. In developing economies taxes

fulfill themajorobjectiveoffiscalpolicy. It isagreed thatadditional taxesbothdirectandindirect should be levied to increase aggregate savings and investment. We also know that in developingeconomieseventhepoorareexpectedtomakesacrifices.Taxationpoliciesshouldbeusedasaneffectivemeansofachievingthegoalofsocialjustice.Progressivetaxsystemcanbeveryeffectivetoachievethisobjective.Butthereshouldbesomelimittotaxationbeyondwhich taxation should not be increased, otherwise the productive capacity of the country will be misused.

Thethreewaysofachievingtheobjectiveofsocialjusticethroughtaxationare: (i) Taxes are imposed to reduce the inequality of income distribution. (ii) Savingsarecollectedintheformoftaxandthenutilisedinthewelfareofstate. (iii) It regulates consumption and production in special and economic activities in general. (b) Landhasspecificcharacteristics,whichdistinguishitfromotherfactorsofproduction.The

maincharacteristicsoflandare: (i) FreeGiftofNature:Landisdefinedtoincludenotonlytheearthsurfacebutalsoother

freegiftsofnature(forexample,mineralresources,forestresourcesandindeedanythingthat helps us to carry out the production of goods and services.) Land is provided by nature, free of cost.

(ii) Supply of Land is Fixed : Neither land can be stretched nor anything can be added to it to increase its availability. As such, the supply of land cannot be enhanced. However, onlyeffectivesupplyoflandcanbeincreasedbymakinganintensiveuseofland.

(iii) DifferenceinFertility:Differentpatchesoflandhavedifferentdegreesoffertility.Somelocations are very fertile and have very good agricultural productivity, whereas some patchesarebarrenandnothingcanbegrownthere.Similarly,thedegreeofrichnessofmineral wealth varies from place to place, making the land more useful or less useful from an economic point of view.


(iv) Land is a Primary Factor of Production : Land is a basic factor of production. In every kind of production, we have to make use of land. For example, in industries, it helps to provide raw material and sites for industrial buildings and in agriculture, crops are produced on land.

(v) Immobility : Landisimmobilefactorofproduction.Itcannotbeshiftedfromoneplacetoanother.Someeconomists,however,describelandasmobilefactorontheargumentthat it can be put to several uses.

(vi) Passive Factor of Production : Land is a passive factor of production, because it cannot produce anything on its own. Human elements and capital inputs are required to be combined in an appropriate manner with land in order to obtain yields from it.

Answer 9. (a) Many benefitswere envisaged from theNationalisation of Banks. Some of the important

benefitsofnationalisationofbanksare: (i) Resources for Development : Fuller utilisation of natural resources is the need of the

development of the economy, which is only possible in the national sector. With the nationalisation of banks, the entire resources of the banks would be available to the Government.

(ii) Public Welfare : On account of state ownership, the banks would work for public welfare ratherthanforprofitsonly.

(iii) ToPreventMisuseofBank’sFrauds :The bank credits would not be misutilised for speculationandblackmarketing.Privatebanksfinancehoardersandspeculatorswhohoard essential articles like wheat, rice, sugar, etc. This practice of the banks has been greatly responsible for the rise of prices of essential goods in India. Nationalisation of banks has reduced this practice of fraud to a great extent.

(iv) ExpansionofBankingFacilities:The banking facilities would now be expanded to rural areas, to develop the habit of saving among the common people and also to mobilise the savings of rural people.

(v) PublicConfidence :Many banks had failed prior to nationalization. Failure of banks shakestheconfidenceofpublicinthecountry’sbankingsystem.Thisalsogotreducedto a great extent with the help of nationalisation of banks.

(b) Market demand refers to the total quantity of a commodity that all the consumers or householdsarewillingtobuyinthemarketataparticularpriceduringaspecificperiod.

Themaincausesresponsibleforthedownwardslopingdemandcurveare: (i) Law of Diminishing Marginal Utility : It states that when an additional unit of a

commodity is consumed, the marginal utility derived from it, declines, because of the reasonthattheearlierunitsofconsumptionhavepartlysatisfiedourwants.Wheneveryadditional unit brings decreasing utility, the consumer would naturally prefer to buy this additional unit only at a lower price. This, therefore, causes an inverse relationship between price and demand.

(ii) IncomeEffect : Incomeeffecthereimplieseffectofchangeinconsumer’srealincomeresulting from change in the price of a commodity being demanded. As the price of commodity decreases, the real income of the consumer increases and he will demand more. Thus, implying a direct relationship between real income and demand for a commodity.

(iii) Substitution Effect : It means the substitution of cheaper goods for costlier ones. When prices of a commodity increases, while prices of other substitute goods remain unchanged, consumers would like to prefer the relatively cheaper good. For example,

Economics | 25 |

teaandcoffeeare substitute, ifpriceof tea increases, thedemandof teawilldeclineandtheconsumerwill shifthispreference tocoffee.Thisshows that there isadirectrelationship between price of one product and demand of another substitute product.

Answer 10. (b) Themaindifferencesbetweenmovementalongasupplycurveandshiftofasupplycurveare:

S.No. Movement along a Supply Curve ShiftofaSupplyCurve1. It implies a change in quantity supplied

due to a change in the commodity’s own price.

It implies a change in supply (either an increase or decrease in the supply) of a commodity at each possible price.

2. Amovement from the left to right alongany supply curve indicates an expansion in quantity supplied due to an increase in the price of the commodity.

Arightward shiftof the supply curveimplies an increase in the supply at each possible price.

3. Amovementfromtherighttotheleftalongthe supply curve indicates a contraction in quantity supplied due to a fall in the price of the commodity.

A leftward shift of the supply curveimplies a decrease in supply at each possible price.

4. Here, all factors except the price of the commodity are assumed to remain unchanged.

Here, given the price of the commodity all other factors are assumed to be flexible.

(b) CETERISPARIBUSnamely“otherthingsremainingconstant”istheassumptionofthelawofdemand.Factorsotherthanpricewhichinfluencedemandareassumedtobeconstantduringthe given study period. Thus, the law of demand is based on the following assumptions.

(i) No change in consumer’s income. (ii) No change in price of related goods. (iii) No change in the tastes and preferences of the consumer. (iv) No change in consumer credit facility. (v) No change in consumer’s expectations. (vi) No change in population and its composition. (vii) No new substitutes are discovered. (viii) No change in the government policy. (ix) No change in business conditions. (x) No change in climatic factors.

oo


SECTION - AAnswer 1. (a) Mobility of labour refers to the ease with which labourers can move within an economy

and between different economies. Labour is less mobile in comparison to other factors of production except land.

(b) The two important functions of capital are the generation of employment in an economy and increase in productivity.

1. Generation of Employment : Another crucial function of capital is employment generation. This function of capital is of utmost importance for less developed and developing countries. The use of capital in agriculture, transport, industry and trade generates work and employment on farms, in roads and railways and in factories.

2. Increase in Productivity : With increase in technology and specialisation, capital has become an integrated part of the production process. The use of capital can help increase the production level of an economy. Capital also catalyses the productivity of labour. For example, in developed countries like the US labour productivity is high because of extensive use of capital such as machines and tools.

(c) A Giffen good is a good whose demand rises as the price of the good rises. For example, in the UK, when the price of bread rose, the poor British families consumed more of bread as they had less resources to spend on meat.

(d) The expenditure incurred by the government on activities that directly increase the productive efficiency of an economy is known as productive expenditure. For instance, the expenditure incurred by government on road construction is a productive expenditure as it generates income and facilitates transportation of goods and services in a country. However, the expenditure incurred by the government on defence is considered unproductive as these expenditures do not directly increase the productive efficiency of an economy.

(e) Income effect refers to the change in quantity demanded of a good or service that occurs due to a change in the income of a consumer.

Answer 2. (a) The measures taken to protect the rights of the consumer include consumer education and

establishing consumer rights. The producers must ensure efficiency in production and quality of goods. Consumers should be proactive in protecting their rights and should make the businesses and government more responsive to their rights. The government should ensure that consumers are not mislead or cheated by the producers by establishing consumer rights and consumer forums.

(b) Two merits of proportional taxes are : (i) Proportional taxation leaves the tax-payer in the same relative economic status. (ii) Proportional taxation is simple to calculate and to administer. (c) Legal tender money refers to the currency which has been legally approved by the Government.

Individuals are bound to accept legal tender money in exchange for goods and services. (d) The bank rate is the rate at which the Central Bank gives loans to the commercial banks or re-

discounts the bills of exchange and securities held by the commercial banks. Through changes in the bank rate, the Central Bank can influence the creation of credit by the commercial banks. For example, when the Central Bank raises the bank rate, the cost of borrowings by the


12SOLUTION

Economics | 27 |

commercial banks from the Central Bank would rise. This would discourage the commercial banks to borrow from the Central Bank. Thus, the money held by commercial bank and the money supply in the economy reduces. On other hand, a fall in the bank rate will cause the reduction in lending interest rates of the commercial banks. This will increase the demand of loanable funds in the market and the money supply increases in the economy.

(e) The five degrees of elasticity of demand are perfectly elastic demand, perfectly inelastic demand, relatively elastic demand, unitary elastic demand and relatively inelastic demand.

Answer 3. (a) Two main characteristics of law of supply are : (i) Price of the commodity serves as an incentive for producers, i.e., if the price of a

commodity increases, the producers are inclined to increase the supply of the good. (ii) If the price of a commodity declines, the producers reduce the quantity demanded of the

commodity as the profit margin of producers tend to fall. (b) A tax incidence refers to the division of a tax burden among buyers and sellers. Tax

incidence depends on the price elasticity of supply and demand. When supply is more elastic than demand, the burden of the tax falls on the buyers. However, when demand is more elastic than supply, the burden of the tax falls on sellers.

(c) The two agency functions of a commercial bank are : (i) Collection and Making Payments for Credit Instruments : The bank collects the payment

of the bills of exchange, promissory notes, cheques, etc., on behalf of its customers. (ii) Collection of Dividend : The bank collects the dividends and interests on shares and

debentures as per the instructions of its customers. (d) The differences between tax revenue and non-tax revenue are listed below :

Tax Revenue Non-Tax Revenue1. The revenue generated by government

by taxing individuals is known as tax revenue.

The revenue generated by government by imposing license fee and penalties are called non-tax revenue.

2. Tax revenue is generated by imposing direct and indirect taxes on individuals.

Non-tax revenues are generated through administration, fee, license fee, special assessment, etc.

(e) The assumptions of law of supply are : (i) Cost of all factors of production remain constant. (ii) The technology level remains constant. (iii) The commodity is divisible. (vi) Law of supply states only a static situation.Answer 4. (a) When the price of a commodity’s substitute good increases, the quantity demanded of the

commodity increases. (b) Open inflation occurs when there is no barrier to price rise. It occurs in the economy where

there is no control or check on price rise. Rising prices by large magnitude is the symptom of open inflation.

(c) Moral persuasion is a method of request and advice used by the Central Bank to convince the heads of commercial banks to follow certain monetary policy. Under certain circumstances, the Central Bank requests and persuades the commercial banks not to grant credits for speculative and non-essential activities. Since, the Central Bank is the symbol of financial authority and sovereignty, the commercial banks honour such requests. This method proves very effective under normal conditions of market and economy.

(d) When inflation in an economy rises at a rate of 3% to 8% annually, the inflation is known as walking inflation. Walking inflation is also called trotting inflation. Inflation in this range is an alarming signal for government to control inflation.


(e) An entrepreneur is an individual who allocates different tasks to factors of production in a production process, while a labour is an individual who provides physical and mental effort to produce a good or service.

SECTION - BAnswer 5. (a) The various forms of division of labour include : (i) Simple (ii) Complex or process (iii) Horizontal and vertical (iv) International and national (v) Territorial or geographical (i) Simple : A simple division of labour occurs when manufacture is split into diverse parts

and many workers come mutually to finish the work, but the input of each worker cannot be determined. Simple division of labour can be further categorised into occupational or personal division of labour. The classification of people as doctors, teachers, scientists, etc, is known as occupational division of labour. The division of labour on the basis of specialisation in a particular field, such as a mathematics teacher, an economics teacher or a physics teacher, is known as personal division of labour.

(ii) Complex : A complex division of labour occurs when the total work is divided into many small steps or processes. Each specialised function is undertaken by an individual or a group of individuals to produce the final product. Complex division of labour can be further categorised into complete process of complex division of labour and incomplete process of complex division of labour.

In complete process of complex division of labour , the total work is divided into parts and sub-parts in such a manner so that each part is able to yield a commodity in a complete form for the next process.

In incomplete process of complex division of labour, the work is divided into different processes and sub-processes in such a way that only a part or a component of a commodity is produced.

(iii) Horizontal and Vertical Division of Labour : Horizontal division of labour occurs when the process of production is divided between different parts in such a way that the different parts of the process can run simultaneously. On the other hand, vertical division of labour is related to the successive stages of production of a commodity.

(iv) International and National Division of Labour : A country cannot produce all the goods and services that its citizens want to consume. This is because a country has limited resources and technology. Therefore, countries import some goods and services from other countries. Different countries concentrate on the production of different goods and services and that is why international division of labour occurs.

National division of labour also occurs for the same reason as international division of labour. Different states in a country focus on the production of different goods, owing to the difference in availability of natural and man-made resources. For example, in India, we see a concentration of jute mills in the eastern states and a concentration of cotton textile mills in the western and southern states.

(v) Territorial or Geographical Division of Labour : Sometimes, the production of specific goods and services is concentrated in specific regions of a country. The reason for territorial or geographical division of labour can be that the expert labour for the production of the good or service are concentrated in a particular region. For example, film-making is mainly carried out in Mumbai in India. This is because the resources to make films are mainly concentrated in Mumbai in India.

Economics | 29 |

(b) The differences between ‘movement along a supply curve’ and a ‘shift in supply curve’ are listed below:

Movement along Supply Curve Shift in Supply Curve1. A change in the price of a good leads to

movement along the supply curve.A change in the non-price factors that affect supply leads to a shift of the supply curve.

2. The movement along the supply curve leads to expansion or contraction of supply.

The shift of supply curve leads to an increase or decrease in supply.

3. An upward movement along the supply curve indicates an increase in the quantity supplied of a good, while a downward movement along the curve indicates a decrease in quantity supplied of a good.

A rightward shift in the supply curve indicates an increase in supply, while a leftward shift in supply indicates a decrease in supply.

4. For example, if the price of good X increases, the suppliers will supply more quantity of good X in the market. The quantity supplied of good X increases, which is shown by an upward movement of the supply curve.

For example, if the price of inputs used in the production of good X decreases, the supply of good X will increase. Consequently, the supply curve of good X will shift to the right.

5. Diagram: An upward movement along the supply curve.

Diagram: A rightward shift in supply curve.

Answer 6. (a) The three stages of capital formation are : creation of savings, effective mobilisation of savings

and investment of savings. (i) Creation of Savings : The basic step in the formation of capital is creation of savings as

it is the savings that are transformed into capital. The savings are created by individuals when they lower their expenditure on consumer goods.

(ii) Effective Mobilisation of Savings : For capital formation, savings need to be mobilised by utilizing savings for producing capital goods. For achieving this goal, the savings of various households and individuals need to be effectively mobilized and made available to businessmen and entrepreneurs for investments. The financial institutions such as banks and insurance companies play a very important role in mobilising and transferring individual’s savings to entrepreneurs.

(iii) Investment of Savings : People’s savings must be appropriately invested for the purpose of producing capital goods in different productive systems, such as agriculture, industry, trade, public works, transport, etc. Capital is generated in the economy when savings are invested in productive economic activities.

(b) Producers often face challenges for raising capital for business. To raise capital, producers can create a project proposal in which they explain about the amount of factors of production needed for production, cost of production, target market and expected revenue from production process. The project proposal can be shared with commercial banks from where the producer can take a business loan. Established businesses can also raise capital by selling shares of company.


Answer 7. (a) Both direct and indirect taxes are important for an equitable tax system as there are certain

advantages of both types of taxes. Direct taxes help government ensure social and economic equity, and control inflation. Indirect taxes are non-evadable and help government to ensure an equitable tax system when imposed on luxury goods. Let us see the advantages of direct taxes and indirect taxes that help government maintain an equitable tax system.

Direct Taxes : (i) Social and Economic Equity : Direct taxes are based on an individual’s ability to pay

tax. The progressive nature of direct taxes, which mean higher tax rate for higher income individuals, helps lower income inequalities.

(ii) Control Inflation : Direct taxes help to control inflation. When inflation is increasing in an economy, government can increase the tax rate to lower aggregate demand, which in turn help lower inflation.

Indirect taxes (i) Non-evadable : Indirect taxes cannot be evaded as they are a part of the price of a good

or service and helps government raise revenue from everyone who consumes the good or service.

(ii) Equitable : As mentioned before, Government can impose indirect taxes on luxury goods to ensure that rich people pay taxes on luxury goods and services that they consume.

(b) Economic and social environments in a country are profoundly affected by public spending. Public expenditure affects the economic activities such as production, distribution and economic growth and the economic welfare of an economy. Public expenditure is needed for the growth of different sectors of an economy. Public expenditure leads to economic development by :

(i) Development of infrastructure such as construction and maintenance of roads, railways, irrigation, power, etc., and development of social institutions such as hospitals, schools, etc.

(ii) Bringing regional balance in the economy by allocating resources in backward and underdeveloped areas of a country. This would result in better employment opportunities and economic development in those areas.

(iii) Augmenting the development of agriculture and industry. (iv) Exploiting and developing mineral resources like, coal and oil. (v) Rural electrification programmes, which leads to rural development. (vi) Reducing the inequalities of income and wealth through welfare measures like free

education, free medical facilities, social security schemes like old age pensions, etc. Answer 8. (a) Money can be classified into the following : (i) Commodity Money : In ancient time, commodities were used as money. People used to

exchange goods for goods which was known as ‘Barter exchange’. Goods like animals, rice, utensils, weapons, salt etc. were exchanged in the process.

(ii) Metallic Money : With the progress in civilization, commodity money changed into metallic money. People started using metals like gold, silver, copper etc. as a medium of exchange. They were used because they could be used easily and handled properly.

(iii) Paper Money : Later on people started feeling that carrying gold and silver coins from one place to another is not safe. Thus invention of paper money marked as an important development in the evolutions of money. Paper money is issued and controlled by the central bank of the country.

(iv) Credit Money : The emergence of credit money took place along with paper money. People started keeping a part of their money in banks as deposits which they can withdraw wherever they need it. For example, cheque (which is known as credit money or bank money) is not money itself but performs the same function that of money.

Economics | 31 |

(v) Plastic Money : The latest stage in the evolution of money is plastic money. It is in the form of credit cards or debit cards. They are used so that the need of carrying paper money to make transaction reduces.

(b) The amount of money borrowed by the Government of a country from the citizens of the country and foreign countries is called public debt. Public debt is not always burdensome especially in the short run. In the short run, public debt is a good method for countries to receive additional funds to be invested for economic growth. The borrowed money can be invested in developmental activities such as construction of roads, railways, provision of better education and training facilities and provision of pension funds.

Question 9. (a) The important methods of lending available to the commercial banks are : (i) Cash Credit : The bank can advance a cash loan up to a certain limit to a borrower

against a bond or any other security. The borrower is required to open a current account, and the bank allows the borrower to withdraw up to the full amount of the loan. The interest is charged only on the amount actually utilised by the borrower and not on the loan sanctioned.

(ii) Loans : A loan is a specified amount sanctioned to the borrower for a fixed period. However, before sanctioning the loan, the bank authorities need to understand the purpose of borrowing and require to be sure of the ability of the borrower to repay. 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 amount used by the borrower.

(iii) Overdraft : The overdraft facility is allowed to the depositor maintaining a current account with the bank. According to this facility, a borrower is allowed to withdraw more amount than what he has deposited. The excess amount so withdrawn has to be repaid to the bank in a short period and that too with interest. The rate of interest usually charged is more than that is charged in case of loans. However, the overdraft facility is given only against security of some assets or on personal security of the customer.

(vi) 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.

(b) In the present time, the country is facing a turmoil in the banking sector because of increasing non-performing assets of public sector banks, poor management and internal controls, increasing bad debts and the recent loan scams of industrialists. The supporters of privatisation have argued that government should move out of the banking sector by reducing its share and privatising the banks. However, India is a developing country, and we should not forget that a major portion of the population will again be unbanked if all the banks are privatised. This is because maintaining the accounts of poor people would not be profitable for private banks. For instance, the Jan Dhan scheme has provided millions of people the access to banking services. The role of private sector in such schemes is minimal. Therefore, reducing the share of government in public sector would mean going back to an era of financial exclusion.

(c) To deal with the failure of public sector banks, the country needs to tighten the regulations and checks in the public sector banks, rather than doing away with the institutions. Privatisation of banks may seem like a solution to the problems of public sector banks, but frauds happen in private sector banks too. They also have bad loans, and the government and the RBI has to take responsibility for the bad loans of private sector banks as well. For example, the US government had to bail out many private sector banks after the financial crisis of 2008.

(d) So, even if privatisation of banks appears to be an appealing response to deal with the failing public sector banks, it is not a perfect solution. Nationalised banks serve several valuable purposes such as easy loans to agriculture and subsidised loans to poor people. Therefore, certain issues that occur in the operation of nationalised banks should not overshadow their usefulness.


Answer 10. (a) The consumer can be exploited in the following ways : (i) Underweight and Under-measurements : Producers have the tendency not to measured

or weighed the good appropriately. (ii) Sub-standard Quality : The goods sold are sometimes of sub-standard quality. Producers

sell goods beyond the expiry dates and supply defective goods to consumers. This also includes the sales of medicines after expiry date, and selling spurious drugs.

(iii) High Prices : Traders also tend to charge prices higher than the retail price of goods. (iv) Duplicate Articles : Several times fake and duplicate items are sold to the consumers. (v) Adulteration and Impurity : Producers make adulteration in edible items such as oil,

ghee and spices, to earn higher profits. Adulteration of foods causes heavy loss to the consumers and spoils their health.

(b) The Consumer Protection Act, recognises six consumer rights. These rights are : (i) The right to be protected against marketing of goods which are hazardous to life and

property. (ii) The right to be informed about the quality, quantity, potency, purity, standard and price

of goods to protect the consumers against unfair trade practices. (iii) The right to be assured wherever possible, of access to a variety of goods at competitive

prices. (vi) The right to be heard and to be assured that consumers, interests will receive due

consideration at appropriate forums. (v) The right to seek redressal against unfair trade practices or unscrupulous exploitation of

consumers. (vi) The right to consumer education. The Act provided a more accessible and speedy legal avenue for consumers. No fees, no

lawyers and judgment to be delivered within 90 days.

Documents

SOLUTION Model Specimen Paper 3 - Oswal Publishers€¦ · date i.e., maturity date along with interest payments. For example, if government borrows money through bonds, then the