Achiever Home-Tuitions
(Two Hours)
Answers to this Paper must be written on the paper provided separately.
You will not be allowed to write during the first 15 minutes.
This time is to be spent in reading the Question Paper.
The time given at the head of this Paper is the time allowed for writing the answers.
Attempt all questions from Section A and any two questions from Section B.
The intended marks for questions or parts of questions are given in brackets [ ].
SECTION - A (40 Marks)
(Attempt all questions from this Part)
Question 1.
(a) State two advantages of opening a bank account.
(b) What is the difference between impact of taxation and incidence of taxation ?[2]
(c) Define cost-push inflation. State two factors causing it.
(d) The bus fare between two cities is reduced. How will this affect the demand
curve for bus travel between the two cities ?
(e) Distinguish between Real capital and Debt capital with the help of suitable
Answer 1.
(a) Two advantages of opening a bank account are :
(i) A person can keep his savings safe and risk free through a bank account.
(ii) A bank account encourages thrift and the habit of saving.
Impact of Taxation
Incidence of Taxation
When the government of any country If the tax payer can shift the burden
imposes a tax, then the person or
of tax, then the final resting point of
institution which bears the tax burden the tax burden is called the incidence
at the first instance is known as the
of tax.
impact of tax.
(c) The prices, instead of being pulled up by demand factors may also be pushed
up as a result of rise in the cost of production such as wages, profits or
material costs. This is called cost-push inflation.
Two factors causing cost-push inflation are :
(i) Rise in wages.
(ii) Increase in the price of Basic Materials.
(d) The bus fare between two cities is reduced, so the demand for bus travel will
rise and the demand curve will move downward along the demand curve.
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Real Capital
Real capital refers to those assets
which help in the production process
such as machines, buildings, etc.
Debt Capital
Debt capital is the capital invested in
shares, stock, debentures,
government securities etc. which
yield income to their investors.
Question 2.
(a) Distinguish between simple division of labour and complex division of
(b) What is meant by expenditure tax ? Give an example.
(c) How does money solve the problem of lack of a common measure of value
that existed under the barter system ?
(d) How does the nature of a good affect its elasticity of demand ?
(e) Mention two agency functions of a Commercial Bank.
Answer 2.
Simple Division of Labour
When a person specialises in the
production of a particular commodity
or service, it is called simple division
of labour.
Complex Division of Labour
When production of a good or
service involves several processes
and each worker specialises in one or
two processes, it is called complex
division of labour.
(b) Tax levied on the total consumption expenditure of an individual is called an
expenditure tax. It may be proportional or progressive.
Example - The expenditure incurred in a hotel where the room charges are f
3000 or more per day.
(c) In barter system even if two persons who want each other's goods meet by
coincidence, the problem arises as to the proportion in which the two goods
should be exchanged. There being no common measure of value, the rate of
exchange will be arbitrarily fixed. Money solve this problem.
(d) Elasticity of demand for necessities of life such as food grains, medicines,
text books, edible oil etc. is very low in comparison to luxury goods where
price elasticity is very high. The consumers will buy almost the same
quantity of a necessary commodity per unit of time whether its price is some
what higher or lower. Whereas, when the price of luxury goods rise, some
people may avoid purchasing them.
(e) Agency functions of a commercial banks are :
(i) Banks collect or make payments on behalf of their customers such as
insurance premium, pensions, interests etc.
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(ii) Banks undertake purchase and sale of various securities like shares,
stock, bonds etc. on behalf of their customers.
Question 3.
(a) Mention two causes of low efficiency of labour in India.
(b) Mention any two forms of consumer exploitation.
(c) Define Public debt.
(d) Indirect taxes are regressive in nature. How can they be made progressive ? [2]
(e) Distinguish between demand deposits and fixed deposits.
Answer 3.
(a) Two causes of low efficiency of labour in India are :
(i) Hot climate : India is a sub-tropical country and its climate is hot. This
the most important natural cause of low efficiency of labour in India.
(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
.they are unable to keep themselves physically and mentally fit.
(b) Two forms of Consumer exploitation are :
(i) Under weight and under measurement: The goods being sold in the
market are sometimes not measured or weighed correctly.
(ii) Sub-standard quality : The goods sold are sometimes of sub-standard
quality. Selling of medicine beyond their expiry dates and supply of
defective home appliances are the regular grievances of consumers.
(c) Public debt refers to the loans raised by a government within or outside the
country. The government has to pay interest and repay the principal amount
to the public.
(d) Indirect taxes or taxes on necessaries are regressive in nature because they
take away a larger proportion of lower income as compared to higher income.
Therefore, regressive taxes are unjust in nature.
They can be made progressive by reducing the rate of indirect taxes on
necessary items like food, clothes shelter etc.
Demand deposits
Fixed deposits
1. The rate of interest is nil on
These deposits get the highest
demand deposits.
rate of interest.
2. The demand deposit account They do not get such facility.
holder gets the facility of
Question 4.
(a) Indicate the degree of elasticity of a supply curve parallel to the x-axis.
(b) Distinguish between Creeping inflation and Running inflation.
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(c) How does money act as a standard of deferred payment ?
(d) Briefly explain the importance of public expenditure in the industrial
development of developing countries.
(e) Distinguish between Statutory Liquidity Ratio and Cash Reserve Ratio.
Answer 4.
(a) If there is an infinite change in quantity supplied in
response to a small change in price, the supply of that
commodity is said to be perfectly elastic (i.e., Cs =
 ).
Creeping Inflation
Running Inflation
When the rise in prices is very slow When a price level rises at a faster
like of a snail or creeper, it is called rate and is generally around 10 per
creeping inflation. It occurs when the cent per annum, it is called running
price level increases at a mild rate, inflation. Running inflation is a
say around 2 to 3 per cent per year.
warning signal indicating the need
for controlling it.
(c) Money acts as a standard of deferred payment. It means payment to be made
in future can be expressed in terms of money. Money is accepted as a
standard of deferred payment because it has a general acceptability and it can
be expressed in definite and standardised units.
(d) Public expenditure on the establishment of heavy and basic goods industries
in the developing countries increases the growth rate of the economy. By
constructing the infrastructure of the economy, the economic development of
the economy can be accelerated.
Statutory Liquidity Ratio
Cash Reserve Ratio
1. It can be in the form of cash,
It can only be in the form of cash.
precious metals or securities.
2. It controls the credit growth in the
It controls the liquidity in the
SECTION—B (40 Marks)
(Attempt any four questions from this Section)
Question 5.
(a) What is meant by increase in demand ? Discuss any four factors affecting
price elasticity of demand.
(b) Define land. Explain the importance of land as a factor of production.
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Answer 5.
(a) Increase in demand refers to a situation when there is more demand at the
same price of the commodity.
Factors affecting price elasticity of demand are :
(i) Nature of commodity : Luxury or comfort goods are more elastic than
necessity goods, for example demand for wheat, rice, sugar will remain
practically the same with price changes, whereas demand for cars,
fridge and ACs is more responsive to price changes.
(ii) Availability of substitutes : Commodities for which other substitutes are
available in the market have more elastic demand or compared to
commodities without proper substitutes.
(iii) Time period : Longer the time period, greater is the elasticity of demand
and vice-versa. This is because in the long run, consumers can adjust
their consumption habits in favour of cheaper substitutes, which may
become available over time.
(iv) Durability of goods : Demand for most durable goods are elastic but that
for most non-durable goods are relatively inelastic.
(b) The term "Land" generally refers to the surface of land. But in economics, it
includes all the free gifts of nature called natural resources for example
mineral resources, mountains, rivers, lakes, forests, wind, climate sunshine,
rainfall etc. Land is an important factor of production in spite of the factor
that land is a passive factor of production. Importance of land becomes
evident from the following facts :
(i) Promoting agricultural development : The agricultural development of a
country largely depends upon the quantity and quality of land.
Availability of fertile soil with abundant supply of water for irrigation
purposes provides favourable conditions for agricultural development.
(ii) Promoting industrial development : Mineral resources like iron ore,
aluminium, copper, uranium etc. provide the basic raw material for the
development of industries. It also provides site for the construction of
factory buildings and industries.
(iii) Generations of electricity : Rich resources of coal, petroleum, water,
wind are an important source for the generation of electricity. These
natural resources are the source of both hydel and thermal electricity.
(iv) Source of transport : All the important modes of transport i.e. roadways,
railways, waterways and airways are based on the surface of land,
rivers, oceans and air, which are all constituents of land.
Question 6.
(a) Define supply. State the law of supply and explain it with the help of a
(b) Define a consumer. Explain the importance of educating consumers of their
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Answer 6.
(a) Supply of a commodity refers to the quantity of that commodity which a
seller is willing to offer for sale at a particular price over a given period of
Law of supply expresses the functional relationship between price of the
commodity and the quantity of the commodity supplied. It states that - 'Other
things remaining the same (CETERIS PARIBUS), if the price of the
commodity falls the quantity supplied of it also falls and if price rises,
quantity supplied of it also rises.'
Thus, there is a positive relationship between price
of a commodity and its quantity supplied. Law of
supply indicates only the 'direction' of change and
not the 'magnitude' of change in supply, in response
to change in price.
Price of rice
Quantity supplied
(` per kg.)
(b) An individual who buys products or services for personal use and not for
manufacturer or resale is called a consumer.
Consumer education is a right. It is infact, one of the eight basic rights
consumers have recognised internationally. Consumers need to be aware that
they have rights when they buy a product or service. Consumer education
should begin at an early age and cover all life stages. It should be
incorporated in school curriculums and in educational programmes for
lifelong learning.
(i) If the consumer is educated and knows his rights, it will not be possible
for the business to exploit him.
(ii) The businesses will be forced to provide good service and goods to the
consumer benefitting society as a whole.
(iii) It provides feedback for the business to constantly improve upon its
products to give maximum satisfaction to the consumers.
Question 7.
(a) Name the institution that enjoys the monopoly of note issue in India. Briefly
explain two qualitative methods of credit control adopted by this institution. [5]
(b) Define labour. Explain four important characteristic features of labour.
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Answer 7.
(a) Reserve Bank of India enjoys the monopoly of note issue in India.
The instruments used under the qualitative methods of credit control are :
(i) Margin requirements : Margin requirements refers to the difference
between the amount of loan and the market value of the security offered
by the borrower. By changing the margin requirement, the Central bank
can affect the amount of loans. High margin requirements discourage
speculative activities and vice-versa.
(ii) Moral suasion : It is the method of persuation, request, informal
suggestion and advice to the commercial banks by the Central bank.
Central bank convenes the meeting of the heads of the commercial
banks and explains to them the need for adoption of a particular
monetary policy and appeals to them to follow this policy.
(b) Labour refers to the human effort, both physical and mental, with a view to
earn income. Characteristics of labour as a factor of production are as
(i) Labour is Perishable : If a worker does not work on a particular day, his
labour for that day is wasted, labour is, thus, perishable. Labour cannot
be stored.
The labourer has to sell his labour immediately irrespective of the prices
(i.e., wages) paid to him.
(ii) Labour is an Active Factor of Production : Land and Capital are passive
factors, but labour is an active factor of production. Without labour,
other factors of production viz., land and capital cannot produce
(iii) Labour sells his labour, not himself : The labourer does not sell himself,
he sells his labour only. A labourer may or may not agree to do work.
He remains quite independent while doing his task.
(iv) Labour in Mobile : Labour alone is a factor which is mobile. It can
move from one place to another and also from one occupation to
another. Other factors of production such as land lacks mobility.
Question 8.
(a) What is meant by food adulteration ? Give an example. Mention two harmful
effects of food adulteration. Name any one measure formulated to prevent the
problem of food adulteration in India.
Explain two methods adopted by Commercial Banks to advance loans to the
general public.
Answer 8.
(a) The adulteration of food means the addition of something that isn't food into
a food product, in order to be able to get more product to sell at less cost.
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Example : Addition of melamine into milk addition of vanaspati into Ghee,
Honey is adulterated with other sugar, brick powder is chilly powder.
Harmful effects of food adulteration are :
(i) Food adulteration reduces the quality of the food and this weakens the
health of the one who consumes them, thereby increasing the cost of
(ii) It can also cause heart diseases, loss of eye-sight or tumour.
Measure to prevent the problem of food adulteration in India :
"Prevention of Food Adulteration Act, 1954 was drafted for this purpose
by Ministry of Health and Family Welfare in India".
(b) Lending is the second primary function of the commercial banks. There are
various ways by which banks advancing loans to the general public. Bank
charges interest from the borrowers.
(i) Cash credit: The entire sanctioned amount of loan by the bank is not
given to the borrowers at a particular time. The borrower is allowed to
withdraw the sanctioned amount as and when he requires money.
Interest is charged only on the actual amount withdrawn from the bank.
(ii) Overdraft: The customer is allowed to overdraw his current account
balance. The customer can draw cheques in excess of the balance
standing in his deposit to the extent of the overdraft amount. The bank
charges interest only on the amount overdrawn. For a businessman, the
overdraft facility is the easiest and the most convenient method of
borrowing from banks.
Question 9.
(a) Why is the income of an entrepreneur residual in nature ? Discuss any three
functions of an entrepreneur.
(b) Distinguish between :
(i) Voluntary debt and Compulsory debt.
(ii) Regressive tax and Degressive tax.
Answer 9.
(a) There are four factors of production, land, labour, capital and enterprise.
Factors of production namely land, labour, capital are separately owned and
are available at different places. Thus, there should be somebody who can
bring these factors of production together at work place, combine them in
right proportions and make them together for production.
The entrepreneur undertakes the responsibility to distribute proper
remuneration to each factor of production, i.e., rent to landlord wages to
labourers and interest to capitalist and rest of the income is the reward of an
organises which is called 'profit'.
Three function of an entrepreneur are as follows :
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Risk - Bearing function : It is the most important and specific function
of an entrepreneur. Every business involves risk. There is no other
factor of production except the entrepreneur, who bears risk of the
business. The risk is caused by uncertainties attached to production,
investment and profits. Another big risk is of technological
obsolescence and frequent changes in government policies. The
entrepreneur has to calculate all these risks and then plan the
organisation of various factors of production in different proportions.
(ii) Decision-making function : All the vital decisions of business are taken
by the entrepreneur. He conceives the idea of a particular business after
making an intensive study of the market conditions, business projects
and economic viability. He takes all the vital decisions with regard to
'what to produce', 'now much to produce' how to produce and in what
proportion to combine the factors of production.
(iii) Co-ordination and administration : An entrepreneur not only brings
together different factors of production but establishes and co-ordinates
an effective functional relationship among them. He frames the overall
policies and keeps a vigil eye and control on business.
(b) (i)
Voluntary Debt
Compulsory Debt
Voluntary debt is a debt which is
Compulsory debts are those loans
taken from the people by the
which are forcibly taken from the
government on a voluntary basis.
people by the government. When
In case of voluntary loans, people the government exercises its power
voluntarily and willingly subscribe or pressure for getting loans, such
to the government loans.
loans are known as compulsory
Regressive Tax
It implies that the rate of tax
decreases with the increase in
It is levied at a higher rate on
the individuals having low
income and the rate of tax is
lower for the individuals with
high income.
Degressive Tax
It implies the rate of tax begins to
increase simultaneously with the
increase in income.
After reaching a specific limit, the
tax-rate becomes proportional or
Question 10.
(a) Define a tax. Explain briefly two merits and two demerits of direct taxes. [5]
(b) What is inflation ? Discuss the effects of inflation on :
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(i) Fixed income groups.
(ii) Producers.
Answer 10.
(a) Tax is a compulsory contribution from a person to the government to defray
the expenses incurred in the common interest of all without reference to
special benefit conferred.
Advantages of direct taxes :
(i) Equitable : A direct tax is an equitable tax as it is levied according to the
tax paying capacity of the people. Under progressive taxation system,
tax rate increase as the income increases.
(ii) Economical : Direct taxes are economical in the sense that cost of
collecting them is low. They are usually collected 'at the source' .
Disadvantages of direct taxes :
(i) Inconvenience : Direct taxes cause inconvenience to the tax payers
mainly businessmen because of the need to maintain elaborate accounts
and to observe various formalities.
(ii) Tax evasion : By submitting false return of income or by concealing the
income, some people evade tax.
(b) Inflation is defined as a process of persistent and appreciable increase in the
overall price level.
The effects of inflation :
(i) On fixed income groups : Fixed income earners such as pensioners lose
during inflation. First, in many cases, pension is fixed so that the money
income of the pensioner remains same during inflation. Even when
pensions are revised periodically, increase in pension does not keep
pace with the rising prices, Second, pensioners keep their savings in the
form of bank and postal deposits which give them a fixed income in the
form of interest.
(ii) On producers : During inflation, they gain in the short period. Usually,
the cost of production does not rise as fast as the price of their product
and so there is artificial margin of profit. However, they may be affected
adversely in the long run. If the price level goes on increasing, the total
consumption of their product would fall. The reduced consumption will
ultimately raise the per unit production cost and reduce the profits.
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