HSC Economics Question Paper 2023 with Solution | Maharashtra Board (Download Free Pdf)
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HSC Economics Question Paper 2023
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| Chapter Name | Solution Link |
| 1) Introduction to Micro and Macro Economics | Click Here |
| 2) Utility Analysis | Click Here |
| 3A) Demand Analysis | Click Here |
| 3B) Elasticity of Demand | Click Here |
| 4) Supply Analysis | Click Here |
| 5) Forms of Market | Click Here |
| 6) Index Numbers | Click Here |
| 7) National Income | Click Here |
| 8) Public Finance in India | Click Here |
| 9) Money Market and Capital Market in India | Click Here |
| 10) Foreign Trade of India | Click Here |
HSC Economics Question Paper 2023
Q. 1. (A) Complete the following sentences : (5) {20}
(i) Micro Economics is also called as ______.
(a) Income theory
(b) Price theory
(c) Growth theory
(d) Employment theory
(ii) Money market faces shortage of funds due to ________.
(a) Inadequate savings
(b) Growing demand for cash
(c) Unorganized sector
(d) Financial mismanagement
(iii) Marginal utility of the commodity becomes negative when Total Utility of a commodity is ________.
(a) rising
(b) constant
(c) falling
(d) zero
(iv) Public expenditure of any government shows _______.
(a) constant trend
(b) increasing trend
(c) decreasing trend
(d) fluctuating demand
(v) The relationship between income and demand for inferior goods is ________.
a) Direct
b) inverse
c) no effect
d) can be direct and inverse
(B) Find the odd word out: (5)
(i) Revenue concepts:
Total Revenue, Average Revenue, Total Cost, Marginal Revenue
(ii) Quantitative Tools of credit control:
Bank rate, Open market operations, Foreign Exchange rate, Variable reserve ratio
(iii) Scope of Micro Economics:
Theory of product pricing, Theory of factor pricing, Theory of Economic growth and Development, Theory of Economic Welfare.
(iv) Non-tax revenue:
Fees, Penalty, Wealth, Special levy
(v) Types of Simple Index Numbers:
Laspeyre’s Price Index Number, Price Index Number, Quantity Index Number, Value Index Number.
(C) Give economic term: (5)
(i) The volume of commodities and services turned out during a given period counted without duplication.
Answer: National Income
(ii) A desire which is backed by willingness to purchase and ability to pay.
Answer: Demand
(iii) Degree of responsiveness of a change of quantity demanded of a good to a change in its price.
Answer: Price elasticity of demand
(iv) Very realistic competition in nature.
Answer: Monopolistic Competition
(v) Swati purchased a raincoat for her father in rainy season.
Answer: Time Utility
(D) Assertions and reasoning questions : (5)
(i) Assertion (A): In perfect competition, price is determined by the forces of demand and supply.
Reasoning (R): The number of buyers and sellers is so large that one person can not influence prices.
Options :
a) (A) is true but (R) is false.
b) (A) is false but (R) is true.
c) Both (A) and (R) are true and (R) is the correct explanation of (A).
d) Both (A) and (R) are true and (R) is not the correct explanation of (A).
(ii) Assertion (A): A change in quantity demanded of one commodity due to a change in the price of other
commodity is cross elasticity.
Reasoning (R): Changes in consumers’ income leads to a change in the quantity demanded.
a) (A) is true but (R) is false.
b) (A) is false but (R) is true.
c) Both (A) and (R) are true and (R) is the correct explanation of (A).
d) Both (A) and (R) are true and (R) is not the correct explanation of (A).
(iii) Assertion (A): Production for self consumption is not accounted for in the national income.
Reasoning (R): The products kept for self consumption do not enter the market.
Options:
a) (A) is true but (R) is false.
b) (A) is false but (R) is true.
c) Both (A) and (R) are true and (R) is the correct explanation of (A).
d) Both (A) and (R) are true and (R) is not the correct explanation of (A).
(iv) Assertion (A): Foreign exchange management and control is undertaken by commercial banks.
Reasoning (R): RBI has to maintain the official rate of exchange of rupee and ensure its stability.
Options:
a) (A) is true but (R) is false.
b) (A) is false but (R) is true.
c) Both (A) and (R) are true and (R) is the correct explanation of (A).
d) Both (A) and (R) are true and (R) is not the correct explanation of (A).
(v) Assertion (A): Supply is a relative term.
Reasoning (R): Supply is always expressed in relation to price, time, and quantity.
Options :
a) (A) is true but (R) is false.
b) (A) is false but (R) is true.
c) Both (A) and (R) are true and (R) is the correct explanation of (A).
d) Both (A) and (R) are true and (R) is not the correct explanation of (A).
Q. 2. (A) Identify and explain the following concepts : (Any 3) (6) [12]
(i) A table seller sold the table for Rs 2,000 per piece. In this way, he sold 15 tables and earned Rs 30,000.
Identified Concept: Total Revenue
Explanation: Total Revenue is the total sales proceeds of a firm by selling a commodity at a given price. It is the total income of a firm.
Total revenue is calculated as follows:
Total Revenue = Price x Quantity
= 2000 x 15
= Rs 30,000
(ii) England imported cotton from India, made readymade garments from it, and sold them to Malaysia.
Identified Concept: Entrepot trade
Explanation: The process of importing goods from one country and exporting them to another country is called entrepot trade.
(iii) Ashok paid the tax on his income and property.
Identified Concept: Direct Tax
Explanation: It is paid by the taxpayer on his income and property. The burden of tax is borne by the person on whom it is levied.
(iv) Raju’s father invests his money in a market for long-term funds both equity and debt raised within and outside the country.
Identified Concept: Capital Market
Explanation: A capital market is a market for long-term funds both equity and debt raised within and outside the country.
(v) A poor person wants to buy a car.
Identified Concept: Desire
Explanation: Desire means an urge to have something. Desire has no relation to price, place, and time.
Q. 2. (B) Distinguish between (Any 3) (6)
(i) Unitary elastic demand and Relatively elastic demand
| Unitary elastic demand | Relatively elastic demand |
| When a percentage change in price leads to a proportionate change in the quantity demanded, then demand is said to be Unitary elastic. | When a percentage change in price leads to more than proportionate change in quantity demanded, the demand is said to be relatively elastic. |
| The numerical value of the elasticity of demand is equal to one. | The numerical value of the elasticity of demand is greater than one. |
(ii) Output method of measuring national income and, Income method of measuring national income.
| Output method of measuring national income | Income method of measuring national income |
| This method of measuring national income is also known as the product method or inventory method. | The income method is also known as the factor cost method. |
| According to the product method, the total value of all final goods and services produced during a year is calculated at market price or by adding up all values at each higher stage of production, until these products are turned into final products. | By this method, we measure the national income from the side of payments made in the form of rent, wages, interest, and profit for providing the factor services in the economy during an accounting year |
| The output method is widely used in the underdeveloped countries. | The Income Method is used in developed countries like USA and UK for estimating National Income. |
(iii) Demand deposit and Time deposit
| Demand deposit | Time deposit |
| Deposits that are withdrawable on demand are known as demand deposits. | Deposits that are repayable after a certain period of time are known as time deposits. |
| Saving accounts and Current accounts are the types of demand deposits. | Recurring deposits and Fixed deposits are the types of time deposits. |
(iv) Simple Index Number and Weighted Index Number
| Simple Index Number | Weighted Index Number |
| In this method, every commodity is given equal importance. | In this method, suitable weights are assigned to various commodities. It gives relative importance to the commodity in the group. |
| It is the easiest method of constructing index numbers. | It is a comparatively complex method of constructing index numbers. |
| This method can be applied to determine 1) Price Index Number 2) Quantity Index Number 3) Value Index Number | There are various methods of constructing weighted index numbers such as Laaspeyre’s Price Index, Paasche’s Price Index etc. |
(v) Stock and Supply.
| Stock | Supply |
| Stock is the total quantity of commodities available for sale with a seller at a particular point of time. | The word ‘supply’ implies the various quantities of a commodity offered for sale by producers during a given period of time at a given price. |
| Normally, stock exceeds supply but in the case of perishable goods stock may be equal to supply. | Supply and stock can be same, but supply cannot exceed stock. |
Q. 3. Answer the following : (Any 3) (12)
(i) Explain any four points of importance of Microeconomics.
Answer:
Maurice Dobb – “Microeconomics is in fact a microscopic study of the economy.”
Importance of Microeconomics:
a) Price Determination:
Microeconomics explains how the prices of different products and various factors of production are determined.
b) Free Market Economy:
Microeconomics helps in understanding the workings of a free market economy. A free-market economy is an economy where the economic decisions regarding the production of goods, such as ‘What to produce?, How much to produce? How to produce? etc.’ are taken at individual levels. There is no intervention by the Government or any other agency.
c) Foreign Trade:
Microeconomics helps in explaining various aspects of foreign trade like the effects of a tariff on a particular commodity, determination of currency exchange rates of any two countries, gains from international trade to a particular country, etc.
d) Economic Model Building:
Microeconomics helps in understanding various complex economic situations with the help of economic models. It has made a valuable contribution to economics by developing various terms, concepts, terminologies, tools of economic analysis, etc. Economic models are built using various economic variables.
(ii) Explain the Ratio or percentage method of measuring price elasticity of demand.
1) Ratio or Percentage method:
The ratio method was developed by Prof. Marshall. According to this method, the elasticity of demand is measured by dividing the percentage change in demand by the percentage change in price. The percentage method is also known as the Arithmetic method. Price elasticity is measured as :
Ed = Percentage change in Quantity demanded / Percentage change in Price
Symbolically:
Ed=△Q/Q ÷△P/P
=△Q/Q × P/△P
△Q = Difference between the new quantity and original quantity demanded.
△P = Difference between the new price and original price
Q = Original quantity demanded
P = Original price
Numerical example:
| Price (Rs) | Qty. Demanded (in Kg) | Formula |
| 20 | 10 | Ed=△Q/Q × P/△P |
| 25 | 09 |
Original Price, P = 20, New price P = 25
△P = 5 (Difference between new and original price)
Original Quantity Demanded, Q = 10, New demand = 9
△Q = 1 (Difference between new and original quantity demanded)
Ed = △Q/Q × P/△P
Ed = 1/10 × 20/5
Ed = 0.4
Ed < 1
It means the elasticity of demand is relatively inelastic.
iii) Explain any four features of national income.
Answer: The total income of the nation is called national income.
The following are the features of National Income:
1) Macro Economic concept:
National income represents the income of the economy as a whole rather than that of an individual. Hence it is a macroeconomic concept.
2) Value of only final goods and services:
In order to avoid double-counting in national income, the value of only final goods and services produced in the economy is considered. The value of intermediate goods or raw materials is not considered. For example, while estimating the production of shirts, there is no need to take the value of cotton, as it is already included in the price of the shirts.
3) Net aggregate value:
National income includes the net value of goods and services produced and does not include depreciation cost. (i.e. wear and tear of capital assets)
4) Net income from abroad:
National income includes net income from abroad i.e. difference between export value and import value (X-M) and net difference between receipts from abroad and payments made abroad (R-P).
5) Financial year:
National income is always expressed with reference to a time period. In India, it is from 1st April to 31st March.
(iv) Explain any four problems faced by the money market in India.
Answer: Compared to advanced countries, the Indian money market is less developed in terms of volume and liquidity. The following points explain the problems of the Indian Money Market :
1) Dual Structure of the Money Market:
The presence of both, the organized and unorganized sectors in the money market leads to disintegration, lack of transparency, and increased volatility. The unorganized markets lack coordination and do not come under the direct control and supervision of the RBI.
2) Lack of uniformity in the rates of interest:
The money market comprises various entities such as commercial banks, cooperative banks, non-bank finance companies, development finance institutions, investment companies, etc. The category of borrowers is also different.
3) Shortage of funds:
The money market faces a shortage of funds due to inadequate savings. Low per capita income, poor banking habits among the people, indulgence in wasteful consumption, inadequate banking facilities in the rural areas, etc. have also been responsible for the paucity of funds in the money market.
4) Seasonal fluctuations:
Demand for funds varies as per the seasons. During the peak season, from October to June, finance is required on a large scale for various purposes such as trading in agricultural produce, investment in business activities, etc. This results in wide fluctuations in the money market.
5) Lack of financial inclusion:
Banking facilities in the country are still inadequate and inaccessible to vulnerable groups such as the weaker sections and the low-income groups. This shows a lack of financial inclusion.
(v) Explain any four exceptions of the law of Diminishing marginal utility.
Answer:
The Law of DMU: This law was first proposed by Prof. Gossen but was discussed in detail by
Prof. Alfred Marshall in his book ‘Principles of Economics’ published in 1890.
Statement of the Law :
According to Prof. Alfred Marshall, “Other things remaining constant, the additional benefit which a person derives from a given increase in his stock of a thing, diminishes with every increase in the stock that he already has.” In short, the more of a thing you have, the less you want to have more of it.
Exceptions to the Law of Diminishing Marginal Utility :
Following are the exceptions to the law of diminishing marginal utility :
1) Hobbies:
In certain hobbies like collections of various stamps and coins, rare paintings, music, reading, etc., the law does not hold true because every additional increase in the stock gives more pleasure. This increases
marginal utility. However, this violates the assumption of homogeneity and continuity.
2) Miser:
In the case of a miser, every additional rupee gives him more and more satisfaction. The marginal utility of money tends to increase with an increase in the stock of money. However, this situation ignores the assumption of rationality.
3) Addictions:
It is observed in the case of a drunkard that the level of intoxication increases with every additional unit of liquor consumed. So MU received by drunkards may increase. Actually, it is only an illusion. This condition is similar to almost all addictions. However, this violates the assumption of rationality.
4) Power:
This is an exception to the law because when a person acquires power, his lust for power increases. He desires to have more and more of it. However, this again violates the rationality assumption.
5) Money:
It is said that the MU of money never becomes zero. It increases when the stock of money increases. This is because money is a medium of exchange that is used to satisfy various wants. However, according to some economists, this law is applicable to money too. For example, the marginal utility of money is more to a poor person than to a rich person.
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Q. 4. State with reasons whether you agree or disagree with the following statements (Any 3) (12)
(i) There are no exceptions to the law of supply.
Answer: Disagree
Reason: There are following exception to law of supply.
(i) Labour supply: In case of labour, as the wage rate rises, the supply of labour (number of hours of work) would rise. So the supply curve slopes upwards but the supply of labour decreases with a further rise in the wage rate, this is because the worker would prefer leisure to work after receiving higher amount of wages. Thus, after a certain point when wage rate rises the labour supply tends to fall.
(ii) Saving: Normally, when the rate of interest rises, saving increases. But some people want to have fixed regular income by way of interest. They may save less at a higher rate of interest and savings tend to rise as the rate of interest falls.
(iii) Need for cash: If a seller is in urgent need of cash, he will supply a large amount of a commodity even at lower price.
(iv) Agricultural goods: The law of supply does not apply to agricultural goods as they are produced once a year and their production depends on climatic conditions. Due to unforeseen changes in weather, if the agriculture production is low, then this supply can’t be increased even at a higher price.
(ii) Balance of Trade and Balance of Payment are two different concepts.
Answer: Agree
Reason:
a) Balance of trade is a financial statement that captures the nation’s import and export of commodities with the rest of the world.
b) On the other hand, Balance of payment is a financial statement that keeps track of all the economic transactions by the nation with the rest of the world.
c) Balance of payment is a broader concept than balance of trade.
d) Balance of payments includes the value of exchange of goods and services among citizens, businessmen, firms, government, etc.
e) Balance of trade includes the value of imports and exports of visible goods and invisible goods.
f) Therefore, balance of payment and balance of trade are two different concepts.
(iii) Index numbers are very significant/important in economics.
Answer: Agree
Reason:
Index numbers are significant tools of economic analysis in the following ways.
1) Framing suitable policies:
Index numbers provide guidelines to policymakers in framing suitable economic policies such as agricultural policy, industrial policy, fixation of wages and dearness allowances in accordance with the cost of living etc.
2) Studies trends and tendencies:
Index numbers are widely used to measure changes in economic variables such as production, prices, exports, imports, etc. over a period of time.
3) Forecasting about future economic activity :
Index numbers are useful for making predictions for the future based on the analysis of past and present trends in economic activities. For example, based on the available data pertaining to imports and exports, future predictions can be made.
4) Measurement of inflation:
Index numbers are also used to measure changes in the price level from time to time. It enables the government to undertake appropriate anti-inflationary measures.
(iv) There are no theoretical difficulties in the measurement of National Income.
Answer: Disagree
Reason:
The various theoretical difficulties involved in the estimation of national income are as follows:
a) Transfer payments:
Individuals get pensions, unemployment allowances, etc. but whether these transfer payments should be included in national income or not, is a major problem.
b) Illegal income:
Illegal incomes like income from gambling, black marketing, theft, smuggling, etc. are not included in national income.
c) Production for self-consumption:
The products kept for self-consumption by the farmers and other allied producers do not enter the market. Hence, it is not accounted for in the National Income.
d) Income of foreign firms:
According to IMF, the income of a foreign firm should be included in the national income of the country, where the firm actually undertakes the production work.
Hence, there are many theoretical difficulties in the measurement of national income.
(v) Macroeconomics is different from Microeconomics.
Answer: Agree
Reason: a) Macroeconomics is the study of the entire economy. On the other hand, microeconomics is a study of a particular segment of an economy.
b) Macroeconomics studies aggregate demand, aggregate supply, national income, employment, etc. While microeconomics studies individual units such as individual demand, individual supply, and Price determination of product.
c) Macroeconomics follows general equilibrium analysis. While microeconomics follows partial equilibrium analysis.
d) Macroeconomics uses a lumping method. On the other hand, microeconomics uses the slicing method.
Therefore, Macroeconomics is different from microeconomics.
Q. 5. Study the following table, figure, passage and answer the questions given below it (Any 2): (8)
(i) Observe the following table and answer the questions given below it:
| Unit of commodity | Total Utility (TU) units | Marginal utility (MU) units |
| 1 | 6 | ? |
| 2 | ? | 5 |
| 3 | 15 | 4 |
| 4 | 15 | ? |
| 5 | ? | -1 |
Questions:
(1) Complete the above table. (2)
Answer:
| Unit of commodity | Total Utility (TU) units | Marginal utility (MU) units |
| 1 | 6 | 6 |
| 2 | 11 | 5 |
| 3 | 15 | 4 |
| 4 | 15 | 0 |
| 5 | 14 | -1 |
(2) (a) When total utility is Maximum, the marginal utility is – __________. (1)
Answer: Zero
(b) When total utility falls, the marginal utility becomes – ________. (1)
Answer: Negative
(ii) In the following diagram AE is the linear demand curve of a commodity. On the basis of the given diagram state whether the following statements are True or False :
Question:
(1) Demand at point ‘C’ is relatively elastic demand. (1)
(2) Demand at point ‘B’ is unitary elastic demand. (1)
(3) Demand at point ‘D’ is perfectly inelastic demand. (1)
(4) Demand at point ‘A’ is perfectly elastic demand. (1)
Answer:
(1) False, it is a relatively inelastic demand.
(2) False, it is a relatively elastic demand.
(3) False, it is a unitary elastic demand.
(4) True, it is a perfectly elastic demand.
(iii) Read the given passage and answer the questions:
Index Number is a technique of measuring changes in a variable or group of related variables with reference
to time, geographical location, and other characteristics.
Index Number is very useful for economists, farmers, traders, government, educationalists and trade
union leaders for planning and implementing the plans according to their sector.
The scope of index number is not limited to only one subject but it extends to many subjects such as Economics, Educational Science, Psychology, History, Sociology, Geography, etc.
While framing index number its objective must be determined. To attain the objective the information is collected in various ways and this information is used for comparing two different time periods. For this purpose, the base year’s index is assumed as 100 and accordingly, the value of the current year is calculated.
Laspeyre, Paasche, and Fisher have suggested different methods for constructing index numbers.
(1) Explain the meaning of Index Number. (1)
Answer: Index Number is a technique of measuring changes in a variable or group of related variables with reference to time, geographical location, and other characteristics.
(2) To whom the Index Number is useful? (1)
Answer: Index Number is very useful for economists, farmers, traders, government, educationalists and trade
union leaders for planning and implementing the plans according to their sector.
(2) Express your opinion about the given passage. (2)
Answer: Index numbers are one of the most used statistical tools in economics. An index number is a device to measure change in an economic variable over a period of time. The scope of the index number is not limited to only one subject but it extends to many subjects such as Economics, Educational Science, Psychology, History, Sociology, Geography, etc.
Q. 6. Answer the following questions in detail: (Any 2) (16)
i) State and explain the law of demand with exceptions.
e law of demand was introduced by Prof. Alfred Marshall in his book, ‘Principles of 00 Economics’, which was published in 1890. The law explains the functional relationship between price and quantity demanded.
Statement of the Law: According to Prof. Alfred Marshall, “Other things being equal, higher the price of a commodity, smaller is the quantity demanded and lower the price of a commodity, larger is the quantity demanded.”
In other words, other factors remaining constant, if the price of a commodity rises, demand for it falls and when price of a commodity falls demand for the commodity rises. Thus, there is an inverse relationship between price and quantity demanded. Symbolically, the functional relationship between demand and price is expressed as :
Dx = f (Px)
Where D = Demand for a commodity
x = Commodity
f = Function
Px = Price of a commodity
The law of demand is explained with the help of the following demand schedule and diagram.
Demand schedule:
| Price of commodity ‘x’ (Rs) | Quantity demanded of commodity ‘x’ (in kgs.) |
| 50 | 1 |
| 40 | 2 |
| 30 | 3 |
| 20 | 4 |
| 10 | 5 |
As shown in the above Table when price of commodity ‘x’ is Rs.50, the quantity demanded is 1 kg. When the price falls from Rs 50 to Rs 40, quantity demanded rises from 1kg to 2 kg. Similarly at a price of Rs 30, quantity demanded is 3 kgs and when price falls from Rs.20 to Rs.10, the quantity demanded rises from 4 kg sto 5 kg
Thus, as the price of a commodity falls, quantity demanded rises and when price of a commodity rises, quantity demanded falls. This shows an inverse relationship between price and quantity demanded.
Explanation of the Diagram :
In the above diagram X axis represents the demand for the commodity and Y axis represents the price of commodity x. DD is the demand curve which slopes downward from left to right due to an inverse relationship between price and quantity demanded.
Exceptions to the Law of Demand:
There are certain exceptions to the law of demand. It means that under exceptional circumstances, consumer buys more when the price of commodity rises and buys less when price of commodity falls. In such cases, demand curve slopes upwards from left to right. i.e. the demand curve has a positive slope as shown in fig
Following are the exceptions to the law of Demand:
1) Giffen’s paradox : Inferior goods or low quality goods are those goods whose demand does not rise even if their price falls. At times, demand decreases when the price of such commodities fall.
Sir Robert Giffen observed this behaviour in England in relation to bread. He noted that, when the price of bread declined, people did not buy more because of an increase in their real income or purchasing power. They preferred to buy superior good like meat. This is known as Giffen’s paradox.
2) Prestige goods: Expensive goods like diamond, gold etc. are status symbol. So rich people buy more of it, even when their prices are high.
3) Speculation: The law of demand does not hold true when people expect prices to rise still further. In this case, although the prices have risen today, consumers will demand more in anticipation of further rise in price. For example, prices of oil, sugar etc. tend to rise before Diwali. So people go on purchasing more at a high price as they anticipate that prices may rise during Diwali.
4) Price illusion: Consumers have an illusion that high priced goods are of better quality. Therefore, the demand for such goods tends to increase with a rise in their prices. For example, branded products which are expensive are demanded even at a high price.
5) Ignorance : Sometimes, due to ignorance people buy more of a commodity at high price. This may happen when consumer is ignorant about the price of that commodity at other places.
6) Habitual goods : Due to habit of consumption, certain goods like tea is purchased in required quantities even at a higher price.
(ii) Explain the meaning of Monopoly with its features.
Answer: The term monopoly is derived from the Greek word ‘Mono’ which means single and ‘poly’ which means the seller. Monopoly is a market in which there is only one seller who controls the entire market supply for a product that has no close substitute.
The following are the main features of the monopoly market:
1) Single seller:
In a monopoly, there is no competition as there is only one single producer or seller of the product. But, the number of buyers is large.
2) No close substitute:
There are no close substitutes for the product of the monopolist. Therefore, the buyers have no choice. They have to either buy the product from the monopolist or go without it. The cross elasticity of demand for his product is either zero or negative.
3) Barriers to entry:
Entry of the rivals is restricted due to legal, natural, and technological barriers which do not allow the competitors to enter the market.
4) Complete control over the market supply:
The monopolist has a complete hold over the market. He is the sole producer or seller of the product.
5) Price maker:
A monopolist can fix the price of his own product as he controls the whole market supply. Monopolists is a price maker.
6) Price discrimination:
A monopolist being a price maker, he can charge different prices to different consumers for the same product, on the basis of time, place etc. Thus, price discrimination is an important feature of a monopoly market. For example, students and senior citizens are provided railway tickets at concessional rates.
7) No distinction between firm and industry:
A monopolist is the sole seller and producer of the product. A monopoly firm itself is an industry.
(iii) Explain various reasons for the growth of public expenditure.
Answer: It is observed that there is a continuous growth in public expenditure in a developing country like India.
Following are some of the important reasons :
1) Increase in the Activities of the Government:
The modern government performs many functions such as the spread of education, public health, public works, public recreation, social welfare schemes, etc. It is observed that new functions are continuously being undertaken and old functions are being performed more efficiently on a large scale by the government. This leads to an increase in public expenditure.
2) Rapid Increase in Population:
The population of developing countries like India is increasing fast. In the 2011 Census, it was 121.02 crores. As a result, the government has to incur greater expenditure to fulfil the needs of the increasing population.
3) Growing Urbanization:
The spread of urbanization is a global phenomenon of the day. This leads to an increase in the government expenditure on water supply, roads, energy, schools and colleges, public transport, sanitation, etc.
4) Increasing Defence Expenditure:
In modern times, defence expenditure of the government is increasing even in peacetime due to unstable and hostile international relationships.
5) Spread of Democracy:
The majority of the countries in the world are democratic in nature. A democratic form of government is expensive due to regular elections and other such activities. This results in an increase in the total expenditure of the government.
6) Inflation:
Just like a private individual, the government has to buy goods and services from the market for the spread of economic and social development. Normally, prices show a rising trend. Due to this, the government has to incur increasing costs.
7) Industrial Development:
Industrial development leads to an increase in production, employment, and overall growth in the economy. Hence, the government makes huge efforts to implement various schemes and programs for industrial development. This results in an increase in government expenditure.
8) Disaster Management:
Many natural and man-made calamities like earthquakes, floods, cyclones, social unrest, etc. are occurring more frequently. The government has to spend a huge amount on disaster management which increases total expenditure.
Modern governments are working for the ‘welfare state’. Hence, there is a continuous increase in public expenditure.
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