UPASANA LIONS ENGLISH MEDIUM SCHOOL

Date : 13-03-2025 STD 11 Commerce Economics Total Marks : 96

3 marks PRACTICE TEST

Section D

* Answer The Following Questions To The Point. [96]

1. Give the meaning of price and value.

Ans. :
We often use the words ‘price’ and ‘value’ in our daily life. Most of the
times we use both these words alternatively but to represent the same
meaning.
For example, we make statements like, ‘this jeans is expensive’, ‘this watch
is valuable’, ‘this shoe has a high price’. When these statements are made
they are made without differentiating between price and value. This is so
because generally, a person believes price and value to be the same.
In economics, the concept of price and value are different and so it is
necessary to understand the concept of value.
Value:
The worth of a commodity in terms of other commodities, or in terms of money
i.e. price is called value of that commodity.
Value can be explained from two viewpoints. They are:
1. From viewpoint of use i.e. ‘use-value’
2. From viewpoint of exchange i. e. ‘exchange-value’.
Price:
If a commodity is exchanged for money then such monetary exchange-
value is termed as ‘price’.
Price means the exchange-value (or worth) of a commodity measured in
terms of units of currency.
We often use the words ‘price’ and ‘value’ in our daily life. Most of the
times we use both these words alternatively but to represent the same
meaning.
For example, we make statements like, ‘this jeans is expensive’, ‘this watch
is valuable’, ‘this shoe has a high price’. When these statements are made
they are made without differentiating between price and value. This is so
because generally, a person believes price and value to be the same.
In economics, the concept of price and value are different and so it is
necessary to understand the concept of value.
Value:
The worth of a commodity in terms of other commodities, or in terms of money
i.e. price is called value of that commodity.
Value can be explained from two viewpoints. They are:

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 1. From viewpoint of use i.e. ‘use-value’
2. From viewpoint of exchange i. e. ‘exchange-value’.
Price:
If a commodity is exchanged for money then such monetary exchange-
value is termed as ‘price’.
Price means the exchange-value (or worth) of a commodity measured in
terms of units of currency.
2. Give the meaning of trade cycle and explain the various phases of a trade cycle.
Ans. : Trade cycle:
According to Heberler, Trade Cycle is an interval that embraces alternating
periods of prosperity (good time) and depression (bad time).’
According to Hawtrey, Trade cycles are continuous phases of good and bad
changes occurring in the economy.’
Phases of a trade cycle:
Boom, Recession, Depression and Recovery are the four phases of trade
cycle.
Trade cycles take place in all economies and all economic activities in the
long run. However, in market oriented economies, these occur more
openly while in state controlled economies the state suppress these cycles.
Characteristics of a trade cycle:
They show dynamic changes in the economy.
They show positive and negative changes taking place in the economy.
These arise because of several factors.
Trade cycles have various phases and they do not last for a uniform period.
3. Give the meaning of factors of production with examples.
Ans. : Land:
According to Marshall, all natural assets which help in production or in economic
activities constitute land. As per this definition, climate, water resources, fertility,
mineral resources, etc. all these natural assets help in production and hence
constitute land.
Characteristics of land:
Land is not manmade. It is a gift of nature.
The total supply of land is fixed.
Land is immobile.
Each type of land has different fertility, experiences different climatic
conditions, etc.
The remuneration of land as a factor of production is called ‘rent’.
4. Give the types of wealth and explain the difference between national wealth and
international wealth with examples.

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 Ans. : Wealth can be classified into two types. They are:
1. Individual wealth and Social wealth:
Wealth owned by an individual and meant for private consumption is called
individual wealth. For example, a house.
Wealth owned by society and meant for collective consumption is called
societal (or social) wealth. For example, a check-dam.
2. National wealth and international wealth:
Wealth belonging to a nation and possessed and treasured by a nation is
called national wealth.
It directly or indirectly helps to generate exchange value for the nation.
For example, rivers, mountains, literature and scriptures, etc. are national
wealth.
Wealth belonging to the earth that can be treasured by all nations and
which can bo developed for benefit of all is called international wealth.
For example, oceans are such a common wealth which are used as
international waterway and benefit all the nations.
5. Give the types of goods and explain the difference between consumer goods
and producers’ goods with examples.
Ans. : The various types of goods are:
6. Physical (Tangible) goods and Intangible goods
7. Economic goods and non-economic goods
8. Durable goods and Perishable goods
9. Private goods and Public goods
10. Consumers’ goods and Producers’ goods
Consumers’ goods Producers’ goods
1. When a good is used at the
intermediate stage of
production of a final good or
1. When a consumer consumes
when it is purchased by a
a good and the good is
producer to produce a final
capable of directly satisfying a
good and it is not directly
particular want then ilis called
consumed by the consumers but
a consumer good.
the good helps in the production
of a final good then such a good
is called a producer’s good.
2. Cotton used to make cloth,
2. Cooked food which s ready machines used in factories to
tor consumption is an example produce garments, etc. are used
of consumers’ goods. further for producing goods and
hence are producers’ goods.
6. Explain increase-decrease of supply along with diagram.

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Ans. : Increase-decrease in supply:
Assuming price as constant if the supply increase/decrease due -to some other
factors, it is known as increase/ decrease in [Link] shift:
Keeping price facto, constant, if supply increases due to any other factor,
the supply curve will shift towards right which is called rightward shift in
supply curve.
The factors responsible for rightward shift could be fall in cost of
production, fall in prices of factors of production, improvement in
technology, rise in number of suppliers, government policies, etc.
Leftward shift:
Keeping price factor as constant, if supply decreases due to any other
factor, the supply curve will shift towards left which is called leftward shift
in supply curve.
Leftward shift takes place when one or more above mentioned factors
behaves in a reversed manner.
Let us take an example to understand the increase and decrease in supply:
The schedule (table) given below contains data of price of a commodity
and its various supply at that constant price.
Note that price ₹ 20 is constant. A supply curve is plotted for the given
data.
Price of apples (in ₹) Supply of apples (in kg)
20 100
20 200
20 300
20 400
20 500

Increase and decrease of supply

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 In the diagram, price is represented on the ‘Y-axis and supply on the ‘X-
axis.
Initial supply curve is represented by S1S1. Here, at price of ₹ 20 the supply
of apples is 300 kg. This is plotted as point ‘a’ on the supply curve S1S1.
Increase in supply:
When price remains constant at ₹ 20 but one or some of the other factors
change in favour of supply of apples then the supply curve shifts to the
right to S3S3 and the supply of apples increases to 400 kg. This is indicated
by rightward movement of supply curve from point ‘a’ to point ‘c’ on S3S3.
Decrease in supply:
At constant price, if one or some of the other factors change against the
supply of apples then the supply curve shifts to the left to S2S2 and the
supply of apples decreases to 200 kg. This is indicated by leftward
movement of supply curve from point ‘a’ to point ‘b’ on S2S2.

7. Write short note on supply function.

Ans. : Supply function:
The supply function specifies a functional (mathematical) relationship
between supply of a good and its determinants i.e. factors affecting the
supply.
The supply function represents that the supply of one good is determined
by many factors.
Mathematical form of the supply function:
Sx = f(Px, T, Pf, P0, U)
where Sx = Supply of commodity X
f = Functional notation
Px = Price of commodity X
T = Level of technology
PF = Factor prices
Pe = Expectations regarding future prices
U = Other factors
8. State exceptions to the law of supply.
Ans. : Law of supply:
“When all other factors affecting supply are assumed to be constant, as price
increases, supply expands and as price decreases, supply contracts”. The definition
tells that there is a direct and positive relationship between price and supply. This
relationship is called law of supply.
Assumptions of law of supply:
Over and above time, several factors affect the supply of a good at a
particular point of time. However, at given point of time, the law of supply
assumes the effect of all factors on supply other than the price as
constant.

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 In reality, other than price there are some other factors that can influence
the supply more. However, we assume these to be constant.
Some important assumptions of law of supply:
Prices of factors of production remain constant.
There is no change in technology.
Level of competition remains the same. In other words, number of sellers
in the market remains the same.
Expectations regarding future prices are ignored/held constant.
Other factors like government policy, transport facilities, natural factors,
etc. remain constant.
9. Explain expansion-contraction of supply along with diagram.
Ans. : Expansion-contraction of supply:
Wiien factors other than price are assumed to remain constant and price
varies, there occurs expansion and contraction of supply.
These other factors may be, change in cost of factors of production,
number of sellers, level of technology, government policies, etc.
Example:
Let us take an example to understand the expansion and contraction of
supply.
The schedule given here shows various price of apples and its supply at,
that prices.
Price of apples per kg (in ₹) Supply of apples (in kg)
50 200
60 400
70 600
80 800
90 1000

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 Expansion and contraction of supply

Analysis:
In the diagram, price of apples is represented on ‘Y-axis and their supply on ‘X-axis.
Suppose the initial price of apple is ₹ 70 per kg. At this price, the initial supply is
200 kg. which is plotted as point ‘a’ on the supply curve.

Expansion:
As can be seen in schedule, when price rises to ₹ 80, supply expands to 800
kg. When price further rises to ₹ 90, supply expands to 1,000 kg. which is
plotted as point ‘c’.
The movement from point ‘a’ to point ‘c’ on supply curve SS is called
expansion of supply.
Contraction:
Now from the initial point ‘a’ if price falls to ₹ 60, supply contracts to 400
kg. Similarly, if price falls further to ₹ 50 the supply contracts to 200 kg.
which is plotted as point ‘b’ on the supply curve.
The movement from point ‘a’ to point ‘c’ on the same supply curve SS is
called contraction of supply.

10. Give the meaning of fixed cost and explain with the help of diagram.
Ans. : Fixed cost (FC):
In a short period (run), the production may increase, decrease or become
zero i.e. no production, but the cost would remain same. Such a type of
cost is called the fixed cost. Fixed cost is also known as overhead cost.

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 Thus, in short period there is no relation between fixed cost and quantity
of production.
Fixed cost includes salary of permanent staff, rent of factory building,
house- and property tax, license fee, interest on capital, premium of
insurance, etc.
Example:
The schedule shows production of pens for a firm and its fixed cost.
Units of output Total Fixed Cost ( ₹)
0 100
10 100
20 100
30 100
40 100
50 100

Diagram of total fixed cost

As can be seen in schedule, irrespective of the rise in production of pen i.e. 10, 20,
30, 40 or 50, the production cost remains the same or say fixed at ‘100. This cost is
called fixed cost or total fixed cost (TFC). Note that even with the production is 0,
the producer has to bear the fixed cost.

Graph and curve:

As shown in the diagram, the output is measured on X-axis and total fixed cost in ₹
on Y-axis. Since, the Total Fixed Cost (TFC) remains constant, the TFC curve is
parallel to X-axis.
11. State the limitations in measuring opportunity cost.
Ans. : Opportunity cost:

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 The concept of opportunity cost was presented by Austrian economist but
it was properly presented by Marshall. We know that the means of
production have alternative uses i.e. more than one use. The concept of
opportunity cost is based on the particular characteristic of factor of
production which says that when a factor is used for a particular use, the
other use is left out or the same cannot be used for other purpose. Under
such circumstances, the best alternative which remains is the opportunity
cost of production.
If a factor of production is used in the production of one commodity which
seems the best, the next best or say the second best alternative is left out.
Assuming the best choice is made, opportunity cost is the ‘cost’ incurred
by not enjoying the benefit that would have been had by taking the second
best available choice
Example:
(a) If someone is producing wheat on one piece of land, then at the same time on
the same piece of land other food grain (crop) cannot be produced.
(b) A worker working in textile mill cannot at the same time work in any other
industry.
Suppose if wheat is produced on a piece of land one can earn an income of
₹ 2 lakh can be earned and if rice is produced the income of ₹ 3.5 lakh can
be earned.
The farmer decides produce rice in which he earns more.
So, to get the income of ₹ 3.5 lakh from the production of rice, farmer
loses out income of ₹ 2 lakh from the production of wheat. This left out
income of ₹ 2 lakh from the production of wheat is called the opportunity
cost of ₹ 3.5 lakh earned from the production of rice.
Problems in measuring opportunity cost:
(I) Factors with one use:
If a factor of production has only one use then its opportunity cost cannot be
decided.
Example:
(a) Suppose if a piece of land is used only to produce grass so far than we cannot
calculate the opportunity cost of that land.
(b) The same applies for a person who is currently unemployed. Since the person
does not have any work how can we calculate alternative cost?
(II) Factors having specific use:
If factors of production have only a specific use then the concept of opportunity
cost is not useful. Returns of these factors are not decided by their alternative uses
but on the basis of their demand.
Example:
(a) Persons having expertise over computers, scientist having knowledge of atomic
power, etc. These people do not know any other work except their own.
(b) Machine for making ice can only produce ice i.e. it has no alternative use and
so no opportunity cost is involved.

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12. Give the meaning of variable cost and explain with the help of diagram.
Ans. : Variable cost (VC):
In short term if the cost of production changes with the change in quantity
of production it is called variable cost. The variable cost increases if cost of
production increases and decreases if the cost of production decreases
and also becomes zero if production is zero.
Variable cost is also known as unstable or direct or main cost. This cost has
direct (positive) relation with quantity of production and hence Prof.
Marshall calls variable cost as a main cost.
Price of raw material, energy consumption, transportation expenditure,
labour wages, tax on product, sale tax, etc. are variable costs which are
directly dependant on the quantity of production.
The difference between fixed cost and variable cost is possible in short
period of time only. In a long run (period) all costs are variable costs.
Example:
As shown in the schedule, when production is 0, the total variable cost
(TVC) is also 0.
As production increases, variable costs also increase. Although up to 30
units variable cost increases at a diminishing rate. The reason for this is
that it is affected by the law of ‘increasing returns to scale’
After 30 units, the law of ‘decreasing return to scale’ is applicable and so
variable cost increases at increasing rate.
Units of output Total Variable Cost (₹)
0 0
10 80
20 150
30 210
40 290
50 390
Graph and curve:
As shown in diagram, output (in units) is measured on X-axis and total
variable cost i.e. TVC (in ₹) is measured on Y-axis.
As production increases from 10, 20, 30, the total variable cost also
increases from 80, 150, 210 and so on. Hence, the total variable cost has
positive slope from origin.
In the beginning, variable cost increases at decreasing rate. Once it reaches
the optimum level, the variable cost increases at increasing rate.

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 Diagram of total variable cost
13. Give the difference between Perfect Competition and Monopoly.
Ans. :
Perfect Competition Monopoly
1. There are numerous buyers 1. Buyers are numerous but
and sellers. seller or producer is only one.
2. There is only one firm in the
2. There are several firms In the
industry. So it is said firm is
industry.
industry.
3. There is no barrier for entry or 3. Other firms cannot enter the
exit of firms. market.
4. Buyers can affect the market 4. Buyers cannot affect the
price. market price.
5. The curves of Average Revenue 5. The curves of Average
(AR) and Marginal Revenue (MR) Revenue (AR) and Marginal
are one and the same and Revenue (MR) are different and
parallel to the X-axis. have negative slope.
14. Explain any three characteristics of Oligopoly.
Ans. : Characteristics of oligopoly:
1. Few sellers and numerous buyers:
Under oligopoly, the number of sellers and producers is less in the market.
There exists about two to less than ten or twenty firms in the market.
Owing to these circumstances, a few number of sellers have a monopoly
control over the market.
On the other hand, there are numerous buyers in such market. So, neither
these buyers have much influence on the market price nor they are given

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 much importance.
2. Similar or substitutable products:
Firms sell identical or substitute products in oligopoly. This also means that
when the firms in a market, produce and sell identical or substitute
products, it is Oligopoly market. For example, products like salt, crude oil,
tea, etc.
When producers produce identical products there exists imperfect
oligopoly in the market. For example, oligopoly exists for products like cold
drinks, motorcycle, etc.
3. Admittance of firms:
In the market of oligopoly, the entry and exit of firms is free or regulated
according to the type of oligopoly followed.
If there is free oligopoly in the market, the firms can freely enter or exit the
market, whereas if the oligopoly is restricted, then the entry and exit of
firms is regulated.
15. Explain any three characteristics of Monopolistic Competition.
Ans. : Characteristics of monopolistic competition:
1. Large number of sellers and numerous buyers:
There are numerous sellers in Perfect Competition. In monopoly there is
only one seller, while in monopolistic competition there are many sellers.
This means that there are neither numerous sellers, nor there is only one
seller, but there are many sellers.
There are numerous buyers in monopolistic market and so they cannot
individually influence the market. Also they cannot affect the price of the
product.
2. Product differentiation:
Product differentiation is a distinct characteristic of monopolistic
competition. Product differentiation refers to the concept of differentiating
a product from another product in terms of form, quality and nature. For
example, two different models of bike but built on same basic structure.
A producer may produce a product with minor differences in terms of
form, fragrance, taste, shape, weight and quality. These minor differences
lead to availability of various products under product differentiation in
monopolistic competition market.
3. Free entry and exit of firms:
In a monopolistic competition it is easy for new firms to enter into an
existing firm or to leave the industry.
When there is normal profit in the market, the free entry and exit of the
firm decreases and stops.
The firms are generally not attracted by the normal profit and so the firms
do not enter in such markets. Similarly, the existing firms in the market do
not exit as they do not suffer losses.
16. Give the difference between Monopoly and Monopolistic Competition.

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 Ans. :
Monopoly Monopolistic competition
1. There are numerous buyers 1. There are numerous buyers
and sellers. and also many sellers.
2. Substitute goods are either not 2. Substitute goods are available
available or available rarely. easily.
3. Other firms cannot enter the 3. Other firms can easily enter
market. or exit the market.
4. The firm can control the price 4. Firms cannot control the price
to a very large extent. much.

17. Explain: ‘Price Stickiness’.

Ans. : Price stickiness (Kinked Demand Curve):
There are a number of theories o Oligopoly. The Kinked-domand theory is
one of them.
Price stickiness is a situation where in the firm would tend to stick to the
price of its product and not increase or decrease it even if he wish to.
In oligopoly market, the number of firms is less and they are
interdependent on each other.
Even if onc of the firm decreases the price of a product, its product
Even if on of the firm decreases the price of a product, its product will
become cheaper than other products. So, according to the law of demand
due to comparatively cheaper price of the product its demand will be more
compared to the product of other firms. This will result in decroaseing the
demand of the products sold by other firms.
In order to avoid such situation, the competitive firms will also have to
decrease ihe price of their product in order to stay in the competition.
At the end, the price of the product reaches at a nominal level and ¡t
becomes impossible to reduce the price lurther.
Sticky prices, therefore, are prices in an economy which are resistant to
change.
On the other hand, if the firm increases the price of the product then the
demand of that product decreases, and the competitive firms are profited.
Thus, as the nominal price is resistant to change, the demand curve
hecomes kinked.

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 Kinked demand curve
18. Classify the market according to competition.
Ans. : Market classification on the basis on competition:
Normally a market based on competition is classified on the basis of
number of sellers and buyers. Here, the market of sellers is more
important.
Classification of market based on competition is shown in the chart below.

19. Write short note on : Share of various sectors in National Income.

Ans. : Changing share of various sectors in national income and employment:
A less develop nation’s major income comes from agriculture. As a nation
develops the contribution of various sectors in national income and
employment changes.
Under such condition, the contribution of industrial and service sectors in
employment and hence national income increases compared to agricultural
sector.
People’s dependency on agriculture reduces. Growth in industrial sector
improves technology and increases capital. This generates more
employment in the industrial sector and service sector rather than
agriculture.
Share of various sectors in National Income (NI)
1950-51 1990-91 2000-01 2014-15
Agriculture and allied activities 53.1 29.6 22.3 17.6
Industries 16.6 27.7 27.3 29.7
Services (excluding construction) 30.3 42.7 50.4 52.7

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 Source: Economic Survey (2014-15)From the data we can conclude that post-
independence, the share of agriculture in the National Income (NI) has decreased
over the years and that of industrial and service sectors has increased.
20. Write a short note on Ancient India.
Ans. :
Indian civilization has emerged from the influence of Aryans and Indus
Valley Civilization.
Indus Valley Civilization is also called the Harappan Civilization and it
influenced the ancient India.
The remains of this civilization were first found at ‘Harappa’ and ‘Mohen-
jo- Daro’. In Gujarat we can find its remains at Lothal and Dholavira.
From this civilization one can obtain evidences of the beautiful
organization, prosperity, wonderful urban planning and development that
existed in India.
India was quite famous for cloth, muslin, jute, indigo, etc. that it produced.
With the arrival of the British, India learnt tea plantation too. Today, India is
one of the biggest tea producer and exporter.
Thus, before the British rule, India was quite rich in agriculture, industry
and civilization.
21. Write a short note on Progress of Railways in India.
Ans. : Railway:
The British established the railway infrastructure in India.
The first rail ran in India between Boribandar (presently, CST in Mumbai)
and Thane on 16th of April, 1853.
By 1947 i.e. when India became independent, India’s rail network spread to
53,000 km. and served 68 lakh people.
22. Explain the tax policy of British Rule in India.
Ans. : High rates of taxes:
As per a calculation made by Dadabhai Naoroji, in 1876, the rich contributed only
about 8% of the national income as taxes while the poor Indians contributed 15%
of the national income as taxes.
High rates of excise and customs:
The British collected high excise on match sticks, sugar, steel, silver and all
such commodities.
Though salt was easily available and produced in India, the British termed
its production illegal. Then they monopolized salt trade, imported salt to
India by charging high custom duties and made it an expensive commodity
for poor Indians.
To suppress the Indian cotton industry, the British levied high custom duty
of upto 15% on cotton cloth exported from India. On the other hand, the
British imported the cotton cloth from Manchester (England) at a much
lower import duty of only about 2.5%.

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 The British used to buy and export cotton from India at cheap rates to
England and after manufacturing clothes from same cotton used to import
and sell those clothes in India and earn huge profits.
Thus, India’s raw materials were exported so that British industry could
thrive at the cost of Indian industry.
23. Describe the basic utilities of India.
Ans. : Improvement in basic (primary) utilities:
Indian has shown significant improvement in providing various utilities in the
urban as well as in the rural areas. These are discussed below.
(a) Irrigation:
In 1950-51, only 22.6 million (m) hectare of land across India used to get irrigation
facility. This increased to 63 m hectares i.e. 45% of total agricultural land by 2012-
13.
(b) Literacy:
In 1950s there were 20 universities and 500 colleges. This increased to 719
universities and 35,000 colleges by 2013-14. This indicates that higher education
increased considerably in India.
In 1951, India’s literacy rate was 18.33%. This increased to 73% in 2011 (Source:
Economic Survey, 2013-14).
(c) Electricity:
In 1950-51, India used to generate around 2300 MW electricity. This increased to
2,43,000 MW in 2011-12.
(d) Road network:
Today, India falls among the list of countries with longest road network. -» India
has approximately 48.6 lakh km. of concrete roads today.
(e) Railway:
Today, Indian railway network is the fourth largest in the world with a length of
65,000 km.
24. State the adverse effects of economic reforms.
Ans. : Unfavorable Effects of Economic Reforms :
Following adverse effects of economic reforms ,Ire seen :
Small and Cottage industries :
Small and cottage industries could not sustain in competition of
multinational companies.
Public services :
In new economic policy, due to privatization of public services, subsidies
were reduced in many sectors so, these services become expensive.
Dumping of goods :
MNC companies dumping goods at very cheap rate and so Indian
companies are facing trouble to make product at that price.
Exchange rate fluctuation :
 Exchange rate determination was left to the market and market fluctuated
more.
Many companies suffered owing to such fluctuations.
Agriculture sector :
Many policies of World Trade Organization imposed strict quality measures
and it is very much difficult for export countries like India.
Especially for exports of agricultural goods.
Scarcity of basic facilities :
To cope with the speed of privatization and globalization, the
infrastructural facilities like electricity, roads etc. proved insufficient.
Inequalities in income :
The benefits of economic reforms have not reached the ordinary masses.
Prosperity of income in country has increased and inequalities of economic
power also increased.
Effect on employment :
To increase competitiveness, modern technology has been used in
industries and as a result in proportion to investment, creation of job
opportunities has been less than required.
This has made the problem of unemployment quite serious.
Problem of social- culture legacy :
Some person believe that the social and cultural foundations of India are
threatened because of globalization.
Consumerism increased :
To capture markets, advertisement are bombarded heavily on consumers
which has given birth to consumerism.
It has affected the desire and capacity of the ordinary persons adversely.
Others :
Less foreign capital has been availed that is required for development.
The production and sale of life style goods increased against necessities.

25. Explain foreign trade policy after globalization.

Ans. :
India has adopted planning since 1951.
During the first four decades of planning, India reposed faith in public
sector than private sector and protected it as a reserved sector.
More facilities were provided to public sector for its development.
In short, though there was mixed economy, public sector was pampered
while private sector was neglected.
Due to political meddling, and inefficiency being rampant in it, the public
sector units incurred losses and the return on total investment was very
low.
 Therefore, since 1991, liberalization, privatization and globalization were
given more importance in new economic policy.
Steps Following changes are seen after globalization of foreign trade policy
of India.
Instead of protective, free trade policy is accepted. Restrictions on foreign
trade are gradually decrease. Import- export license has made easy.
Import duty is decrease step by step. Hence, this duty is high in
comparison with China and country of South Korea.
State has followed fixed policy for traders or producers and investors of
home country and 7. foreign country. Discriminating policy is gradually
abolished. 0'
After 1991 economic policies in India were reformed to enhance trade and
investments. Foreign trade policy was made outward looking from a
restrictive inward looking one. Indian rupee was allowed to be converted to
foreign currencies at market rates from earlier official conversion.
With promotion of FDI and privatization, foreign companies can sell
different types of goods in India.
After globalization India's trade with non-traditional trade partners or new
countries increased and new trade policy aimed at increasing India's
percentage share in world trade.
India became a member of World Trade Organization(WTO) in 1995 and
trade policy changes were made according to WTO rules. .
26. State the challenges before foreign trade policy of India.
Ans. :
Foreign trade policy regulates India's trade with other countries. The
foreign trade policy always faced the following challenges.
Need to control certain imports in order to protect domestic industries
from the competition of foreign goods.
Control imports of goods unessential for India's development in order to
save scarce foreign exchange.
Encourage exports to earn foreign exchange in order to pay for necessary
imports.
Many Indian goods could not compete against the quality of foreign goods
and hence increasing exports was a challenging for trade policy.
Ensure enough imports of technology, machines, spare parts as well as
resources to help increase domestic production and import substitution.
The challenges of foreign trade are different from those of domestic trade
as foreign trade involves foreign exchange.
Promote export of goods produced by small sector is always a challenging
problem of this policy.
For foreign trade policy maker, it is very much difficult to determine the
trend, size and proportion of foreign trade.
27. Give the meaning and nature of Foreign Direct Investment.
 Ans. : Foreign Direct Investment(FDI) :
In India, fast development was began in 1991 and later when economic
reforms viz. globalization, liberalization and privatization were introduced.
When home country invites capital by allowing foreign investor or
companies to produce or sell directly in India then such investment is
called foreign direct investment.
In short, FDI means investment made by a non-resident in equity of
domestic company with intension of participating in management of the
company.
In FDI, foreign companies directly set up their business in India by
constructing their plants, bringing in technology and producing or by
collaborating with Indian companies to do so.
These companies either manage the entire business or have a share in
management if they are collaborating partners.
Nature of I'M :
The nature of FDI can be stated as follows :
It is a physical establishment in the loon of direct investment and hence
stable form of investment.
It brings machines, materials and wealth to home country.
It brings new technology to the country.
It brings different work culture along with it. India has systematically
allowed FDI in increased proportion in various sectors and India's foreign
exchange earnings has increased.
Types of FDI :
There are so many types of FDI but following four types are main.
Market seeking FDI
Resource seeking FM
Efficiency seeking FDI
Strategic asset seeking FDI
FDI are welcomed but still there are some limitations.
These companies import raw material instead of purchase from local
market.
They give employment to only foreign people at high post.
These companies charges high profit for royalty service, interest and
earned profit and send to their country.
These companies trie to sell the product or service through advertisement.

28. Give the meaning and important aspects of the process of globalization.
Ans. : Introduction :
Globalization is one of the important components of new economic
reforms.
 Globalization means the integration of country's economy with the rest of
the world by increasing trade of goods and services.
The changes made in transportation and communication sectors give
boost to the process.
Why globalization is needed for India? : Because of globalization :
Foreign capital can be increased without raising debt.
Country can get the benefit of the new technology.
Increases the exports.
New goods will become available in the market.
Increases the production of the Country and increases the competition in
the market.
Share of foreign trade increases in GDP.
Meaning and Different Aspects of Globalization :
The process of integrating nation with the world is known as the
globalization.
In other word, globalization is the process of increasing a • VIVI
country's economic integration with rest of world.
The aspects of globalization includes trade, commerce, technology, science,
goods, capital, human resources, natural resources, financial instruments
etc.
Globalization process consist of :
Free Trade :
Remove the restrictions on import and export and promote free trade
among the nations.
Capital Mobility :
To increase the international mobility of the capital among the nations.
Mobility of Technology :
Remove the restrictions on mobility of technology and promote free
movement of technology.
Mobility of labours:
To facilitate the mobility of labours among the nations.
Process of Globalization in India :
Globalization is a process of linking the economy of a country with the
global economy.
Before economic reforms, there were many restrictions on international
trade.
There were restrictions on imports and import duty was charged at a high
rate.
Because of artificially high exchange rate, global trade was restricted.
In 1991, International Monetary Fund (IMF) declared several nations are
under the higher debt.
 IMF imposed upon them to globalize and upgrade the technologies and
growth of their nations.
This was a precondition before sanctioning further loans to these nations.
India was one of those and accordingly India had to relax its policies of
granting protection to domestic industries from foreign competition.
Thus, India began globalizing by allowing more trade with other countries.
The following systematic steps are taken for globalization process.
Import — Export licensing policy was made simpler and easy.
There has been absolute reduction in import duties but still in comparison
to other countries.
The rates are high e.g. in 1991-92, there was average 72.5% import duty
which was gone down to 24.8% in 1996-97.
But trends of world depression were increased and the policy of increasing
import duty was implemented.
India became member of World Trade Organization in 1995 which means
perpetual by its rules of free world trade.
Introducing convertibility of Indian rupee into other currencies at market
rate by gradually reducing conversion at the official rate.
Thus, value of our currency is determined by trade we have done.
There was sector wise ad systematic increase in foreign direct investment
in India.
Investors and producers in India were allowed to increase financial
collaborations with their foreign counterparts, and remove the
discriminating policy.
State became more indifferent in policy matters between domestic and
foreign investor and producer.
In that matter, undue protection for Indian investors against foreign
competition was lifted.
Social and cultural ties with other countries were also encouraged
including relaxations by many nations in granting visas.
As a part of new economic reforms, flexible exchange rate has been
adopted.
The exchange rate is determining according to the factors of demand of
foreign currency and supply of foreign currency.
Instead of keeping foreign exchange rate high in an artificial manner, their
real value is taken into account.
This has helped promotion of exports.
Total transformation of rupee has been made for all current- account
transaction and balance of trade.
The Social and economic distance among the nations has been reduced
because of globalization.

29. Describe: The opinion of Pandit Deendayal related to 'Ownership of Assets'.

Ans. :
The objectives of human life and the place of property in it is a very
important and debatable point.
The main aim of humans is happiness and the property is the source of
acquiring it.
In this context, it is important to consider the aspect of ownership.
In a capitalist system, there is private ownership of wealth without state
control.
This encourages a person to own mode. but at the same time it causes
problem like economic inequality, exploitation, corruption, etc.
A socialist system on the other hand is based on the premise that private
property is the cause of all economic problems and hence private property
ownership has no place in socialism. this would reduce income inequality
exploitation, corruption, etc...
but at the same time it would mean loss incentive and willingness to work
and hence it harms progress.
Countries with socialist system are lacking behind in the race of achieving
economic development and high standard of living as compared to
countries with capitalist system.
Gandhiji was the first who tried to find the way in between these to view
points and he suggested doctrine of trusteeship.
He suggested to have voluntary control on the consumption of wealth.
Pandit Deendayal's thoughts of ownership of assets are very close to the
thoughts of Gandhiji.
Pandit Deendayal also states that abolition of private ownership completely
is unwise.
Because that would mean loss of incentive and willingness to work, loss of
dignity of an enterprising person, loss of safety in some manner and hence
reduction in satisfaction.
Therefore, while people allowed to own private wealth, limits must be set
on holding of property and such limits must be determined on the basis of
human values.
The limit on private property holding should be determined on the basis of
human values.
He believed that uncontrolled possession and self willed use of property
destroys the ethical and intellectual character of a society.
influence of property encourages corruption, bribery and lack of property
encourages illegal activities like Robbery, dacoit etc....in this way influence
and scarcity of wealth both become the reason of devastation for a human
being.
he believed happiness of human beings is the ultimate aim and property is
an instrument to achieve it on which proper control is necessary.
the greed to concern uncontrolled political power on the basis of limitless
use of materialistic equipments and property causes devastation of human
 and social ethics society's ethics and mental for all-round development of
humans.
It is not necessary to give uncontrolled ownership of assets like capitalist
system nor it is necessary to take away complete ownership of assets like
socialist system instead the ownership of assets should be decided keeping
in mind the presents standard of living of society.
30. Explain: According to Pandit Deendayal limited consumptions the solution to
major economic problems.
Ans. :
According to Pandit neenclayal the problems arising at present have their
roots in consumption instinct.
To satisfy the higher needs and to increase the standard of living of human
being, man desires new facilities and for that man invents new
technologies and equipments.
Man tries to dominate nature, he recklessly uses natural resources and as
a result of that the whole mankind has to suffer from environmental
imbalance.
Natural cycle is being disturbed. Excessive use of petrol, machines etc. have
disturbed the balance between mankind and nature.
It has increased the intensity of natural calamities in all the parts of the
world.
In The developed countries of the world, people are facing the problems of
scarcity of raw material, inflation, competition of weapons, mental
restlessness etc. use of materialistic things gives materialistic satisfaction
but it does not give piece of mind.
The present terrorism is due to this consumption instinct.
He suggested that our present economic system's objectives should be
economical consumption it is necessary to decide the limit of production
and consumption for country's welfare human wants are unlimited, the
fulfillment of one gives birth to of another and so they cannot be satisfied
completely.
So mental peace cannot be achieved ever. inspite of increasing production
a country cannot be self dependent.
To make the country self dependent it s' is necessary to apply policy of
moderate or contented consumption.
Because of limitless consumption economical and environmental problems
have emerged and restricted consumption is the only I solution of it.
If a country has restricted consumption then human wants can be easily
satisfied by country's production.
The standard of living of many in India is low and Pandit Deendayal
believed that there should be no argument regarding raising the standard
of living of people.
According to Pandit Deendayal appropriate amount of production and
appropriate distribution can be made possible only by limiting
 consumption. only then the production can be diverted for producing
necessity things instead production of leisure products.
According to him a person should restrict his needs as per his own income
instead of imitating others. then only mental peace and happiness, can be
achieved Pandit Deendayal's thoughts of consumption are similar to
Gandhiji's thoughts of consumption.
Gandhiji's concept of simplicity and non-possessiveness indirectly points
out about restricted consumption.
31. Explain: Gandhiji was an-advocate for simplicity and non-posssessiveness.
Ans. :
The Western Economists laid emphasize on endless needs while Gandhiji
followed the principle of 'Simple Living & High Thinking'.
Human mind is restless.
The problems of economic life arise owning to greed and race for
increasing material possessions by forgetting ethics.
Which is why he propagated the idea of non - possession and consumption
for needs and not for greed.
He advised people to restrict their wants and work towards contentment.
Gandhiji was supporter of non possessiveness.
According to him a person should not use and keep more than his needs.
He stated the following reasons for restlessness in human life:
Continuously increasing wants
Use of complex machines
Distribution systems of present times (which create unequal distribution).
According to Gandhiji, the proportion of needs and happiness has direct
relationship.
He believed that by limiting the needs instead of usage, one can lead to a
happy life.
Because of increase in needs, people start accumulating the things as also
authorizing them.
As a result of it, few rich persons can enjoy more things at the cost of large
number of poor people.
Gandhiji favored production of things in such a way that one can earn as
per his needs.
Advocating simplicity and non-possessiveness, he emphasized on accepting
the basic thing of 'Nourishment of all and exploitation of none.
' Simple living can avoid dependence on machines and by limiting one's
individual needs, needs of everyone can be fulfilled easily.
Because of this he started a movement of using ‘khadi’, woven by 'Charkha
'(spinning wheel), against the cloth prepared in mills. Real happiness live in
simple living.
For this, he emphasized on limiting his needs.
 According to Gandhiji, if everyone follows non-possessiveness then other
needy people of the society can get necessity products in sufficient manner
and welfare increases in whole humanity.
Explaining the relationship between wants and welfare, Gandhiji stated that
welfare increases when wants are limited.
The main reason for unsatisfaction is absence of satisfaction of needs.
So, mental peace and happiness increases with limited needs.
In short, Gandhiji advocated simplicity and non-possessiveness for
increasing human happiness.
Simple living is the main base of ‘Gandhisim' by which dependence on
machines can be avoided.
32. Which factors should be kept in mind while establishing the statehood ?
Ans. :
Around third century, he accompanied Chandragupta Maurya in
establishing a country with strong and prosperous economy based on
morality, to end the tyrant rule of last king of Nand dynasty "King
Dhananand".
He suggested the following thoughts about, which facilities should be
given in an ideal statehood.
A king should develop the basic infrastructural facilities like roads,
warehouses and to create a market.
He should develop such a system in which goods can be transported from
one pan of the state to other part with ease and safety.
Agriculture should be developed in state because it is the main source of
earning livelihood.
He believed that land should be used in most optimum way for agricultural
purpose and hence the uncultivable land should be converted into
cultivable.
The king should make efforts to increase cultivable land.
He suggested of constructing reservoirs for agriculture and should
increase irrigation facilities.
Because by farming, farmers get their livelihood and state gets revenue.
Kautilya emphasized on developing animal husbandry profession.
In this regard he mentioned three categories of animals.
He suggested rules and penalties related to animal husbandry.
For increasing statehood, a king should explore the possibilities of new
mines and thus order excavation, develop art and craft industry to use
skills and promote skill formation, promote transport and communication
and also create infrastructure for industrial development.
He suggested to contract religious places and dharamshalas (guesthouses)
for the welfare of people.
Every king should try to gather state treasure in ethical manner.
A state which has enough state treasure can spend proper money for its
defense.
He suggested that the burden of tax should be implemented in such a way
that it should not weaken the condition of tax payers and state also did not
suffer loss.
He showed various rules for collecting important taxes.
Kautilya considered it as the duty of the king that the importance of labour
should be maintained and He gave basis for fixation of wages for labours
so that the labours can earn minimum livelihood.
It is also the responsibility of the king that its subjects should not be
exploited.
He advocated to exempt 'Acharyas (teachers)', 'purohits' and 'kshtriyas'
from paying tax and to help farmers in the state of helplessness.
The aim of government administration was to distribute goods and food
articles equally among all.
According to him it was the responsibility of the state to establish religious
institutions for the poor and encourages jobs for unemployed persons.
It was the duty of the state to protect old age and weak people.

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