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(a) Functions of WHO: 

1. To make efforts to bring improvement in the fields of primary health care, sanitation, safe drinking water, environmental hygiene etc. 

2. To arrange periodical conferences and seminars in order to train personnel from different countries in techniques for combating diseases. 

3. It lays down standards regarding the strength and purity of medicines. It has already set standards for many drugs including biological products. 

(b) Composition of International Court of Justice: 

1. The court consists of 15 Judges each separately chosen by the security council and General Assembly of these, those 15 persons who are chosen by majority vote in both bodies are elected the judges of the court. 

2. The court elects its President and Vice President for a three year term. They may when their term expires be re-elected. 

3. The court has power to appoint its registrar. 

(c) The functions of the General Assembly: 

1. To discuss matters relating to international peace and security. 

2. To promote friendly relations amongst nations. 

3. The development and codification of International Law. 

4. To make recommendations for peaceful settlement by any situation. 

5. To receive and consider reports from the Security Council and other organs of the UN. 

6. To ensure co-operation in matters of safeguarding human rights and fundamental freedom for all. 

7. To promote international co-operation and friendship. 

8. To consider and approve the UN Budget and to determine the amount of funds to be contributed by the member nations. 

9. To elect the judges of the International Court of Justice. 

10.To appoint the Secretary General of the General Assembly on the recommendations of the Security Council.

(a) Three functions of the International Court of Justice : 

(i) The International Court of Justice enjoys compulsory jurisdiction in two ways. Firstly, disputes regarding arising under the treaties are dealt by the Court. Secondly, disputes regarding interpretation of international law and compensation for violating any international rule or law are also handled by the Court. 

(ii) A country may refer a dispute to the Court. If any other country/countries decide to defend itself/themselves, the Court accepts it as consent to the case. 

(iii) It codifies international law after detailed study of international convention, customs, judgments and general principles of law. 

(b) Composition of the General Assembly : The General Assembly is the main deliberative assembly of the United Nations. Composed of all United Nations member states, the assembly meets in regular yearly sessions under a president elected from among the member states. 

(c) Two functions of the UNICEF (United Nations International Children’s Emergency Fund) : 

(i) To cooperate with developing countries in their efforts to protect children from adversity. 

(ii) To assist in planning and extension services that would benefit children. 

Two functions of the WHO (World Health Organization) : 

(i) The WHO helps different countries to reinforce their health system by building infrastructure, particularly health, manpower, health institutions and services for the individual family and the community. 

(ii) It promotes research associated with appropriate technologies in context to all the aspects of environmental safety, mental health, control of specific diseases, medical care, prevention of accidents and rehabilitation.

(a) (i) It made a provision for the creation of two Independent Dominions by 15th August, 1947 to be known as Indian and Pakistan. East Bengal, West Punjab, Sindh, Baluchistan, North-West Frontier Province and the district of Sylhet (Assam) would be part of Pakistan. All the remaining territories included in British India would be part of India. 

(ii) They would act as central legislatures and would have full power to make laws. 

(iii)The present Constituent Assembly would continue to work and draft a Constitution for India, while Pakistan would have a separate Constituent Assembly. 

(b) (i) The establishment of Pakistan would not solve the problem of communal minorities. 

(ii) There was no justification for including within Pakistan, the non-Muslim districts of Bengal, Assam and the Punjab. 

(iii) It would involve dislocation of communication network and division of armed forces. 

(c) The Congress accepted the Mountbatten plan due to following reasons: 

1. The Muslim League had obstructed the smooth functioning of the Interim Government earlier so it was difficult for Congress to accept it as an ally in Government. 

2. A smaller united and strong India was better than a big but weak country. 

3. Large scale communal riots and loss of lives and property had clearly shown that much more bloodshed will occur if partition was done. 

4. Any further delay in the transfer of power could bring civil war in India as British were instigating the rulers of the native states for freedom. 

5. The Congress felt that partition would do away with communal electorates and other undemocratic procedures.

(a) (i) Three ruling dynasties were destroyed Romonov, Hohenzollern and Hapsburg. 

(ii) Rule of Ottomans came to an end.

(iii) Austria-Hungary, Czechoslovakia and Yogoslavia became separate independent states. 

(b) (i) It was given full control over the rich coal mines in the Saar basin although the area was governed by the League of Nations. 

(ii) It was also given some regions of Togo and Cameroons (South East Africa). 

(iii) Alsace-Lorraine captured from France in the France-Russian war (1871) was returned to France. 

(c) Rise of Fascism: 

1. Discontentment after the treaty of Versailles: Italy had joined the AngloFrench alliance against Germany and her allies in the First World War as Britain had promised large chunks of territory after their victory. However the promise went unkempt to a certain extent. She had only two islands in the Adriatic and Aegean seas. Among Italians there was a feeling of being let down. 

2. Economics crises in Germany and Italy, heavy losses, unemployment, shortage of food grains at the end of the war, thousands of soldiers in Italy had become unemployed. Industrialisation had not progressed and unemployment was on the rise. Even the unemployed working class felt the pinnacle of inflation with low wages and poor working conditions. There were frequent strikes and agrarian riots. 

Rise of Nazism : 

1. The Germans felt hurt, anger and humiliation by the terms of the treaty of Versailles. They blamed the leaders of the Wiener Republic for accepting the heavy penalties imposed on her. All her colonies were taken away. Many of her territories were shared by the European powers. She was militarily weak. 

2. The first World War had ruined German economy. The heavy burden of war penalties had made her recovery more difficult. She had to borrow heavily from other countries. Inflation and unemployment went hand in hand. Thus between 1924 and 1933 the Nazi party ranks were swelling with German youth.

A number of steps can be taken to solve the problem of deficits in the balance of payments. 

The main methods of correcting the adverse balance of payments are:

(i) Depreciation: Under the flexible exchange rate system, changes in the rate of exchange will automatically adjust the balance of payments. Depreciation of the country’s currency will wipe out deficits in the balance of payments. Depreciation of currency means rise in the price of foreign currency or, which is the same thing, fall in the price of domestic currency.

(ii) Devaluation: A country can devalue its currency to wipe out deficit in the balance of payments. This makes imports expensive to domestic consumers and its exports cheaper in foreign countries. If demand and supply elasticities are fairly high, this will definitely lead to a fall in imports and a rise in exports and thereby an elimination or reduction of balance of payments deficit.

(iii) Import Control: I reports may be kept in check through the adoption of a wide variety of import control measures such as quotas and tariffs. Quotas limit the volume of imports by applying quantitative restrictions. The government may for example, decide that only 90 per cent of last year’s volume of imports can be imported this year. The government may also increase the import duties or tariffs. This will raise the prices of imported goods and reduce imports. As a consequence, balance of payments deficit is reduced.

(iv) Production of Import Substitutes: Steps may be taken to encourage the production of import substitutes. This will save foreign exchange in the short- run by replacing the use of imports by their import substitutes. If the industries producing import substitutes develop ultimately because of various incentives provided to these industries, they may turn out to be export earners as well.

(i) Refunding: Refunding is the process by which the government raises new bonds to pay off the maturing bonds. Thus, the government takes a fresh loan to repay an old loan. In this case, the money burden of the debt is not liquidated but is postponed to some future date. Hence, the total burden of the debt continues to accumulate. Usually, this method is adopted when the government is not in a position to repay its outstanding loans at present.

(ii) Debt Conversion: Conversion of public debt means exchange of new debt for the old debt. In this method, the loan is actually not repaid, but the form of debt is changed. The process of conversion consists of converting a high-interest debt into a low-interest debt. The government might have borrowed at a time when the rate of interest was high. But if the market rate of interest falls, it may convert old high into rest loan into a new low-interest loan. The government is able to reduce the burden of debt thereby. This is possible only when the government enjoys good credit worthiness.

Budget is a statement of expected receipts and expenditue of the government over the period of financial year(i.e, April 1st to 31st March).

(i) Public expenditure includes government expenditure on public works, subsidies, relief works and transfer payments. Such expenditures help in generating income and creating employment, which helps in reducing the income gap in society. 

(ii) Inflation occurs when there is increased spending in the economy. To control inflation, the government can lower public expenditure. This results in a reduction in aggregate demand which helps in controlling inflationary pressures. Controlling aggregate demand leads to lower growth and hence lower inflation.

In a situation of income inequality two ways in which Fiscal Policy can be used to bring about equity are:

(i) The types of income and other taxes designed by the Govt should be such that an equitable distribution of the society’s income and wealth occurs.

(ii) The regional balance should be maintained. If particular regards of the country are not taken into account in the process of development, this will accentuate the problem of inequality’ of income distribution in a society. The public projects must be distributed over all the regions in the country is a fairway.

The components of the balance of payment are as follows: 

1. Current account: The current account of BOP records the transactions related to exports and imports of goods and services and unilateral transfers from and to the rest of the world. The current account of BOP records the following components:

(i) Visible trade: Visible trade is the net export and import of goods. The balance of visible trade is referred to as the trade balance. When imports of goods are higher than the export of goods, there is a trade deficit. When the export of goods are higher than the import of good, there is a trade surplus.

(ii) Invisible trade: Invisible trade accounts for net exports and imports of services. Services include shipping, banking and insurance etc. 

(iii) Unilateral transfers to and from abroad: Unilateral transfers refer to payments that are provided to or received from the rest of the world as financial aid, gifts and remittances. Unilateral transfers are not factor payments.

(iv) Income receipts and payments: Income receipts and payments include factor payments and receipts. 

For examples: it includes rent on the property, profits on investments and interest on capital.

2. Capital account: The capital account of BOP records all transactions of a country that alter the status of assets and liabilities of a country. 

The capital account of BOP records the following components:

(i) Loans to and borrowings from abroad: This component consists of all loans and borrowings given to or received from the rest of the world. It includes both private sector loans and public sector loans.

(ii) Investments to and from abroad: This component includes investments made by non-residents in shares and equities in a country or investment in real estate in any country. The former investment does not provide any control over the asset and is known as portfolio investment. The latter investment provides control over the asset and it is known as foreign direct investment.

3. Autonomous and accommodating items: Autonomous and accommodating items are used to ensure that BOP balances are maintained. These are used to account for errors and discrepancies in BOP account.

The difference between revenue and capital components of the union budget are as follows:

(a) It is included. This is because it is a part of the final investment expenditure. 

(b) It is not included. This is because National income measures the value of currently produced goods and services Purchase of an old house is already included during the first rime.

Since 1973-74 the idea of Performance Budget was introduced by the fiscal authorities in India. Performance budgeting aims at monitoring the progress of projects in terms of their actual physical achievements against the given goals. Hence, evaluation of the expenditure involves the assessment of the progress of the programs included in the project.

The expenditure which does not result in the creation of assets is revenue expenditure. The capital expenditure consists of expenditure on acquisition of assets like land, buildings, machinery, equipment, investment in shares, loans and advances granted by Central / Union Govt, to states and Union Territories.

Taxes, subsidies, public debt etc.

Sunk Capital: Capital is said to be sunk when it is put to some special use and it cannot be shifted to any other use. It always remains at the place where it is fixed. Factory, machine or roads can be described as sunk capital.

Floating capital : Floating capital is the capital which can be used in alternative lines of production. It is also called free capital. 

Examples: Steel, wood, raw materials etc.

(i) Publicity: The Central Bank undertakes publicity to educate and influence the commercial banks and the public opinion about the money market trends and banking conditions in the country. It publishes statements of its assets, policies, plans and programmes to be adopted in the country. During inflation it advice the banks and people to avoid non-productive loans.

(ii) Moral persuasion : Under this method, the Central Bank applies the policy of persuasion and pressure on the commercial banks in order to get them to fall in line with its policy.

(i) Credit Rationing: Rationing of credit is a method by which the Reserve Bank seeks to limit the maximum amount of loans and advances, and also in certain cases fix a ceiling for specific categories of loans and advances. 

(ii) Moral Suasion: Moral suasion and credit monitoring arrangement are other methods of credit control. The policy of moral suasion will succeed only if the Reserve Bank is strong enough to influence the commercial banks.

(i) Store of value: In order to be a medium of exchange,rtioney must hold its value over time; that is, it must be a store of value. If money could not be stored for some period of time and still remain valuable in exchange, it would not solve the double coincidence of wants problem and therefore would not be adopted as a medium of exchange. As a store of value, money is not unique; many other stores of value exist, such as land, works of art, and even baseball cards and stamps. Money may not even be the best store of value because it depreciates with inflation. 

However, still, money is used as a store of value as:

(i) It is more liquid than most other stores of value. 

(ii) It is readily accepted everywhere. 

(iii) It is easy and economical to store as its storage does not require much space. 

(iv) Unit of account: Money also functions as a unit of account, providing a common measure of the value of goods and services being exchanged. Knowing the value of the price of a good, in terms of money, enables both the supplier and the purchaser of the good to make decisions about how much of the good to supply and how much of the good to purchase.

In the absence of the common measure, the seller has to express the value of his good in all other goods. 

For example: if you want to sell your horse you have to express its value.

1. Horse = 2 cows 

1. Horse = 5 bags of wheat 

1. Horse = 20 kg of iron

Two secondary functions of money are as follows: 

(i) Store of value: Money functions as a store of value which means that money holds it’s valued over a period of time. Money resolves the problem of double coincidence of wants because money can be stored over time and it does not lose its value. Though money is not the only store of value as the same purpose can be served by land, gold, etc., it is the most liquid medium of exchange.

(ii) Standard of deferred payments: The payments to be made in a future period are referred to as deferred payments. Money has eased the deferred payments. When money is borrowed from someone, it has to be returned with the interest payment. Keeping an account of these payments in terms of goods is very difficult. For instance, if a farmer borrows some wheat from a person, then it is very difficult to return this loan with interest in terms of wheat of the same quality.

Devaluation of Currency: Currency devaluation takes place when one country’s currency is reduced in value in comparison to other currencies. After currency devaluation, more of the devalued currency is required in order to purchase the same amount of other currencies.

For a currency to be devalued means that the issuing government has mandated that the price of the currency (in foreign dollars) is lower than it was before.

Depreciation of Currency: A decline in the value of one currency relative to another currency. Depreciation occurs when, because of a change in exchange rates, a unit of one currency buys fewer units of another currency.

The deprecation of currency is made in order to promote exports and discourage imports, as when a currency is depreciated exports become cheaper because while imports become more expensive.

Gross Profit: Gross profit is calculated as sales minus all costs directly related to those sales. These costs can include manufacturing expenses, raw materials, labour, selling, marketing and other expenses.

Net Profit: Net Profit is the amount of money earned after all expenses, including overhead, employee salaries, manufacturing costs, and advertising costs, have been deducted from the total revenue.

Gross Profit is showed in the debit side in the Trading Account. Net Profit is showed in the debit side in the Profit and Loss Account.

Components of Current Account of the Balance of Payment: 

The current account shows the net amount a country is earning if it is in surplus, or spending if it is in deficit.

It is the sum of the balance of trade (net earnings on exports – payments for imports), factor income (earnings on foreign investments-payment made to foreign investors) and cash transfers.

Entries under Current account might include: 

Trade – buying and selling of goods and services

Exports – a credit entry 

Imports – a debit entry

Trade balance – the sum of Exports and Imports 

Factor income – repayments and dividends from loans and investments 

Factor earnings – a credit entry

Factor payments – a debit entry 

Factor income balance – the sum of earnings and payments.

Store of value :  Store of value function means storing assets for use in future. Money acts as a store of value. An individual can hold his earnings until the time he wants to spend the same.

Standard of deferred payments :  Deferred payments mean payment contracted to be made at some future date. Money is a standard of deferred payment.

Process of credit creation: It is often said “Loans create deposits and deposits create loans.” 

The statement can be explained as:

We assume, a situation in an economy where one bank ‘A’ receives a primary cash deposit from a person. After maintaining the Cash Reserve Ratio (CRR) with the central bank, the bank is left with the deposit of say Rs 1000. Assuming that the Statutory Liquidity Ratio (SLR) is 10% of bank deposits, kept reserved for daily transactions, withdrawal etc. So the loanable fund with bank A becomes Rs 1000 – Rs 100 = Rs 900.

A second person now comes to bank A with a loan requirement. The maximum amount of loan can be Rs 900. However, bank A instead of providing cash loans will ask the person to open an account with the bank and provide him with the facility of drawing checks to the amount of Rs 900. The second person after taking the loan, hands over the cheque to a third person who deposits the cheque in his own bank B. Thus a loan of Rs 900 creates a derivative, deposit of the same amount in bank ‘B’, bank ‘B’ can in-turn lend to a third person a maximum of Rs 810 (Rs 900 – Rs 90). In this way in the subsequent stages, the derived deposits in the other banks reduce and the total volume of credit expands. The process continues until the loanable amount becomes negligible. Given SLR, mathematically the commercial banks jointly create a total volume of credit a multiple of the reciprocal of SLR, i.e.,

Volume of total credit = Primary deposit x \(\frac{1}{SLR}\)

\(\frac{1}{SLR}\) is known as the credit multiplier.

Alternatively, total volume of credit creations = 1000 + 900 + 810 + 729 + …….

This is an infinite GP series = \(\frac {1000}{1- 0.9} \) = 10,000

Here, the whole banking sector is to be taken into account and good banking habits are to be inculcated among the citizens.

Limitations of credit creation by commercial banks are as follows: 

(i) Monetary policy of the central bank: Though commercial banks create credit, the circulation of credit is controlled by the central bank in an economy. The central bank uses various techniques to control credit circulation from time to time and thus influence commercial banks’ capacity to create credit.

(ii) Borrowing habits of people: Commercial banks have sufficient funds to lend, however, not everyone in the economy borrows from banks. If fewer people borrow money from banks, leaser credit is created by commercial banks.

Income effect: It occurs when the price change affects consumer purchasing power and thus lead to a change in quantity demanded. When the price of a commodity falls, the real income of the consumer increases, a part of increased real income may be used to buy more of the commodity under question. Thus, a fall in price of a commodity increases the demand for it. Substitution effect: When the price of a commodity falls and prices of its substitutes remain unchanged, it becomes relatively cheaper in comparison to the other commodities. 

Thus demand for relatively cheaper commodity increases as consumers normally like to substitute cheaper goods for costlier ones.

The producer will like to operate in stage II where TP increases at a diminishing rate, MP falls but remains positive. In this phase. AP is maximum and MP is zero, TP rises at a diminishing rate.

Capital : It includes all man-made productive assets such as buildings, machinery, materials, fuels etc.

Capital formation : By capital formation we mean the increase in the stock of capital goods (e.g., machines, equipments, buildings, means of transport, factories, etc.) which are used for more production.

Public sector enterprises are those enterprises which are owned and managed by the government. 

Example : State Trading Corporation (S.T.C.), Hindustan Steel’Limited.

Four factors affecting demand are as follows:

 Consumers tastes and Preferences: Tastes and preferences depend on social customs, fashion, habits of people etc. which keeps on changing leading to change in customers’ taste and preferences. As a result, the demand for different goods changes. 

For example: consumers may switch over from cheaper old fashioned goods to costlier ‘mod’ goods.

The income of the consumer: Generally when the income of a consumer goes up, the demand . for a commodity also goes up and when income falls, the demand also falls in case of normal goods.

Price of related goods (i.e. of substitute goods and complementary goods): In the case of complementary goods like car and petrol, the demand for a commodity rises with a fall in the price of complementary good. In the case of substitute goods like tea and coffee, demand for a commodity falls with a fall in the price of other substitutes good.

The expectation of Change in the Price in Future: If the price of a certain commodity is expected to increase in the near future, then people will buy more of that commodity than what they normally buy. There exists a direct relationship between the expectation of change in the prices in future and change in demand in the current period.

For example: if the price of petrol is expected to rise in future, its present demand will increase.

Yes, tax policy can be used to reduce economic status of the rich to the level desired. Direct taxes on wealth and capital gains be increased. Taxes on rich agriculturists and on the land values may also be considered. Through laws, no company be allowed to possess more assets than the maximum permitted. Only those big industrialists be allowed some concession who establish industries in backward regions to help the poor.

Direct taxes reduce income inequality, because they are charged according to the income of person. Higher incomes are charged at higher rates than lower incomes.

The evil effects of shifting cultivation are devastating and far-reaching in degrading the environment and ecology. This has resulted in large scale deforestation, soil and nutrient loss, and invasion of weeds and other species. The indigenous biodiversity has been affected to a large extent.

(i) Variable cost: It is incurred only when there is production. 

(ii) Fixed cost: It is incurred on fixed factor capital (in the short run) and remains constant when there is no production. 

(iii) Fixed cost: It is payable even when there is no production.

The central bank is the lender (provider of liquidity) of last resort (if there is no other way to increase the supply of liquidity when there is a lack thereof). The goal is to prevent financial pains and bank runs spreading from one bank to the next due to a lack of liquidity.

The two features of monopoly are: 

1. In monopoly, monopolist may charge a separate price for each unit sold by him. This is known as the price discrimination. 

2. A monopoly firm faces a negatively sloped demand curve for his product.

(a) Normal goods are those goods, the demand for which increases with the increase in income of the consumers. For example, a consumer increases his demand for milk, clothes, furniture, refrigerators and TV sets as his income increases. A consumer purchases 2 litres of milk daily when his monthly income is ? 10,000 and purchases 3 litres of milk when his income rises to ? 12,000 per month. 

(b) (i) The Consumer Protection Act provides for six rights of consumers. 

(ii) The Consumer Protection Councils set up under the Act are intended to promote and protect the various rights of consumers. 

(c) Yes, the product was produced in the same financial year. 

(d) (i) Right Man at the Right Job : Since work is divided into a number of parts or sub-parts, each worker can be given a job according to his taste and preference. 

(ii) Increase in Efficiency of Labour : When a worker does the same work again and again, he gets specialisation in it. In this way, the division of labour leads to a great increase in . efficiency and hence production, 

(e) (i) Price of related goods should not change.

(ii) Cost of factors of production should remain the same.

(a) Tax: “A complusory contribution from a person to the government to defray the expenses incurred in the common interest of all without reference to special benefits conferred.” In other words, taxes are compulsory payments to government without any corresponding direct return of services or goods by the government to the tax payers. 

Merits of Direct Taxes: 

1. Economical—Direct taxes are economical in the sense that cost of collecting these taxes is relatively low as they are usually collected at source and they are paid to the government directly by the taxpayers.

2. Certanity—Direct taxes satisfy the canon of certainty. The tax payers know how much they have to pay and on what basis they have to pay. The government also knows fairly, definitely the amount of tax revenue it will receive. Thus, the direct taxes satisfy the canon of certanity. 

Demerits of Direct Taxes: 

1. Unpopular—Direct taxes are directly imposed on individuals. They cannot be shifted. Tax payers feel their pinch directly consequently. They are not popular among the people. 

2. Possibility of Tax Evasion—Direct taxes encourage tax evasion. People conceal their income from the tax officials so as to pay less taxes. In India, there is large-scale evasion of income tax on the part of businessmen. They adopt fradulent practices to save themselves from paying taxes. 

(b) Inflation: “A state in which the value of money is falling, i.e. price are rising.” In other words, Inflation is a rise in price levels with additional characteristics or conditions. It is incompletely anticipated; it does not increase to further rises, it does not increase employment and real output; it is faster than some safe rate; it arises from the side of money, it is measured by prices net of indirect taxes and subsidies; and/or it is irreversible. 

Effect of Inflation on: 

1. Fixed Income groups—This includes pensioners, government servants owners of government securities and promissory notes and others who get a fixed money income. They are known as rentiers. This class is worst affected by inflation because the purchasing power of their fixed income goes on decreasing with rising prices. 

2. Producers—During inflation, the producers and businessmen 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 an artificial margin of profit. As against this they may also be effected adversely on the long run. If the price level goes on increasing, the total consumption of their product would fall. The reduced consumption will ultimately rise the cost of production per unit and reduce the profits.

(a) (i) Law of demand states that there is inverse relationship between price and quantity demanded, keeping other factors constant i.e., price of substitutes goods, taste of the consumer, income of the consumer etc. 

(ii) Law of Diminishing Marginal Utility : Law of diminishing marginal utility states that as a consumer consumes more and more units of a commodity, the utility derived from each successive unit goes on decreasing. So demand for a commodity depends on its utility. If the consumer gets more satisfaction, he will pay more. As a result, consumer will not be prepared to pay the same price for additional units of the commodity. The consumer will buy more units of the commodity only when the price falls. 

Income Effect : Income effect refers to effect on demand when real income of the consumer changes due to change in price of the given commodity. When price of the given commodity falls, the purchasing power (real income) of the consumer increases. As a result, he can purchase more of the given commodity with the same money income. 

(b) It is a situation in which prices of goods and services persistently rise at a fast face. 

(i) Impact on Producers : Businessmen (i.e., entrepreneurs, traders, producers, etc.) tend to gain during inflation, because 

• prices of their inventories (stock of goods and raw material) go up and therebyincreasing their profits. 

• prices rise at a faster rate than the cost of production. 

• they are generally borrowers of money for business purposes. Thus, inflation makes the rich (i.e., the business community) richer. 

(ii) Impact on Wage and salary earners during inflation : It is due to the reason that wages and salaries do not increase in the same proportion in which the prices or the cost of living rises. But those workers and employees who have formed strong trade unions stand to lose less in comparison to those who are not organised. Due to inflation, purchasing power of money falls. As a result of it, fixed income earners tend to buy less amount of goods and services than before even when there is a little rise in their wages. In this way, inflation increases the economic burden of those persons who are not in a position to bear it. Therefore, it is rightly called unjust.

Land use pattern refers to the allocation of land for different purposes such as land cover under forest, for industries, for roads and transportation, etc.

(A) Perfectly elastic demand 

(B) Less than unitary elastic demand.

(i) Entrepreneur have a risk bearing and taking capacity in business compare to labour who are not involved in risk taking depends only on fixed wages or salary. 

(ii) Entrepreneur has limited mobility as the responsibility of the organization depends upon him where as labour is more mobile and can change is work place easily.

Disinvestment: It implies transfer of a part of Government Shareholdings in the public sector enterprises to the private sector.

1. Control of Budgetary Deficits: There would be no question of budgetary deficit, if the PSUs fielded a 10% return on investment. But in reality it is not so. The budgetary deficit have risen sharply from year to year. For instance, the budgetary deficit which was Rs. 1417 crores in 1983-84, has increased to Rs. 1,51,000 crores in 2005-06. Therefore, the Government can control its staggering budgetary deficit by using the sale proceeds on the shares in PSUs.

2. Flow of funds to Public Exchequer: Operation of public sector enterprises has been putting a large burden on public exchequer because of huge losses incurred by a number of enterprises and growing subsidy payments. Privatisation would be helpful in reducing this financial burden upon the government.

3. Greater flexibility in making decisions: Sometimes PSUs suffer losses just due to inadequate autonomy in the ‘decision making power’ of the management. If the PSUs are privatised, then the production and investment decisions qf,the management would be free from any Government intervention, and they would be purely guided by profit motive.

(a) True If a good has close substitutes, the price elasticity of demand for a commodity will be very elastic as some other commodities can be used for it. A small rise in the price of such a commodity will induce consumers to switch their consumption to its substitutes. 

(b) True Rate of taxation depends upon the income groups in a progressive tax structure, where people with more income pay a higher percentage of that income in tax than do those with less income. Progressive taxes are imposed in an attempt to reduce the tax incidence of people with a lower ability-to-pay. 

(c) False The price level in a perfectly competitive market is not determined by an individual seller as there are large number of sellers i.e. there are large number of firms. Every firm in the industry is thus, a price taker. It can sell any quantity of its own product at the going price. The demand for its product is perfectly elastic. 

(d) True Efficiency of labour is determined by good working conditions. Good lighting, ventilations, sanitations, artistic structure of the building, clean and quite atmosphere have a substantial bearing on the efficiency of workers. 

(e) False There is a direct relationship between price and quantity supplied. In this statement, change in price is the cause and change in supply is the effect. It may be noted that at higher prices, there is greater incentive to the producers or firms to produce and sell more.

1. 1. Elastic supply 

2. Unitary elastic supply.

2. Determinants of Elasticity of Supply: 

Elasticity of supply depends upon a number of factors, some of which are as follows:

1. Nature of cost of production: Elasticity of supply depends upon change in the cost of producing additional quantity of output. If an increase in output by the firms in an industry causes only a slight increase in their cost per unit or leads to decrease in cost per unit, we would expect supply to be fairly elastic. If, on the other hand, increase in supply leads to a large increase in cost of production, the supply would be relatively inelastic.

2. Time element: Time period is an important determinant of elasticity of supply. Supply of a commodity, in the ultimate analysis, depends upon its production. A price change due to change in demand for a commodity may have a small response in the quantity supplied in the short-run since the production capacity may be limited.

3. Nature of the commodity: Nature of the commodity is also an important determinant of the elasticity of supply. For instance, the supply of durable products is relatively elastic. Durable goods can be stored and hence producers can meet the market demand by running down their stocks.

4. Nature of inputs: Elasticity of supply depends on the nature of inputs used for the production of a commodity. If the production of a product requires inputs that are easily available, its supply would be more elastic. On the other hand, if it uses specialised inputs, its supply will be relatively inelastic.