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TS Inter 1st Year Economics Study Material Chapter 7 National Income Analysis

November 16, 2022October 28, 2022 by Srinivas

Telangana TSBIE TS Inter 1st Year Economics Study Material 7th Lesson National Income Analysis Textbook Questions and Answers.

TS Inter 1st Year Economics Study Material 7th Lesson National Income Analysis

Long Answer Questions

Question 1.
What are the various definitions of National Income? Describe the determining factors of National Income.
Answer:
National Income has been defined in a number of ways. National income is the total market value of all goods and services produced annually in a country. In other way, the total income accruing to a country from economic activities in a year’s time is called national income. It includes payments made to all factors of production in the form of rent, wages, interest and profits.

The definitions of national income can be divided into two classes. They are :
i) traditional definitions advocated by Marshall, Pigou and Fisher, and ii) modern definitions.

1) Marshall’s Definition :
According to Alfred Marshall, “the labour and capital of a country acting on its natural resources, produce annually a certain net aggregate of commodities, material and non-material including services of all kinds. This is the true net annual income or revenue of the country”. In this definition, the word ‘net’ refers to deduction of depreciation from the gross national income and to this income from abroad must be added.

2) Pigou’s Definition :
According to A. C.Pigou, “National Income is that part of the objective income of the community including of income derived from abroad which can be measured in money”. He has included that income which can be measured in terms of money. This definition is better than the Marshallian definition.

3) Fisher’s Definition :
Fisher adopted consumption as the criterion of national income. Marshall and Pigou regarded it as the production. According to Fisher, “the national income consists solely of services as received by ultimate consumers, whether from their material or from their human environment. Only the services rendered during this year are income”.

4) Kuznets’ Definition :
From the modem point of view, according to Kuznets, “national income is the net output of commodities and services flowing during the year from the country’s productive system into the hands of the ultimate consumers”.

Determining Factors of National income :
There are many factors that influence and determine the size of national income in a country. These factors are responsible for the differences in national income of various countries.

a) Natural Resources :
The availability of natural resources in a country, its climatic conditions, geographical features, fertility of soil, mines and fuel resources etc., influence the size of national income.

b) Quality and Quantity of Factors of Production :
The national income of a country is largely influenced by the quality and quantity of a country’s stock of factors of production.

c) State of Technology :
Output and national income are influenced by the level of technical progress achieved by the country. Advanced techniques of production help in optimum utilization of a country’s natural resources.

d) Political Will and Stability :
Political will and stability in a country helps in planned economic development and for a faster growth of national income.

Question 2.
Define national income and explain the various concepts of National Income.
Answer:
National Income means the aggregate value of all the final goods and services produced in the economy in one year.

Concepts of National Income :
1) Gross National Product (GNP) :
It is the total value of all final goods and services produced in the economy in one year.

The main components of GNP are :

The goods and services purchased by consumers – C.
Investments made by public and private sectors -1.
Government expenditure on public utility services – G.
Income earned through International Trade (x – m).
Net factor income from abroad.

GNP at market prices = C + I- G + (x-m)+ Net factor income from abroad.

2) Gross Domestic Product (GDP) :
The market value of the total goods and services produced in a country in one particular period usually in a year is the GDP
GDP = C + I + G

3) Net National Product (NNP) :
Firms use continuously machines and tools for the production of goods and services. This result in a loss of value due to wear and tear of fixed capital. The loss suffered by fixed capital is called depreciation. When we substract depreciation from GNP we get NNP.
NNP = GNP – depreciation.

4) National Income at Factor Cost :
The cost of production of a good is equal to the rewards paid to the factors which participated in the production process. So the cost of production of a firm is the rent paid on land, wages paid to labour, interest paid on capital and profits of the entrepreneur.

National Income at factor cost = NNP + Subsidies – Indirect Taxes – Profits of Govt, owned firms.

5) Personal Income :
It is the total of incomes received by all persons from all sources in a specific time period. Personal income is not equal to National Income. Because social security payments. Corporate taxes, undistributed profits are deducted from national income and only the remaining is received by persons.

Personal Income = National Income at factor cost – Undistributed profits – Corporate taxes – Social security contributions + Transfer payments.

6) Disposable Income :
Personal income totally is not available for spending. Income tax is a payment which must be deducted to obtain disposable income.
Disposable Income = Personal income – Personal taxes D.I = Consumption + Savings

7) Per Capita Income :
National Income when divided by country’s population, we get per capita income.
TS Inter 1st Year Economics Study Material Chapter 7 National Income Analysis 1

The average standard of living of a country is indicated by per capita income.

Question 3.
What are the various methods of calculating national income? Explain them. [Mar.’17,’16]
Answer:
There are three methods of measuring National Income.

Output method or Product method.
Expenditure method.
Income method.

‘Carin cross’ says, National Income can be looked in any one of the three ways. As the national income measured by adding up everybody’s income by adding up everybody’s output and by adding up the value of all things that people buy and adding in their savings.

1) Output Method (Product Method) :
The market value of total goods and services produced in an economy in a year is considered for estimating National Income. In order to arrive at the value of the product services, the total goods and services produced are multiplied with their market prices.
Then, National Income = (P₁Q₁ + P₂Q₂ + …. P_nQ_n) – Depreciation – Indirect taxes + Net income from abroad.
Where P = Price
Q = Quantity
1, 2, 3 n = Commodities & Services

There is a possibility of double counting. Care must be taken to avoid this. Only final goods and services are taken to compute National Income but not the raw materials or intermediary goods. Estimation of the National Income through this method will indicate the contribution of different sectors, the growth trends in each sector and the sectors which are lagging behind.

2) Expenditure Method :
In this method, we add the personal consumption expenditure of households, expenditure of the firms, government purchase of goods and services net exports plus net income from abroad.
NI = EH + EF + EG + Net exports + Net income from abroad.
Here, National Income = Private final consumption expenditure + Government final consumption expenditure + Net domestic capital formation + Net exports + Net income from abroad
EH = Expenditure of households
EF = Expenditure of firms
EG = Expenditure of Government
Care should be taken to include spending or expenditure made on final goods and services only.

3) Income Method :
In this method, the income earned by all factors of production is aggregated to arrive at the National Income of a country. The four factors of production receives income in the form of wages, rent, interest and profits. This is also national income at factor cost.
NI = W + I + R + P + Net income from abroad
Where, NI = National income
W = Wages
I = Interest
R = Rent
P = Profits

This method gives us National Income according to distribution of shares.

Short Answer Questions

Question 1.
What are the factors that determine National Income? [Mar. ’17, ’16]
Answer:
National Income is the total market value of all goods and services produced in a country during a given period of time. There are many factors that influence and determine the size of national income of a country.

b) Quality and Quantity of Factors of Production :
The national income of a country is largely influenced by the quality and quantity of a country’s stock of factors of production.

d) Political Will and Stability :
Political will and stability in a country helps in planned economic development and for a faster growth of National Income.

Question 2.
Explain the differences between gross national product at market prices and gross national product at factor prices.
Answer:
National income is the value of all final goods and services produced in a company in a year.

Gross National Product (GNP) :
Gross National Product is also known as the gross national product at market prices. Gross national product is the current market value of all final goods and services produced in a country during a year including net income from abroad.

The main components of GNP are :
a) The goods and services purchased by consumers (consumption – C).
b) Gross private domestic investment in capital goods (Investment -I)
c) Goods and services consumed by the government (Govt expenditure – G)
d) Net incomes earned through International trade (value of exports – value of imports, i.e., X-M).
GNP = C + I-G + (X-M).

GNP at Factor Cost :
Gross national product at factor cost is the sum of the money value produced by and accruing to the various factors of production in a year in a country. GNP at market prices includes wages, rent, interest, dividends, undistributed corporate profits, mixed incomes (profits of unincorporated business), direct taxes, indirect taxes, depreciation and net income from abroad. GNP at factor cost includes all items mentioned above in GNP at market prices less indirect taxes. GNP at market prices is always higher than GNP at factor cost. If there are any subsidies to the producers, then to get GNP at factor cost, subsidies are added to GNP at market prices.

GNP at factor cost = GNP at market prices = indirect taxes + subsidies.

Question 3.
What are National Income at market prices and National income at factor cost?
Answer:
National Income is the value of all the final goods and services produced in a year of a country.

National Product at Market Prices (NNP) :
The country’s stock of fixed capital undergoes certain amount of wear and tear in producing goods and services over a period of time. This ‘user cost’ or depreciation or charges for renewals and repairs must be substracted from the GNP at market prices to obtain net national product at market prices.

NNP at market prices = GNP at market prices – Depreciation.

National Product at Factor Cost :
It is aslo called as national income. It is the total income received by the four factors of production in the form of rent, wages, interest and profits in an economy during a year. NNP at market prices is not available for distribution among the factors of production. The amount of indirect taxes (which are included in the prices) are paid by the firms to the government and not to the factors of production. Similarly, the government gives subsidies to firms for production of certain types of goods and services and that part of the production cost is borne by the government. Hence, the goods are sold in the market at a lover price than the actual cost of production. Therefore, this volume of subsidies has to broded to the net national income at market prices. Thus,

NNP at factor cost = NNP at market prices – Indirect taxes + Subsidies. In another way,

NNP at factor cost = GNP at market prices – Depreciation – Indirect taxes + Subsidies.

Question 4.
Discuss the three definitions of National Income.
Answer:
National Income has been defined in a number of ways. National income is the toted market value of all goods and services produced annually in a country. In other way, the total income accruing to a country from economic activities in a year’s time is called national income. It includes payments made to all factors of production in the form of rent, wages, interest and profits.

The definitions of national income can be divided into two classes. They are : i) traditional definitions advocated by Marshall Pigou and Fisher, and ii) modem definitions.

2) Pigou’s Definition :
According to A.C.Pigou, “National Income is that part of the objective income of the community including of income derived from abroad which can be measured in money”. He has included that income which can be measured in terms of money. This definition is better than the Marshallian definition.

3) Fisher’s Definition :
Fisher adopted consumption as the criterion of national income. Marshall and Pigou regared it as the production. According to Fisher, “the national income consists solely of services as received by ultimate consumers, whether from their material or from their human environment. Only the services rendered during this year are income”.

Fisher definition is better than that of Marshall and Pigou. Because, Fisher’s definition has considered economic welfare which is depending on consumption and consumption represents standard of living.

But the definitions advocated by Marshall, pigou, and Fisher are not flawless. The Marshallian and Pigou’s definitions deal with the reasons for economic welfare. But Fisher’s definition is useful to compare economic welfare in different years.

Question 5.
How the per capita income is calculated? What is the relationship between population and per capita income.
Answer:
The per capita income is the average income of the people in a country in a particular year. It is calculated by dividing national income at current prices by population of the country in that year.
TS Inter 1st Year Economics Study Material Chapter 7 National Income Analysis 2

This refers to the measurement of per capita income at current prices. This concept is a good indicator of the average income and the standard of living in a country. But it is not reliable because actual income may be more or may be less when compared to the average income.

This per capita income will also be measured at constant prices and so we get real per capita income. By dividing real national income in a particular year by population of that year we will get real per capita income for that year.
TS Inter 1st Year Economics Study Material Chapter 7 National Income Analysis 3

Relationship Between Per Capita Income and Population :
There is a close relationship between national income and population. These two together determine the per capita income. If rate of growth of national income is 6% and rate of growth of population is 3% the rate of growth of per capita income will be 3% and it can be expressed as follows :
g_pc = g_ni – g_p
where,
g_pc = Growth rate of per capita income
g_ni = Growth rate of national income
g_p = Growth rate of population

A rise in the per capita income indicates a rise in standard of living. The rise in per capita income is possible only when the rate of growth of population is less than the rate of growth of that national income.
TS Inter 1st Year Economics Study Material Chapter 7 National Income Analysis 4

Relationship among National Income Concepts
NIA = Net Income from Abroad
D = Depreciation
ID = Indirect Taxes
Sub = Subsidies
UP = Undistributed Profits
CT = Corporate Taxes
TrH = Transfers received by Households
PTP = Personal Tax Payments
PTP = Gross Domestic Product
GDP = Gross National Product
In fig. we have presented the relation between the various concepts of national income.

Question 6.
Analyse any two methods of measuring National income.
Answer:
There are three methods of measuring National Income. These are :

Output method or Product method
Income method, and
Expenditure method

CaimCross says, “National Income can be looked in any one of the three ways, as the national income measured by adding up everybody’s output by adding up everybody’s income and by adding up the value of all things that people buy and adding in their savings.

1) Output Method or Product Method :
It is also known as inventory method or commodity service method. In this method we find the the market value of all final goods and services produced in a country in a year. The entire output of fined goods and services are multiplied by their respective market prices to find out the gross national product.

GNP = (P₁Q₁ + P₂Q₂ + …. P_nQ_n) + Net income from abroad.
Where, GNP == gross national product,
P = Price of the goods or services
Q = Quantity of goods or services produced
1,2, 3 n are the various goods and services produced.

The values of the intermediary goods and services should not be included. Only final goods and services should be taken into account. Here, we find out the value of output by the different sectors like agriculture, government, professionals, industry.

2) Income method :
In this method, the incomes earned by all factors of production are aggregated to arrive at the National Income of a country. The four factors of production receives income in the form of wages, rent, interest and profits. Incomes in the form of transfer payment is not included in it. This is also known as national income at factor cost.
NI = R + W + I + P
NI = National income
W = Wages R Rent
I = Interest
P = Profits

Very Short Answer Questions

Question 1.
What is National Income?
Answer:
National income is the market value of goods and services produced annually in a country.

Question 2.
Mention the factors that determine National Income.
Answer:
There are many factors that influence and determine the size of national income in a country. These factors are responsible for the differences in national income of various countries.

b) Quality and Quantity of Factors of Production :
The national income of a country is largely influenced by the quality and quantity of a country’s stock of factors of production. For example, the quantity of agricultural production and hence, the size of National income.

d) Political Will and Stability :
Political will and stability in a country helps for planned economic development for a faster growth of national income.

Question 3.
Explain the concept of GNP (Gross National Product).
Answer:
It is the total value of all final goods and services produced in the economy in one year.
GNP = C + I + G + (x-m) where,
C = Consumption
I = Gross National Investment
G = Government Expenditure
X = Exports
M = Imports
x – m = Net foreign trade.

Question 4.
What is Net National Product at factor cost?
Answer:
It is aslo called as national income. It is the total income received by the four factors of production in the form of rent, wages, interest and profits in an economy during a year. NNP at market prices is not available for distribution among the factors of production. The amount of indirect taxes (which are included in the prices) are paid by the firms to the government and not to the factors of production. Similarly, the government gives subsidies to firms for production of certain types of goods and services and that part of the production cost is borne by the government. Hence, the goods are sold in the market at a lower price than the actual cost of production. Therefore, this volume of subsidies has to be added to the net national income at market prices. Thus,

NNP at factor cost = NNP at market prices – Indirect taxes + Subsidies. In another way,

NNP at factor cost = GNP at market prices – Depreciation-Indirect taxes + Subsidies.

Question 5.
What is Personal Income?
Answer:
It is the total of income received by all persons in a year before payment of all direct taxes. The whole of National Income is not availabe to them. Corporate taxes have to be paid by firms. Firms may keep a part of its profits for expansion. Salaried employees may make contributions for social security. Hence,

PI = NI(NNP at factor cost) – (Undistributed corporate profits + Corporate taxes + Social security payments) + Transfer earnings

Question 6.
What are subsidies?
Answer:
A subsidy or government incentive is a form of financial aid or support extended to an economic sector generally with the aim of promoting economic and social policy ………….. consumer/ consumption subsidies. Commonly reduce the price of goods and services to the consumer.

Question 7.
What is Real Per Capita Income ? [Mar. ’17, ’16]
Answer:
Real National Income when divided by country’s population, percapita income is obtained.
TS Inter 1st Year Economics Study Material Chapter 7 National Income Analysis 5

The average standard of living of country is indicated by per capita income.

Question 8.
What are the components of National Income?
Answer:
These are the four components of National Income.
a) Consumption (C) :
It is the total expenditure made by households on goods and services. It depends on the level of income.

b) Investment (I) :
It include expenditure on capital goods and machinery, roadways, bridges etc.

c) Government Expenditure (G) :
It is the expenditure made by the government on infrastructural facilities for the use of society.

d) Net Foreign Income :
It is the income earned by a country through international trade.

Question 9.
What is income method of measuring National Income?
Answer:
The value of all final goods and services produced in a country in a year is known as National Income.

Difficulties in Measurement National Income :
Following are the some of the difficulties we face while measuring national income.

Many of the products pass through a number of stages before these are purchased. If these are counted at every stage double counting will be there.
Goods and services rendered free of charge are not included in the gross national product (GNP). But all these will enhance the welfare of the consumers.
Income earned through illegal activities is not included in the gross national product (GNP). But this is also the cause for economic welfare.
Goods meant for self consumption are not included in the national income and its result is under estimation of national income.
Services of house wives – unpaid services – are not taken into consideration. Therefore, the national income is underestmated.
In order to get net national product, depreciation is deducted from gross national product. Thus, depreciation lowers the national income.

Question 10.
How National Income is estimated in India?
Answer:
After independence the Government of India appointed a National Income Estimates Committee in the year 1949, Under the chairmanship of Sri PC. Mahalanobis to claculate the national income of India. At present the Central Statistical Organization (CSO) has been entrusted with the responsibility of preparing national income estimates.

The CSO has divided the Indian economy into 13 sectors and grouped them under five heads. They are :

Primary Sector.
Secondry Sector.
Transport, Communication and Trade.
Finance and Real Estate.
Community and Personal Services.

Question 11.
Distinguish between Per Capita Income and National Income.
Answer:
Per Capital Income National Income
Per capita income is the average income of people in a country in a particular year. National income is the market value of goods and services produced annually in a country.

Question 12.
What are transfer payments? Give examples.
Answer:
The government may provide social security allowances like pensions, unemployment allowances, scholarships etc. These are incomes for some sections of the society even though no productive services are made by them. These are called transfer payments.

Question 13.
What is the importance of National income estimations?
Answer:
Importance of national income estimations :

The national income estimates or statistics are very important for preparing economic plans and for framing national economic policies.
The national income data are useful in research and distribution of income in the country.
It enables us to assess the performance of each sector in the economy and inter-relationship among the sectors.
It is more useful in making budgetory allocations.
It gives us an idea of the standard of living in the country.

Question 14.
Expand C.S.O. What is its responsibility?
Answer:
C.S.O. is the Central Statistical Organisation and Responsibility for preparing national income estimates.

Question 15.
What is Depreciation?
Answer:
Firms use continuously machines and tools for the production of goods and services. This results in a loss of value due to the wear and tear of fixed capital. This loss suffered by fixed capital is called depreciation.

TS Inter 1st Year Economics Study Material Chapter 6 Theories of Distribution

November 16, 2022October 28, 2022 by Srinivas

Telangana TSBIE TS Inter 1st Year Economics Study Material 6th Lesson Theories of Distribution Textbook Questions and Answers.

TS Inter 1st Year Economics Study Material 6th Lesson Theories of Distribution

Long Answer Questions

Question 1.
Explain critically the marginal productivity theory of distribution.
Answer:
This theory was developed by J.B. Clark. According to this theory, the remuneration of a factor of production will be equal to its marginal productivity. The theory assumes perfect competition in the market for factors of production. In such a market, average cost and marginal cost of each unit of factor of production are the same as they are equal to the price or cost of a factor of production.

For example, if four tailors can stitch ten shirts in a day and five tailors can stitch thirteen shirts in a day, then the marginal physical product of the 5^th tailor is 3 shirts. If stitching charge for a shirt is ₹ 100/-, then the marginal value product of three shirts is ₹ 300/-. According to this theory, the 5^th person will be remunerated ₹ 300/-. Marginal physical product is the additional output obtained by using an additional unit of the factor of production. If we multiply the additional output by market price we will get marginal value product or marginal revenue product.

At first stage when additional units of labour are employed the marginal productivity of labourer increases up to certain extent due to economies of scale. If additional units’ of labour are employed beyond that point the marginal productivity of labour decreases. This can be shown in the given figure.
TS Inter 1st Year Economics Study Material Chapter 6 Theories of Distribution 1

In the figure, OX axis represent units of labour and OY represent price/revenue/cost. At a given price, OP the firm will employ OL units of labour where price OP = L. If it employs less than ‘OL’ i.e., OL₁ units, MRP will be E₁L₁, which is higher than the price OR If firm employs more than OL units upto OL₂, price is OP is more than E₂L₂. So the firm decreases employment until price = MRP till OL. At that point ‘E’ the additional unit of labour is remunerated equal to his marginal productivity.

Question 2.
Define rent and explain the Ricardian Theory of Rent.
Answer:
David Ricardo was a 19^th century economist of England, who propounded a systematic theory of rent. Ricardo defined rent as “that portion of the procedure of earth which is paid to the landlords for the use of the original and indestructible powers of soil”. According to Ricardo, rent arises due to differential in surplus occurring to agriculturists resulting from the differences in fertility of soil of different grades of land.

Ricardian theory of rent is based on the principle of demand and supply. It arises in both extensive and intensive cultivation of land. When land is cultivated extensively, rent on superior land equals the excess of its produce over that of the inferior land. This can be explained with the following illustration.

We can imagine that a new island is discovered. Assume a batch of settlers go to that Island. Land in this Island is differ in fertility and situation. We assume that there are three grades of land A, B, and G. With a given application of labour and capital superior lands will yield more output than others. The difference in fertility will bring about differences in the cost of production, on the different grades of land. They first settle on A’ grade land for cultivation of com. A’ grade land yields say, 20 quintals of com with the investment of ₹ 300. The cost of production per quintal is ₹ 15 (300/20). The price of com in the market has to cover the cost of cultivation. Otherwise the farmer will not produce corn. Thus, the price in the present case should be atleast ₹ 15 per quintal.

As time passes, population increases and demand for land also increases. In such a case, people have to cultivate next best land, i.e., ‘B’ grade land. The same amount of ₹ 300 is spent on B’ grade land gives only 15 quintals of com as ‘B’ grade land is less fertile. The cost of cultivation on B’ grade land risen to ₹ 20 (300/15) per quintal of com. If the price of corn per quintal in the market is then ₹ 20, the cultivator of ’B‘ grade land will be not cultivate. Therefore, the price has to be high enough to cover the cost of cultivation on ’B’ grade land. Hence, the price also rises to ₹ 20. There is no surplus on ‘B’ grade land. But on A’ grade land, the surplus is 5 quintals or ₹ 100 (5 × 20).

Further, due to growth of population demand for land and corn increased. This necessitates, the cultivation of ‘C’ grade land with ? 300 investment cost. It yields only 10 quintals of com. Therefore, the per quintal production cost rises to 30 (300/10). Then the price per quintal must be atleast ? 30 to cover the cost of production. Otherwise C’ grade land will be withdrawn from cultivation. At price ? 30 C’ grade land yield no surplus or rent. But A grade land yields still layer surplus of 10 quintals or ? 300 (10 x 30). But surplus or rent on ‘B’ grade land has 5 quintals or ? 150 (5 x 30). But there is no surplus or rent on ‘C’ grade land. It covers just the cost of cultivation. Hence, ‘C’ grade land is a marginal land which earns no rent or surplus.

This can also be explained with the following table.
TS Inter 1st Year Economics Study Material Chapter 6 Theories of Distribution 2

The essence of Ricardian theory of rent.
TS Inter 1st Year Economics Study Material Chapter 6 Theories of Distribution 3

Rent is a pure surplus.
Rent is differential surplus.
Rent does not determine or enter into price.
Diminishing returns applies to agricultural production.
Land is put to only one use, i.e., for cultivation.

Ricardian theory’ of rent can be explained with the help of the above diagram.

In the above diagram, the shaded area represents the rent or differential surplus. The least fertile land, i.e., C does not carry any rent. So it is called marginal land or no rent land.

Question 3.
What is meant by real wages? What are the factors that determine real wages?
Answer:
The amount of goods and services that can be purchased with the money wages at any particular time is called real wage. Thus, real wage is the amount of purchasing power received by worker through his money wage.

Factors Determining the Real Wage :
1. Methods of Form of Payment :
Besides money wages, normally the labourers get some additional facilities provided by their management. Ex : Free housing, free medical facilities etc. As a result, this real wage of the worker will be high.

2. Purchasing Power of Money :
An important factor which determines the real wage is the purchasing power of money which depends upon the general price level. A rise in general price level will mean a full in the purchasing power of money, causes decline in real wages.

3. Nature of Work :
The working conditions also determine the real wages of labourer. Less duration of work, ventilation, fresh air etc., result in high real wages, lack of these facilities then the real wages are low even though if money wages are high.

4. Future Prospects :
Real wage is said to be higher in those jobs where there is possibility of promotions, hike in wages and vice-versa.

5. Nature of Work :
Real wages are also determined by the risk and danger involved in the work. If work is risky wages of labourer will be low though money wages are high. Ex : Captain in a submarine.

6. Timely Payment :
If a labourer receives payment regularly and timely the real wages of the labourer is high although his money wage is pretty less and vice-versa.

7. Social Prestige :
Real wage depends on social prestige. The money wages of Bank officer and judge are equal, but the real wage of a judge is higher than bank officer.

8. Period and Expenses of Education :
Period and expenses of training also affect real wages.

Question 4.
Explain about the gross interest and net interest.
Answer:
The concept of interest are two types namely, gross interest and net interest.
Gross Interest :
The payment which the lender receives from the borrower excluding the principal is gross interest. It comprises the following payments :

Net Interest :
It is the payment for the service of capital or money only. This is the interest in economic sense.

Keynes’ Liquidity Preference Theory :
Keynes proposed a monetary explanation of the rate of interest. He said that interest is determined by both the demand for and supply of money. According to J.M. Keynes, “Interest is the reward paid for parting with liquidity for the specified period”.

A. Supply of Money :
Supply of money refers to the total quantity of money in circulation. Though the supply of money is a function of the rate of interest to a degree, supply of money is fixed or perfectly inelastic at a given point of time. It is determined by the central bank of a country.

B. Demand for Money :
Keynes coined a new term liquidity preference. People demand money for its liquidity. The desire to hold ready cash is liquidity preference. The higher the liquidity preference, the higher will be the rate of interest to be paid to induce them to part with their liquid assets. The lower the liquidity preference, the lower will be the rate of interest that will be paid to the cash holders. People demand money basically for three reasons : 1) Transactions motive 2) Precautionary motive 3) Speculative motive.

1) Transaction Motive :
People desire to keep cash for the current transactions of personal and business exchanges. The amount kept for this purpose depends upon the income and business motives.

2) Precautionary Motive :
People keep cash in reserve to meet unforeseen expenses like illness, accidents, unemployment etc. Businessmen keep cash in reserve to gain from unexpected deals in future. Therefore, both individuals and businessmen keep cash in reserve to meet unexpected needs.

3) Speculative Motive :
Speculative motive for money relates to the desire to hold cash to take advantage of future changes in the rate of interest and bond prices. The price of bonds and the rate of interest are inversely related. If the prices of bonds are expected to rise then the rate of interest is expected to fall, as businessmen will buy bonds to sell them when their prices rise and vice versa. Low bond prices are indicative of high interest rates, and high bond prices reflect low interest rates.

The demand for money is inversely related to the rate of interest.

The transaction and precautionary motives are relatively interest inelastic, but are highly income elastic. In the determination of rate of interest, these two motives do not have any role. Only the speculative motive is interest elastic and this plays very important role in determining the rate of interest with the given supply of money. When the demand for money and supply of money are equal, along with the equilibrium, rate of interest also be determined.

Question 5.
What is meant by profit? Explain briefly various theories of profit.
Answer:
Profit is the reward paid to the entrepreneur for his services as an organizer in the process of production.

Theories of Profit:
1. Dynamic theory of profit :
This theory was propounded by J.B.Clark. According to Clark, “Profit is the difference between the price and cost of production of commodity”. He viewed that profit as a reward for entrepreneurial dynamism. Dynamic changes like increase in population, new method of production etc., result in increase in profit. In a static economy due to lack of these changes entrepreneurs receive only wages but not profit. Hence, profits are the result of the dynamic changes only.

2. Innovation theory of profit :
This theory was developed by Joseph Schumpeter. According to Schumpeter, “profit is the reward paid to the entrepreneur for his inventive skills”. Because of these inventions profits arise as a difference between prices and costs of production.

According to Schumpeter, entrepreneur must break the circular flow by introducing innovations. They are :

Introduction of new good.
Introduction of new method of production.
Reorganisation of industry.
Opening up of a new market.
Discovery of new source of raw materials.

So these innovations, the cost of production remains below its selling price and thus, profit arises.

Thus profit is paid to entrepreneur for innovating but not for risk taking.

3. The risk theory of profit :
This theory was proposed by Prof. Hawley. Profits are the reward for an entrepreneur for risk-taking. So the residual part of income after paying all factors of production goes to the entrepreneur for risk taking. Fluctuations in future prices, demand etc., are involved in risk taking.

According to Prof. Hawley, “those who face risks in business will be able to earn an excess of payment above the actual value of risk in the form of profit”.

4. Uncertainty theory of profit :
This theory was formulated by Prof. Knight. It is a modified version of risk bearing theory of profits. According to him, profit as the reward for bearing uninsurable risks and uncertainties. He classified risks into two types.

Unforeseen insurable risks like fire, theft.
Unforeseen non insurable risks like changes in prices, demand and supply. These uninsurable risks cannot be calculated.

According to Prof. Knight, “Profit cannot be treated as the reward for risk taking only for reward for uncertainty bearing”.

5. Walker’s theory of profit :
This theory was developed by Walker. According to Walker, “Profits are a rent paid for the abilities of entrepreneur”. Walker theory states that profits arise due to the differences in efficiency and ability of entrepreneurs. Hence, efficient and able entrepreneurs are paid profits.

Short Answer Questions

Question 1.
Explain the types of distribution in income.
Answer:
Distribution refers to that branch of economies which analyses how the national income of a community is divided among the various factors of production, distribution then refer to the sharing of the wealth that is produced among factors of production. It is the pricing of factors of production. The distribution of income may be personal or functional. Economies is concerned with functional distribution. The distinction between them is briefly explained here.

1. Functional Distribution :
Functional distribution deals with the study of factor incomes. It means the theory of factor pricing. The prices of land, labour, capital and organisation are called rent, wages, interest and profit respectively. Therefore, it is the study and determination of rent, wages, interest and profit. It concerns the pattern of distribution of national income as rent, wage, interest and profits. Thus, it is not concerned with individuals and their individual income, but with the agents of production. The study of functional shares has been carried on both at the macro and micro levels.

Micro-distribution :
The theory of micro-distribution explains how the prices of factors of production are determined.
Ex : Micro-distribution studies how the wage rate of labour is determined.

Macro-distribution :
Macro distribution explains the share of a factor of production in the national income.
Ex : The share of labour in the national income.

2. Personal distribution :
It refers to the distribution of income or wealth of a country among its people. It studies how income or wealth is distributed among individuals or persons. It studies how much income is earned by an individual, but not how it is earned or in how many forms it is earned. The causes of income inequalities can be known by studying personal distribution.

Question 2.
What are the factors that determine the factor prices?
Answer:
The demand and supply of a factor of production determine its price. The demand for a factor of production depends on the following.

It depends on the demand for the goods produced by it.
Price of the factor determines its demand.
Prices of other factors or co-operative factors determine the demand for a factor.
Technological changes determine the demand for a factor.
The demand for a factor increases due to increase in its production.

Factors that determine the supply of a factor of production.

The size of the population and it’s age composition.
Mobility of the factor of production.
Efficiency of the factor of production.
Geographical conditions.
Wage also determines the supply of this factor.
Income.

Question 3.
Point out the assumptions and limitations of marginal productivity theory.
Answer:
Marginal Physical Product (MPP) is the additional output obtained by using an additional unit of the factor of production. If we multiply the additional output by market price we will get Marginal Value Product (MVP) or Marginal Revenue Product (MRP). MRP is the addition made to total revenue by employing one more unit of factor. The marginal revenue productivity of a factor increases initially with the increase in the units of the factor of production, then reaches to maximum and after that it diminishes and will tend to equal the price of the factor service (average factor cost = AFC). This tendency of diminishing marginal revenue productivity follows from the assumption law of variable proportion. Assumptions of the Theory :

The theory is based on the following assumptions :

There is perfect competition in the factor market and commodity market.
All the units of a factor are homogeneous.
The theory assumes full employment of the factors.
There is perfect mobility of the factors of production.
Substitution is possible between the factors.
The entrepreneurs are motivated by the profits.
Various units of the factors are divisible.
The theory is applicable in the long run.
It is based on the law of variable proportions.
Marginal production of a factor can be measured.

Criticism :
The marginal productivity theory of distribution is based on unrealistic assump¬tions. Hence, it has been criticized.

There is no perfect competition in the factor market and commodity market.
All the factor units are not homogeneous.
Factors are not fully employed.
Factors are not perfectly mobile.
Substitution is not always possible between the factors.
Profit motive is not the main motive.
All factors are not divisible.
This theory is not applicable in the short run.
Production is not the result of one factor alone.
The sum of factor payments is not equal to the value of product.

The marginal productivity theory is not an adequate explanation of the determination of the pricing of factors of production. Inspite of limitations of the theory, it explains the role of productivity in the determination of factor price.

Question 4.
What are the determining factors of real wages? [Mar. 17, 16]
Answer:
Real wages refer to the purchasing power of money wages received by the labourer. Real wages are expressed in terms of goods and services that a worker can buy with his money wages. The real wage is said to be high when a labourer obtains larger quantity of goods and services with his money income.

Factors Determining Real Wages :
Real wages depend on the following factors :
1) Price Level :
Purchasing power of money determines the real wage. Purchasing power of money depends on the price level. If price level is high, purchasing power of money will be low. On the contrary, if price level is low, purchasing power of money will be high. Similarly, given the price level, if money wage is high real wage will also increase and when money wage decreases real wage also decreases.

2) Method of Payment :
Besides money wages, labourers get certain additional facilities provided by their management. Like free housing, free medical facilities, free education facilities to children, free transport etc. If such facilities are high, the real wages of labourers will also be high.

3) Regularity of Employment :
Real wages depend on the regularity of employment. If the job is permanent, his real wage will be high even though his money wage is low. In case of temporary employment, his real wage will be low though his money wage is high. Thus, certainty of job influences real wages.

4) Nature of Work :
Real wages are also determined by the risk and danger involved in the work. If the work is risky real wages of labourer will be low though money wages are high. For instance, a captain in a submarine, miners etc., always face danger and risk.

5) Conditions of Work :
The working conditions also determine the real wage of a labourer. Less duration of work, ventilation, light, fresh air, recreation facilities etc., certainly result in the high real wages. If these facilities are lacking, real wages are low even though money wages are high.

6) Subsidiary Earnings :
If a labourer earns extra income in addition to his wage, his real wage will be higher. For instance, a government doctor may supplement his earnings by undertaking private practice.

7) Future Prospects :
Real wage is said to be higher in those jobs where there is a possibility of promotions, hike in wage and vice-versa.

8) Timely Payment :
If a labourer receives payment regularly and timely, the real wage of the labourer is high although his money wage is pretty less and vice versa.

9) Social Prestige :
Although money wages of a bank officer and Judge are equal, the real wage of a Judge is higher than the bank officer due to social status.

10) Period and Expenses of Education :
Period and expenses of education also affect real wage. For example, if one person is a graduate and the other is an undergraduate who are working as clerks, the real wage of the undergraduate is high because his period of learning and expenses on education are lower than the graduate labourer.

Question 5.
Explain the concepts of gross profits.
Answer:
Gross profit is considered as a difference between total revenue and cost of production. The following are the components of gross profit:

The rent payable to his own land or buildings includes gross profit.
The interest payable to his own business capital.
The wage payable to the entrepreneur for his management includes gross profit.
Depreciation charges or user cost of production and insurance charges are included in gross profit.

Net profits :
Net profits are reward paid for the organiser’s entrepreneurial skills.

Components :
1. Reward for Risk Bearing :
Net profit is the reward for bearing uninsurable risks and uncertainties.

2. Reward for Co-ordination :
It is the reward paid for co-ordinating the factors of production in right proportion in the process of production.

3. Reward for Marketing Services :
It is the profit paid to the entrepreneur for his ability to purchase the services of factors of production.

4. Reward for Innovations :
It is the reward paid for innovations of new products and alternative uses to natural resources.

5. Wind Fall Gains :
These gains arise as a result of natural calamities, wars and artificial scarcity are also included in net profits.

Very Short Answer Questions

Question 1.
What are the determining factors of the demand for a factor?
Answer:

The demand for the factors of production is derived demand. It depends on the demand for the goods produced by it.
Price of the factor determines its demand.
Prices of other factors which will help in the production also determine the demand for a factor.
Technology determines the demand for the factors. For instance, increase in technology reduces the demand for labourers.
Returns to scale will determine the demand for the factors of production. The demand for the factors increases due to increasing returns in the production.

Question 2.
What are the determining factors of the surplus of labour ?
Answer:
Supply of labour depends on :

Size of the population and its age composition.
Mobility of the factors of production.
Efficiency of the factors of production.
Geographical conditions will determine the supply of factors of production.
Price of the factor determines its supply.
The supply of a factor depends on its opportunity cost – the minimum earning which it can earn in the next best alternative use.

Question 3.
What is Contract rent?
Answer:
It is the hire charges for any durable good. Ex : Cycle rent, room rent etc. It is a periodic payment made for the use of any material good. The amount paid by the tenant cultivator to the landlord annually may be also called contract rent. Ex. : The rent that a tenant pays to the house owner monthly as per an agreement made earlier or the hiring charges of a cycle ^ 10 per hour is also contract rent.

Question 4.
What is Economic rent?
Answer:
The ordinary use of the term ‘rent’ means any periodic payment for the hire of anything such as garriages, buildings etc. Economic rent is the pure rent payable as a reward for utilising the productivity of land. It is derived by subtracting the elements like interest, wages, profits and depreciation from the gross rent or contract rent. To David Ricardo, it is surplus over costs or expenses of cultivation.

Question 5.
What are Money wages?
Answer:
Money wages are the remuneration received by the labourer in the form of money for the physical and mental service rendered by him or her in the production process.
Ex : If a labourer is paid ₹ 30/- per day. ₹ 30/- is the money wage.

Question 6.
What are Real wages?
Answer:
Real wage is the purchasing power of money wages in terms of goods and services.

Question 7.
What are Time wages?
Answer:
Time wage is the amount paid for labourers for a fixed period of work i.e., weakly, daily, monthly etc.

Question 8.
What are Piece wages?
Answer:
Piece wage is the amount paid for labourers according to volume of work, done by them.

Question 9.
What is Gross interest?
Answer:
The payment which the lender receives from the borrower excluding the principal is gross interest.
Gross interest = Net interest + [Reward for risk taking + Reward for Inconvenience + Reward for management]

Question 10.
What is Net interest?
Answer:
Net interest is the reward for the service of the capital loan.
Ex : Net interest paid on government bonds and government loans.

Question 11.
What is Gross profit?
Answer:
Gross profit is considered as a difference between total revenue and cost of production.
Gross profit = Net profit + [Implicit rent + Implicit wage + Implicit interest + Depreciation charges + Insurance premium]

Question 12.
What is Net profit ? [Mar. ’16]
Answer:
Net profit is the reward paid for the organizer’s entrepreneurial skills.
Net profit = Gross profit – [Implicit rent + Implicit wage + Implicit interest + Depreciation charges + Insurance premium]

TS Inter 1st Year Economics Study Material Chapter 5 Market Analysis

November 16, 2022October 28, 2022 by Srinivas

Telangana TSBIE TS Inter 1st Year Economics Study Material 5th Lesson Market Analysis Textbook Questions and Answers.

TS Inter 1st Year Economics Study Material 5th Lesson Market Analysis

Long Answer Questions

Question 1.
Describe the classification of markets.
Answer:
Edwards defined “Market as a mechanism by which buyers and sellers are brought together”. Hence, market means where selling and buying transactions take place. The classification of markets is based on three factors.

On the basis of area
On the basis of time
On the basis of competition.

I. On the Basis of Area :
According to the area, markets can be of three types.

1) Local Market :
When a commodity is sold at particular locality. It is called a local market. Ex : Vegetables, flowers, fruits etc.

2) National Market :
When a commodity is demanded and supplied throughout the country is called national market. Ex : Wheat, rice etc.

3) International Market :
When a commodity is demanded and supplied all over the world is called international market. Ex : Gold, silver etc.

II. On the Basis of Time :
It can be further classified into three types.
1) Market Period or Very Short Period :
In this period where producer cannot make any changes in supply of a commodity. Here, supply remains constant. Ex: Perishable goods.

2) Short Period :
In this period supply can be changed to some extent by changing the variable factors of production.

3) Long Period :
In this period supply can be adjusted in accordance with change in demand. In long run all factors will become variable.

III. On the Basis of Competition :
This can be classified into two types.
1) Perfect Market :
A perfect market is one in which the number of buyers and sellers is very large, all engaged in buying and selling a homogeneous products without any restrictions.

2) Imperfect Market :
In this market, competition is imperfect among the buyers and sellers. These markets are divided into 1. Monopoly 2. Duopoly 3. Oligopoly 4. Monopolistic competition.
TS Inter 1st Year Economics Study Material Chapter 5 Market Analysis 1

Question 2.
What are the characteristic features of perfect competition?
Answer:
Perfect competitive market is one in which the number of buyers and sellers is very large, all engaged in buying and selling a homogeneous products without any restrictions.

The following are the features of perfect competition :
1) Large Number of Buyers and Sellers :
Under perfect competition, the number of buyers and sellers is large. The share of each seller and buyer in total supply or total demand is small. So, no buyer and seller cannot influence the price. The price is determined only by demand and supply. Thus, the firm is price taker.

2) Homogeneous Product :
The commodities produced by all the firms of an industry are homogeneous or identical. The cross elasticity of products of sellers is infinite. As a result, single price will rule in the industry.

3) Free Entry and Exit :
In this competition there is a freedom of free entry and exit. If existing firms are getting profits new firms enter into the market. But when a firm gets losses, it would leave the market.

4) Perfect Mobility of Factors of Production :
Under perfect competition the factors of production are freely mobile between the firms. This is useful for free entry and exit of firms.

5) Absence of Transport Cost :
There are no transport cost. Due to this, price of the commodity will be the same throughout the market.

6) Perfect Knowledge of the Economy :
All the buyers and sellers have full information regarding the prevailing and future prices and availability of the commodity. Information regarding market conditions is also available.

Question 3.
Explain the meaning of perfect competition. Illustrate the mechanism of price determination under perfect competition. [Mar. ’17, ’16]
Answer:
Perfect Competition :
Perfect competition is a market sructure characterized by a complete absence of rivalry among the individual firms. Thus, perfect competition in economic theory has a meaning diametrically opposite to the everyday use of this term. In practice, businessmen use the word competition as synonymous to rivalry. In the theory, perfect competition implies no rivalry among firms. Perfect competition may be defined as that market situation, in which there are large number of firms producing homogeneous product, there is free entry and free exit, perfect knowledge on the part of buyer, perfect mobility of factors of production and no transportation cost at all.

Price Determination under Perfect Competition : Under perfect competition, sellers and buyers cannot decide the price, Industry decides the price of the good.

Market brings about a balance between the commodities that come for sale and those demanded by consumers. It means, the forces of supply and demand determine the price of the good. The following schedule and diagram help us to understand changes in supply, demand and equilibrium price.

Demand and Supply Schedule

Price (In Rupees)	Quantity supplied(in KGs)	Quantity Demanded (in KGs)
10	20	60
20	30	50
30	40	40
40	50	30
50	60	20

The above table shows the demand and supply schedules of a good. Changes in price always lead to change in supply and demand. As price increases, there is a fall in the quantity demanded. It means, price and quantity demanded have a negative relationship. At the sametime, if price of a commodity increases there is an increase in the quantity supplied. Therefore, the relation between price and supply of goods is positive. It can be observed from the table that when the price is ₹ 10/-, market demand is 60 kgs and supply is 20 kgs.

When the price increases to ₹ 20/-, the supply increases to 30 kgs and demand falls to 50kgs. If the price increases to ₹ 50/-, the supply increases to 60 kgs and demand is only 20 kgs. When the demand is less, price tends to decrease towards equilibrium price. When the price is ₹ 30/-, the demand and supply are equal to 40 kgs. This price is called equilibrium price which is ₹ 30, and equilibrium output and demand is 40 kgs. This process is explained with, the help of figure.
TS Inter 1st Year Economics Study Material Chapter 5 Market Analysis 2

In the figure, the demand and supply of a commodity are shown on OX axis and the price of the commodity on OY axis. As per the diagram, the equilibrium price is found at a point where both demand and supply curves intersect each other at point E, i.e., OP price is the equilibrium price and OQ quantity is the equilibrium supply and demand.

Question 4.
Explain equilibrium of the firm in the shortrun and longrun under perfect competition.
Answer:
Perfect competition is a market structure characterized by a complete absence of rivalry among the individual firms. Thus, perfect competition in economic theory has a meaning diametrically opposite to the everyday use of this term. In practice, businessmen use the word competiton as synonymous to rivalry. In theory, perfect competition implies no rivalry among firms. Perfect competition may be defined as that market situation, in which there are large number of firms producing homogeneous product, there is free entry and free exit, perfect knowledge on the part of buyer, perfect mobility of factors of production and no transportation cost at all.

Equilibrium of a Firm :
We have learnt that the price of a commodity is determined by the market demand and market supply under perfect competition. An increase in price of a product acts as an incentive in increasing production. As a firm aims at maximizing profit, it chooses that output which maximizes its profits. When the firm is in equilibrium, it has no desire to change its output.

Equilibrium output is explained with the help of cost and revenue curves of a firm. In perfect competition, average and marginal cost curves are ‘U’ shaped one and average revenue and marginal revenue curves are parallel to OX axis. Since AR = MR, both these curves will merge into a single line.

1) Short Period Equilibrium :
Firms are in business to maximize profits. During short period, a firm cannot change fixed factors like machinery, buildings etc. However, it produces more output by increasing variable factors. Equilibrium output is produced in the short period where short period marginal cost (SMC) is equal to short period marginal revenue (SMR). The firm will be in equilibrium, when marginal cost curve cuts marginal revenue curve from below. During short period, a firm may get super normal, normal profits or losses. Two conditions are necessary for firm’s equilibrium. They are : i) MC = MR and ii) MC curve should cut MR curve from below. The figure shows the firm’s short period equilibrium.
TS Inter 1st Year Economics Study Material Chapter 5 Market Analysis 3

In the figure quantity demanded and supplied are shown on OX axis and price of the commodity on OY axis. The diagram shows that the equilibrium price OP is determined by the industry at point E where the industry demand is equal to industry supply. The price, so, determined by the industry is passed on to the firm. This is shown by the horizontal demand curve of the firm. This line is also known as the price line. Since, competition is perfect, the AR curve (demand curve) of the firm is also the MR curve of the firm. The firm’s SAC curve and SMC curve are also shown respectively.

The profits of the firm are maximum at the output where MC = MR, that is, at output OQ, SMC = MR. At any output than OQ, MR exceeds MC, which would mean that if the production is more its profits will increase. At any output more than OQ, MR becomes less than MC, which would mean a loss to the firm. Thus, OQ is output of maximum profits. At the equilibrium point ‘E’, the price is equal to OP or AQ, while AC per unit equals QB, profit per unit is equal to B. Total supernormal profits will be equal to PABC, i.e., BA x OQ.

2) Long Period Equilibrium :
We have seen that under short period, a firm can adjust its output, within limits, by varying the factors of production. But in the long period the firm can adjust its output to any extent because it can vary all the factors of production. Thus, it is certain that the firm will not incur losses in the long period. In the long period, the free entry of the new firms into the industry will wipe out the supernormal profits of the firm. Hence, in the long period, the frim wil be at optimum size where there is no profit – no loss. Firm gets only normal profits which are included in the long period average cost. In other words, under perfect competition, the individual firm at equilibrium earns normal profits only.
Therefore, AR = MR = LAC = LMC

The figure illustrates the long period equilibrium of the firm. The quantity of a good is depicted on OX axis and price, costs and revenues are on OY axis in the diagram.
TS Inter 1st Year Economics Study Material Chapter 5 Market Analysis 4

The point of equilibrium will be established at which the firm’s MR curve touches its LAC curve at its minimum point. At this point LMC = LAC. Thus, when a firm is in long period equilibrium the following conditions exist:
At point E; P = AR = MR = LMC = LAC.

Question 5.
What is monopoly? Explain how price is determined under monopoly.
Answer:
Monopoly is one of the market in the imperfect competition. The word ‘Mono’ means I ‘single’ and ‘Poly’ means ‘seller’. Thus, monopoly means single seller market.

In the words of Bilas, “Monopoly is represented by a market situation in which there is a single seller of a product for which there are no close substitutes, this single seller is unaffected by and does not affect, the prices and outputs of other products sold in the economy”. Monopoly exists under the following conditions : 1) There is a single seller of product. 2) There are no close substitutes. 3) Strong barriers to entry into the industry exist.

Features of Monopoly:

There is no single seller in the market.
No close substitutes.
There is no difference between firm and industry.
The monopolist either fix the price or output.

Price Determination :
Under monopoly, the monopolist has complete control over the supply of the product. He is price maker who can set the price to attain maximum profit. But he cannot do both things simultaneously. Either he can fix the price and leave the output to be determined by consumer demand at a particular price. Or he can fix the output to be produced and leave the price to be determined by the consumer demand for his product. This can be shown in the diagram.
TS Inter 1st Year Economics Study Material Chapter 5 Market Analysis 5

In the above diagram, on ‘OX’ axis measures output and ‘OY axis measures cost. AR is Average Revenue curve, AC is Average Cost curve. In the above diagram, at point E where MC = MR at that point the monopolist determines the output. Price is determined where this output line touches the AR line. In the above diagram for producing OQ quantity cost of production is OCBQ and revenue is OPAQ.
Profit = Revenue – Cost
= PACB shaded area is profit under monopoly.

Short Answer Questions

Question 1.
Write a note on classification of markets based on time and area.
Answer:
Edwards defined, “Market as a mechanism by which buyers and sellers are brought together”. Hence, market means where selling and buying transactions take place. The classification of markets is based on three factors.

On the basis of area
On the basis of time
On the basis of competition.

I. On the Basis of Area :
According to the area, markets can be of three types.

1) Local Market :
When a commodity is sold at particular locality, it is called a local market. Ex : Vegetables, flowers, fruits etc.

2) National Market :
When a commodity is demanded and supplied throughout the country is called national market. Ex : Wheat, rice etc.

3) International Market :
When a commodity is demanded and supplied all over the world is cdlled international market. Ex : Gold, silver etc.

2) Short Period :
In this period supply can be changed to some extent by changing the variable factors of production.

3) Long Period :
In this period supply can be adjusted in according to change in demand. In long run all factors will become variable.

III. On the Basis of Competition :
This can be classified into two types.
1) Perfect market :
A perfect market is one in which the number of buyers and sellers is very large, all engaged in buying and selling a homogeneous products without any restrictions.

2) Imperfect Market :
In this market, competition is imperfect among the buyers and sellers. These markets are divided into 1. Monopoly 2. Duopoly 3. Oligopoly 4. Monopolistic competition.

Question 2.
Explain the equilibrium of the firm in the Short-run under perfect competition.
Answer:
Short Period Equilibrium :
Firms are in business to maximize profits. During short period, a firm cannot change fixed factors like machinery, buildings etc. However, it produces more output by increasing variable factors. Equilibrium output is produced in the short period where short period marginal cost (SMC) is equal to short period marginal revenue (SMR). The firm will be in equilibrium, when marginal cost curve cuts marginal revenue curve from below. During short period, a firm may get super normal, normal profits or losses. Two conditions are necessary for firm’s equilibrium. They are : i) MC = MR and ii) MC curve should cut MR curve from below. The figure shows the firm’s short period equilibrium.

The firm’s SAC curve and SMC curve are also shown respectively. The profits of the firm are maximum at the output where MC = MR, that is, at output OQ, SMC = MR. At any output than OQ, MR exceeds MC, which would mean that if the production is more its profits will increase. At any output more than OQ, MR becomes less than MC, which would mean a loss to the firm. Thus, OQ is output of maximum profits. At the equilibrium point ‘E’, the price is equal to OP or AQ, while AC per unit equals QB, profit per unit is equal to B. Total supernormal profits will be equal to PABC, i.e., BA x OQ.

Question 3.
Explain the equilibrium of the firm in the Longrun under perfect competition.
Answer:
Long Period Equilibrium :
We have seen that under short period, a firm can adjust its output, within limits, by varying the factors of production. But in the long period the firm can adjust its output to any extent because it can vary all the factors of production. Thus, it is certain that the firm will not incur losses in the long period. In the long period, the free entry of the new firms into the industry will wipe out the supernormal profits of the firm.

Hence, in the long period, the frim wil be at optimum size where there is no profit – no loss. Firm gets only normal profits which are included in the long period average cost. In other words, under perfect competition, the individual firm at equilibrium earns normal profits only.
Therefore, AR = MR = LAC = LMC

The figure illustrates the long period equilibrium of the firm. The quantity of a good is depicted on OX axis and price, costs and revenues are on OY axis in the diagram.

Quedtion 4.
What is monopoly? What are its characteristics?
Answer:
Monopoly is totally a different market situtation compared with perfect competition. The word ‘mono‘ means single, and ‘poly’ means seller. Monopoly is said to exist when one firm is the sole producer of a product which has no close substitutes. In the words of Bilas, “Monopoly is represented by a market situation in which there is a single seller of a product for which there are no close substitutes, this single seller is unaffected by and does not affect the prices and outputs of other products sold in the economy”.

Characteritics of Monopoly:
a) A single firm produces the good in the market.
b) No close substitutes to this good.
c) Strong barriers exist for the entry of new firms into the market.
d) Industry and firm is one and same.
e) Producer can control either price or quantity of the good. But he / she cannot determine both price and quantity of the good simultaneously.

Equilibrium and Price Determination under Monopoly :
Price, output and profits under monopoly are determined by the forces of demand and supply. The monopolist will have complete control over the supply of the product. He also possesses the power to set the price to attain maximum profit. However, he cannot do both the things simultaneously, Either he can fix the price and leave the output to be determined by the consumer demand at this price or he can fix the output to be produced and leave the price to be determined by the consumer demand for his product.

Question 5.
What are the characteristics of monopolistic competition?
Answer:
It is a market with many sellers for a product but the products are different in certain respects. It is mid way of monopoly and perfect competition. Prof. E.H. Chamberlin and Mrs. Joan Robinson pioneered this market analysis.

Characteristics of Monopolistic Competition :
1) Relatively Small Number of Firms :
The number of firms in this market are less than that of perfect competition. No one can control the output in the market as a result of high competition.

2) Product Differentiation :
One of the features of monopolistic competition is product differentiation. It takes the form of brand names, trade marks etc. Its cross elasticity of demand is very high.

3) Entry and Exit :
Entry into the industry is unrestricted. New firms are able to commence production of very close substitutes for the existing brands of the product.

4) Selling Cost :
Advertisement or sales promotion technique is the important feature of Monopolistic competition. Such costs are called selling costs.

5) More Elastic Demand :
Under this competition the demand curve slopes downwards from left to the right. It is highly elastic.

Question 6.
What is oligopoly? Explain its characteristics.
Answer:
The term ‘Oligopoly’ is derived from two Greek word “Oligoi” meaning a few and “Pollein” means to sell. Oligopoly refers to a market situation in which the number of sellers dealing in a homogeneous or differentiated product is small. It is called competition among the few. The main features of oligopoly are the following.

Few sellers of the product.
There is interdependence in the determination of price.
Presence of monopoly power.
There is existence of price rigidity.
There is excessive selling cost or advertisement cost.

Question 7.
Explain the concept of duopoly and its characteristics.
Answer:
Duopoly (from greek duoayi (two) + polein(to sell)) is a specific type of oligopoly where only two producers exist in one market. In reality, this definition is generally used where only two firms have dominance over a market.

It is also called as a limited form of oligopoly. The goods produced by the producers may be homogeneous or differentiated. As there are only two producers, both are aware that the decisions of one will affect the other. Rivalry and collusion of the producers are both possible in this market situation. In the market both firms have noteworthy control. In the field of industrial organization, it is the most commonly studied form of oligopoly due to its simplicity.

The earliest duopoly model was developed in 1838 by the French economist Augustin Cournot. Cournot illustrated his model with the example of two firms. According to this model, the two sellers will have a naive behaviours and they never learn from past patterns of reaction of rivalry. As a result each firm produces one third of the output. Together they cover two-thirds of the total market. Each firm maximizes its profits but industry profit will not be maximized. This happens due to non recognition of their interdependence. Characteristics of Duopoly:
a) There will be two sellers.
b) Homogeneous product.
c) Zero production cost.
d) Sellers do not understand their interdependence.

Question 8.
Compare perfect Competition and Monopoly.
Answer:

Perfect competition	Monopoly
1. There are large number of sellers.	1. There is only one seller.
2. All products are homogeneous.	2. No close substitutes.
3. There is freedom of free entry and exist.	3. There is no freedom of free entry and exist.
4. There is a difference between the industry and firm.	4. Industry and firm both are same.
5. Industry determines the price and firm receives the price.	5. Firm alone determines the price.
6. There is universal price.	6. Price discrimination is possible.
7. The AR, MR curves are parallel to ‘X’ axis.	7. The AR, MR curves are different and slopes downs from left to right.

Very Short Answer Questions

Question 1.
Define Market. [Mar. ’16]
Answer:
Market is place where commodities are brought and sold and where buyers and sellers meet. Communication facilities help us today to purchase and sell without going to the market. All the activities take place is now called as market.

Question 2.
Give a note on the Time Based Markets.
Answer:
Supply of a good can be adjusted depending on time factor. On the basis of time, markets are divided into three types, i.e., very short period, short period and long period.

a) Market Period or Very Short Period :
This is a period where producer cannot make any changes in the supply of a good. Hence, the supply is fixed. As we know supply can be changed by making changes in inputs. Inputs cannot be changed in the very short period. Supply remains constant in this period. Perishable goods will have this kind of markets.

b) Short Period :
It is a period in which supply can be changed to a little extent. It is possible by changing certain variable inputs like labour.

c) Long Period :
The market in which the supply can be changed to meet the increased demand, producer can make changes in all inputs depending upon the demand in the long period. It is possible to make adjustments in supply in long period.

Question 3.
Give a note on the Area Based Markets.
Answer:
On the basis of area, markets are classified into local, national and international. These markets tell us the size or extent of the market for a commodity. The size of the market for a good depends upon demand for the good, transportation facilities and durability of the good etc.

a) Local Market :
When a commodity is sold at its produced area it is called local market. Perishable goods like vegetables, flowers, fruits etc., maybe produced and marketed in the same area.

b) National Market :
When a commodity is demanded and supplied by people throughout the country it is called national market. Examples are wheat, rice, cotton etc.

c) International Market :
When buying and selling of commodities take place all over the world, then it is called international market. Ex. gold, silver, petrol etc.

Question 4.
Give a note on the Competition based markets.
Answer:
Based on the nature of the competition, markets are classified into two perfect competition and imperfect competition.
a) Perfect Competition :
A perfectly competitive market is one in which the number of buyers and sellers is very large, all engaged in buying and selling a homogeneous product without any artificial restrictions. Hence, there is absence of rivalry among the individual firms in perfect competition.

b) Imperfect Competition :
It is a market situation where competition is not perfect either amongst the buyers or amongst the sellers. Hence, there will be a different price for the same product. These markets are divided into monopoly, monopolistic competition, oligopoly and duopoly.

Question 5.
What is Perfect competition?
Answer:
In this market there are large number of buyers and sellers who promote competition. In this market goods are homogeneous. There is no transport fares and publicity costs. So price is uniform of any market.

Question 6.
Define Monopoly.
Answer:
Mono means single, Poly means seller. In this market single seller and there is no close substitutes. The monopolist is a price maker.

Question 7.
What is Monopolistic competition? [Mar. ’16]
Answer:
It is a market where several firms produce same commodity with small differences is • called monopolistic competition. In this market producers to produce close substitute goods.
Ex : Soaps, cosmetics etc.

Question 8.
Define Oligopoly.
Answer:
A market with a small number of producers is called oligopoly. The product may be homogeneous or may be differences. This market exists in automobiles, electricals etc.

Question 9.
What is Duopoly?
Answer:
When there are only two sellers of a product, there exist duopoly. Each seller under duopoly must consider the other firms reactions to any changes that he makes in price or output. They make decisions either independently or together.

Question 10.
Explain Equilibrium price.
Answer:
Equilibrium price is that price where demand and supply are equal in the market.

Question 11.
What is Product differentiation? [Mar. ’17]
Answer:
One of the main features of monopolistic competition is product differentiation. This is a market situation in which there are many firms of a particular product, but the product of each firm is in some way or the other way differentiated from the product of the other firms in the market. They are heterogeneous rather than homogeneous. Product differentiation may take the form of brand names, trademarks, etc. This means that the products of the firms will have close substitutes and their cross-elasticity of demand will be very high.

Question 12.
What are the Selling costs? [Mar. ’17]
Answer:
An important feature of a monopolistic market is every firm makes expenditures to sell more output. Advertisements through newspapers, journals, electronic media etc., these methods are used to attract more consumers by each firm.

TS Inter 1st Year Economics Study Material Chapter 4 Production Analysis

November 16, 2022October 27, 2022 by Srinivas

Telangana TSBIE TS Inter 1st Year Economics Study Material 4th Lesson Production Analysis Textbook Questions and Answers.

TS Inter 1st Year Economics Study Material 4th Lesson Production Analysis

Long Answer Questions

Question 1.
Critically examine the law of variable proportions. [Mar. ’16]
Answer:
The law of variable proportions has been developed by the 19th-century economists David Ricardo and Marshall. The law is associated with the names of these two economists. The law states that by increasing one variable factor and keeping other factors constant, how to change the level of output, total output first increases at an increasing rate, then at a diminishing rate, and later decreases. Hence, this law is also known as the “Law of Diminishing returns”.

Marshall stated it in the following words.
“An increase in capital and labour applied in the cultivation of land causes, in general, less than proportionate increase in the amount of produce raised, unless it happens to coincide with an improvement in the arts of agriculture”.

Assumptions :

The state of technology remain constant.
The analysis relates to short period.
The law assumes labour in homogeneous.
Input prices remain unchanged.

Explanation of the Law :
Suppose a farmer has ‘4’ acres of land he wants to increase output by increasing the number of labourers, keeping other factors constant. The changes in total production, average product and marginal product can be observed in the following table.
TS Inter 1st Year Economics Study Material Chapter 4 Production Analysis 1

In the above table total product refers to the total output produced per unit of time by all the labourers employed.

Average product refers to the product per unit of labour marginal product refers to additional product obtained by employing an additional labour.

In the above table there are three stages of production.

1^st stage i.e., increasing returns at 2 units total output increases average product increases and marginal product reaches maximum.

2^nd stage i.e., diminishing returns from 3^rd unit onwards TP increases at diminishing rate and reaches maximum, MP becomes zero and AP continuously decreases.

3^rd stage i.e., negative returns from 8^th unit TP, decreases AP declines and MP becomes negative.

This can be explained in the following diagram.
TS Inter 1st Year Economics Study Material Chapter 4 Production Analysis 2

In the diagram, on ‘OX’ axis shown units labourer and ‘OY axis show TP, MP, and A.P. 1^st stage TP AP increases and MP is maximum. In the 2^nd stage TP is maximum, AP decreases and MP is zero. At 3^rd stage TP declines, AP also declines, MP becomes negative.

Question 2.
Explain the law of returns to scale. [Mar. ’17]
Answer:
The law of returns to scale relate to long run production function. In the long run it is possible to alter the quantities of all the factors of production. If all factors of production are increased in given proportion the total output has to increase in the same proportion. Ex : The amounts of all the factors are doubled, the total output has to be doubled, increasing all factors in the same proportion is increasing the scale of operation. When all inputs are changed in a given proportion, then the output is changed in the same proportion. We have constant returns to scale and finally arises diminishing returns. Hence, as a result of change in the scale of production, total product increases at increasing rate, then at a constant rate and finally at a diminishing rate.

Assumptions :

All inputs are variable.
It assumes that state of technology remains the same. The returns to scale can be shown in the following table.

TS Inter 1st Year Economics Study Material Chapter 4 Production Analysis 3
The above table reveals the three patterns of returns to scale. In the 1st place, when the scale is expanded upto 3 units, the returns are increasing. Later and upto 4^th units, it remains constant and finally from 5^th onwards the returns go on diminishing.
TS Inter 1st Year Economics Study Material Chapter 4 Production Analysis 4

In the diagram, on ‘OX’ axis shown scale of production, on ‘OY’ axis shown total product. RR₁ represents increasing returns R₁S – Constant returns; SS₁ represents diminishing returns.

Question 3.
Describe the internal and external economies.
Answer:
Economies of large scale production can be grouped into two types.

Internal economies
External economies.

1. Internal Economies :
Internal economies are those which arise from the expansion of the plant, size or from its own growth. These are enjoyed by that firm only.

“Internal economies are those which are open to a single factory or a single firm independently of the action of other firms.” – Cairncross

i) Technological Economies :
The firm may be running many productive establishments. As the size of the productive establishments increase, some mechanical advantages may be obtained. Economies can be obtained from linking process to another process i.e., paper making and pulp making can be combined. It also uses superior techniques and increased specialization.

ii) Managerial Economies :
Managerial economies arises from specialisation of management and mechanisation of managerial functions. For a large size firm it becomes possible for the management to divide itself into specialised departments under specialised personnel. This increases efficiency of management at all levels. Large firms have the opportunity to use advanced techniques of communication, computers etc. All these things help in saving of time and improve the efficiency of the management.

iii) Marketing Economies :
The large firm can buy raw materials cheaply, because it buys in bulk. It can secure special concession rates from transport agencies. The product can be advertised better. It will be able to sell better.

iv) Financial Economies :
A large firm can arise funds more easily and cheaply than a small one. It can borrow from bankers upon better security.

v) Risk Bearing Economies :
A large firm incurs unrisk and it can also reduce risks. It can spread risks in different ways. It can undertake diversifications of output. It can buy raw materials from several firms.

vi) Labour Economies :
A big firm employs a large number of workers. Each worker is given the kind of job he is fit for.

2. External Economies :
An external economy is one which is available to all the firms in an industry. External economies are available as an industry grows in size.

i) Economies of Concentration :
When a number of firms producing an identical product are localised in one place, certain facilities become available to all. Ex : Cheap transport facility, availability of skilled labour etc.

ii) Economies of Information :
When the number of firms in an industry increases collective action and co-operative effort becomes possible. Research work can be carried on jointly. Scientific journal can be published. There is a possibility for exchange of ideas.

iii) Economies of Disintegration :
When the number of firms increases, the firm may agree to specialise. They may divide among themselves the type of products of stages of production. Ex : Cotton industry.

Question 4.
Explain short-run costs illustrations.
Answer:
Costs are divided into two categories i.e.,

Short run cost curves
Long run cost curves.

In short run by increasing only one factor i.e., (labour) and keeping other factor constant. The short run cost are again divided into two types.

General costs
Economic costs.

1. General Costs :
i) Money Costs :
Production is the outcome of the efforts of factors of production like land, labour, capital and organisation. So, rent to land, wage to labour, interest to capital and profits to entrepreneur has to be paid in the form of money is called money cost.

ii) Real Cost :
Adam Smith regarded pains and sacrifices of labour as real cost. So, it cannot be measured interms of money.

iii) Opportunity cost :
Factors of production are scarce and have alternative uses. The opportunity cost of a factor is the benefit that is foregone from the next best alternative use.

2. Economic Costs :
i) Fixed Costs :
The cost of production which remains constant even when the production may be increased or decreased is known as fixed cost. The amount spent by the cost of plant and equipment, permanent staff are treated as fixed costs.

ii) Variable Cost :
The cost of production which is changing according to changes in the production is said to be variable cost. In the long period all costs are variable costs. It includes prices of raw materials, payment of fuel, excise taxes etc. Marshall called it as “Prime cost”.

iii) Average Cost :
Average cost means cost per units of output. If we divided total cost by the number of units produced, we will get average cost.
TS Inter 1st Year Economics Study Material Chapter 4 Production Analysis 5

iv) Marginal Cost :
Marginal cost is the additional cost of production producing one more unit.
MC = \(\frac{\Delta \mathrm{TC}}{\Delta \mathrm{Q}}\)

v) Total cost :
Total cost is the sum of total fixed cost and total variable cost.
TC = FC + VC

The short term cost in relation to output are explained with the help of a table.
TS Inter 1st Year Economics Study Material Chapter 4 Production Analysis 6

In the above table shows that as output is increased in the 1^st column, fixed cost remains constant. Variable costs have changed as and when there are changes in output. To produce more output in the g TVC short period, more variable factors have to be employed. By adding FC & VC we get total cost at different levels of output. AC falls output increases, reaches its minimum and then rises MC also change in the total cost associated with a change in output. This can be shown in the diagram.

In the above diagram is on ‘OX’ axis taken by output and ‘OY axis is taken by costs. The shapes of different cost curves explain the relationship between output and different costs. TFC is horizontal to ‘X’ axis. It indicates that increase in output has no effect on fixed cost. TVC on the other side increases along with level of output. TC curve rises as output increases.

Question 5.
Write an essay on revenue analysis.
Answer:
The amount of money that the producer receives in exchange for the goods (sale proceeds) is called producer’s receipts or revenue. In other words, the total sale proceeds of a firm are known as revenue. We can conceive three types of revenue. They are : total revenue, average revenue and marginal revenue.

a) Total Revenue (TR) :
Total amount of money or income received by the firm from the sale of a certain quantity of output is called total revenue. It is obtained by multiplying the price of a commodity by the number of units sold, i.e., TR = PQ.

Where, P = Price of the good and Q = the quantity of the good sold.

b) Average Revenue (AR) :
Average revenue is the revenue per unit of goods sold. It is computed by dividing the total revenue by the number of the units of a good sold. Thus, AR = TR / Q = PQ / Q = P. It is clear from the above formula that the average revenue at each level of output is equal to the price per unit.

c) Marginal Revenue (MR) :
It is the net addition to the total revenue by selling additional units of the goods i.e. the revenue which would be earned by selling an additional unit of the good. Marginal revenue can be expressed as : MR = ∆TR / ∆Q, where, ∆TR = change in total revenue and ∆Q = change in quantity. In other form, MR_n = TR_n – TR_n-1.

AR and MR Curves under Perfect Competition :
Under perfect competition, there exist large number of sellers and large number of buyers. The sellers under this competition offer homogenous products and, therefore, neither sellers nor buyers have any control on the price of the product. The seller can sell any amount of the good and buyers can buy any amount of the good at the ruling market price. In this case, total revenue (TR), average revenue (AR) and marginal revenue (MR) of a perfectly competitive firm are analyzed here under using table and diagram.
TS Inter 1st Year Economics Study Material Chapter 4 Production Analysis 8

Since the price of the product remains constant under perfect competition, the output sold increases and therefore, revenue also increases. Due to homogeneity, the goods are sold at single price under perfect competition therefore, additional units are also sold at the same price. Hence, under this competition, the AR equals MR all through. Because of this, P = AR= MR. The nature of AR and MR curves is shown with the help of figure.

By the diagram, output is measured on OX axis and price / AR / MR on OY axis. OP price in the diagram indicates existence of single price. Since, P = AR = MR, the AR and MR curves will be parallel to OX axis as shown in figure.
TS Inter 1st Year Economics Study Material Chapter 4 Production Analysis 9

AR and MR Curves under Monopoly :
Under monopoly, there is a single seller. The commodity offered by a monoplist may be or may not be homogenous. Monopolist can control price and output of the commodity, but he can’t determine both simultaneously due to existence of left to right downward sloping demand curve in the market. He can sell more quantity at lower price and less quantity at higher price. The relationship between TR, AR and MR is shown in table.
TS Inter 1st Year Economics Study Material Chapter 4 Production Analysis 10

The table reveals that as price falls, sales may improve and total revenue also increases but average revenue (AR) and marginal revenue falls continuously. Here, MR declines at faster rate than that of AR. Thus, MR curve lies below the AR as shown in the figure.

TS Inter 1st Year Economics Study Material Chapter 4 Production Analysis 11
In figure, AR and MR represent average revenue and marginal revenue curves re-spectively. The monopolist can sell higher quantity at lower price and therefore, always AR is greater than MR. Thus, AR curve lies above MR curve.

Short Answer Questions

Question 1.
Describe the main features of factors of production, namely land and labour.
Answer:
Land, labour, capital and entrepreneurial ability (organisation) are called as factors of production which make it possible to produce goods and services. The basic features of these factors of production are presented in the following paragraphs.

1) Land (N) :
The term land is used in a special sense in economics. It does not mean soil or earth’s surface alone but refers to all free gifts of nature which include besides land, in common practice, natural resources, fertility of soil, water, air, natural vegetation etc.

Characteristics of Land :
We may list the following characteristics of land as a factor of production.

Land is a free gift of nature.
The supply of land is perfectly inelastic from the point of view of the economy.
Land cannot be shifted from one place to another place.
Land is said to be a specific factor of production in the sense that it does not yield any result unless human efforts are employed.
Land provides infinite variation of degree of fertility and situation so that no two pieces of land are exactly alike.

2) Labour (L) :
The term labour means mental or physical exertion directed to produce goods or services. In economics it is used in a wider sense. Any work, whether manual or mental, which is undertaken for a monetary consideration is called labour.

Characteristics of Labour :
Let us identify the characteristics of labour :

Labour is inseparable from the labourer himself. It implies that whereas labour is sold, the producer of labour retains the capacity to work.
Labour is highly ‘perishable’ in the sense that a day’s loss of labour cannot be stored and so he has no reserve price for his labour.
Labour has a very weak bargaining power.
Labour power differes from labourer to labourer. Therefore, labour may be classified as unskilled labour, semi skilled labour and skilled labour.
The supply curve of a labourer is backward bending.

Question 2.
What are the merits and demerits of divisions of labour?
Answer:
It is an important feature of modern industrial organization. It refers to scheme of dividing the given activity among workers in such away that each worker is supposed to do one activity or only a limited and narrow segment of an activity. Thus, division of labour increases output per worker on account of higher efficiency and specialized skill.

Advantages :

Increase in productivity,
Inventions are facilitated,
Saving in time,
Diversity of employment,
Mechanization is possible,
Increase in dexterity and skills,
Large scale production is possible,
Right man in the right place.

Disadvantages :

Leads to monotony,
Retards human development,
Loss of skill,
Possibility of unemployment,
Hindrance to mobility of labour.

Question 3.
Explain the Diminishing Returns.
Answer:
Diminishing Returns :
After the stage of increasing returns, stage of diminishing returns will take place. This is known as the law of diminishing returns. Diminishing returns stage starts when the average product is maximum and continues upto the level of zero marginal product and maximum total product. Table shows this stage when the workers are employed from four to seven. From Q to Q₁ on OX axis shows the diminishing returns stage. In this stage, the total product increases at a diminishing rate and the average and marginal products decline. In this stage TP > AP > MP. Production is profitable only in the stage of diminishing returns.

Question 4.
Explain the concept of returns to scale.
Answer:
The law of returns to scale is concerned with the study of production function in the long run. The law of returns to scale studies the behaviour of output in response to change in scale. A change in scale means that all inputs or factors are varied in the same proportion, keeping the factor proportions constant. When a producer increases all the inputs in a given proportions, there are three possibilities, viz., total output may increase more than proportionately, just proportionately or less than proportionately. According to returns to scale concept, these possibilities are familiarly known as a) Increasing Returns To Scale (IRTS), b) Constant Returns To Scale (CRTS) and c) Decreasing Returns To Scale (DRTS).

Assumptions :

All inputs except entrepreneurship are variable.
State of technology remains the same.
There is perfect competition in the market.
Production is measured in physical quantities.

TS Inter 1st Year Economics Study Material Chapter 4 Production Analysis 12

Explanation of the Law :
A description on returns to scale is presented in table. It can be seen from this table that the total product is 9 units in the beginning with 10L + IK. As the factors of production are doubled (20L + 2K), the total output increased to 19 units, which is more than proportional change and therefore, it represents increasing returns to scale (IRTS). Marginal product (MP) increased from 9 to 10 units uder this stage.

MP is remaining the same at 11 units when the scale is 30L + 3K and 40L + 4K therefore, it denotes constant returns to scale (CRTS). A decrease in MP is observed at 50L + 5K and 60L + 6K. This situation can be called as decreasing returns to scale (DRTS). These three kinds of returns to scale are also explained by using figure. In this figure, R to R₁ shows IRTS, R₁ to S shows CRTS and S to S₁ indicates DRTS.
TS Inter 1st Year Economics Study Material Chapter 4 Production Analysis 13

Question 5.
Write a note on Capital.
Answer:
Capital as that part of wealth of an individual or a community which is used for further production of wealth. Capital (stock concept) yields periodical income (flow concept). Capital is nothing but ‘produced means of production’. The term capital is generally used for capital goods, E.g. plant and machinery, tools and accessories, stocks of raw materials, goods in process and fuel.

Types of Capital: Capital can be classified into :
1) Real Capital and Human Capital :
Real capital refers to physical goods, i.e., buildings, plant, machinery etc. As against this, human capital refers to human skill and ability.

2) Individual Capital and Social Capital :
Individual capital is the personal property, and the other, social capital is what belongs to the community as a whole in the form of roads, bridge etc.

3) Fixed Capital and Variable Capital :
Expenditure incurred on machinery and building in the production process is called as fixed capital. The amount spent on purchase of raw materials, daily wages to labour, electricity charges etc., are known as variable capital.

4) Tangible Capital and Intangible Capital :
Tangible capital may be perceived by senses where as intangible capital is in the form of certain rights and benefits. Eg. goodwill, patent rights, etc.

Importance of Capital :
Let us point out the importance of capital in brief.

Capital plays a very vital role in the modem productive system. Production without capital is almost impossible.
The productivity of work force depends upon the amount of capital available per worker. The greater the capital per worker, the greater the efficiency and productivity of the worker.
Capital occupies a central position in the process of economic development.
It promotes the technological progress.
It helps in the creation of employment opportunities.

Question 6.
What are the internal economies of scale?
Answer:
Economies of large scale production can be grouped under two headings. They are Internal economies and external economies. Let us discuss them.

Internal Economies :
The word ‘internal’ is used here to denote the limitations of these economies to the firm itself. According to Caimcross, “Internal economies are those which are open to a single factory or a single firm independently of the action of other firms”. Internal economies results in from an increase in the scale of output of a firm and cannot be achieved unless output increases. In other words, internal economies are those economies in production which accrue to the firm itself when it expands its output or enlarges its scale of production. In short, they arise simply due to the increase in the scale of production.

Firms experience the following types of internal economies :
a) Technical Economies :
Technical factors affect the returns to scale. Large firms will have more resources at their disposal. Therefore, these firms can install the most suitable machinery. As a result, larger firms experience lower costs of production. There are four different ways in which technical economies can arise. They are :

large size machines,
linking process, E.g. paper making and pulp making,
superior techniques and
increased specialization.

b) Managerial Economies :
With the increase in the scale of production, a firm can benefit by specializing its managerial department. Each department is under the charge of an expert. A small firm cannot afford this specialization. Experts are able to reduce the costs of production under their supervision.

c) Marketing Economies :
As the scale of a firm increases, internal economies accrue to the firm due to large scale purchases and sales. Since the firm purchases on a large scale, it gets all the inputs at a cheaper rate compared to the smaller firms. Similarly, wholesalers charge less for the sale of products to a large firm.

d) Financial Economies :
A large firm will be able to reduce its costs of borrowing from the market. A bigger firm is better known to the financial institutions and the stock market. Therefore, a big firm has better access to credit and can borrow on more favourable terms.

e) Economies of Welfare :
A big firm employes a large number of workers. Each worker is given the kind of job he is fit for. Therefore, workers get skilled in their operations which save production time and encourage new ideas.

f) Risk-Bearing Economies :
Large firms will be in a position to bear risks or avoid risks. They do so by diversifying output and markets. Therefore, loss in one good or in one market can be covered by profits in other goods or markets.

g) Economies of Research and Development :
Large firms possess more resources than small firms and hence, these firms invest huge amount of money on research and development (R & D). Introduction of innovative methods in production activity due to R & D reduces cost of production and results in internal economies.

Question 7.
What is supply? Explain the determinants supply.
Answer:
The law of supply explains the functional relationship between price of a commodity and its quantity supplied. The law of supply can be stated as follows, “Other things remaining the same, as the price of a commodity rises its supply is extended and as the price falls its supply is contracted”.

The law of supply can be explained with the help of supply schedule and supply curve.

Supply Schedule :
Supply schedule explains various amounts of good that the seller offers for sale at different prices. It represents the functional relationship between price and quantities supplied. There is direct relationship between price and supply. This can be shown in the following schedule.

Price (in ₹)	Quantity supplied
5.00	1000
4.00	800
3.00	600
2.00	400
1.00	200

The above schedule high price, i.e, ₹ 5.00 per unit, 1000 units are supplied and at ₹ 1 per unit, 200 units are supplied. It means high price indicate high supply and low price indicates low supply. So, it shows the direct relationship between price and supply.

Supply curve :
A supply curve can be drawn with the help of above supply schedule to explain the direct relationship between price and supply.
TS Inter 1st Year Economics Study Material Chapter 4 Production Analysis 14

In the above diagram supply is shown on ‘OX’ axis and price is shown on OY axis. SS is supply curve. It slopes upwards from left to right; The slope of supply curve is always positive. Because there is direct relationship between the price and supply.

Determinants of Supply:
1. Price of the Commodity :
The supply of the commodity depends upon the price of that commodity. When price falls, supply falls and when price rises, supply also rises. Thus, price and supply are directly related.

2. Factor Prices :
The cost of production of a commodity depends upon the prices of various factors of production.

3. Prices of Related Goods :
The supply of the commodity depends upon the prices of related goods. If the price of a substitute good goes up, the producer will be induced to divert their resources.

4. State of Technology :
Technological improvements determine supply of a commodity. Progress in technology leads to reduction in the cost of production which will increase supply.

5. Government Policy :
Imposition of heavy taxes as a commodity discourages its production. Hence, production decreases.

Question 8.
Discuss about the changes in supply.
Answer:
The supply function explains the relationship between the determinants of supply of a commodity and the supply of that commodity. Supply of a commodity depends upon its price, the prices of related goods, the prices of factors of production, the state of technology, the goals of firm and polity of the government. These can be written in the form a supply function as :
Q_x = f(P_x, P_r, P_f T, G_f, G_p)

Where, Q_x = quantity of good X supplied, P_x = price of good X, P_r = prices of related goods (substitutes, complementaries), P_f = prices of factors of production, T = technical knowhow, G_f = goal of the firm / seller, G_p = government policy, f = functional relationship.

In the above equation, supply of commodity is a dependent variable on many aspects. Change even in one variable of the determinants of supply brings a change in the supply. In determining the supply of a good, price of this good is more important among all the determinants. Hence, if we assume all other aspects will not change, then the supply function will be as :
TS Inter 1st Year Economics Study Material Chapter 4 Production Analysis 15

Determinants of Supply :
Supply function explains the relationship between supply

i) Price of a Good :
In determining the supply of a good, price of this good is more important and this price determines the profit of the firm. Other things being constant, the supply of commodity increases with an increase in its price and vice versa. Thus, there exist a positive relationship between price and supply.

ii) Prices of its Related Goods :
Goods comprise substitutes and complementaries. Any change in the prices of these goods exerts influence on production of the good in consideration. For instance, if the price of a substitute good goes up, the producers may try to produce that substitute good or demand for the substitute good which has higher price may decrease and therefore, producer may increase supply of the good which he was producing initially. Similarly, producer may decide the supply of his product on the basis of the prices of complementaries and demand for them.

iii) Prices of Factors of Production :
Increase in the prices of factors of production would lead to an increase in the cost of production. As a result, supply of the commodity may decline. The reverse will happen in the case of a fall in the prices of factors of production.

iv) State of Technology :
New and improved methods of production, inventions and innovations help to save factors, costs and time and thus, technology contributes to increase the supply of goods.

v) Goals of producer and other determinants :
Goals of producer, means of transport and communication and natural factor etc., will equally influence the supply of a commodity.

vi) Government policy :
Imposition of heavy taxes on a commodity discourages the production of goods and as a result supply diminishes in goods are given, supply of goods will increase.

Question 9.
Discuss the types of costs.
Answer:
Cost analysis refers to the study of behaviour of production costs in relation to one or more production criteria, namely size of output, scale of operations, prices of factors of production and other relevant economic variable. In other words, cost analysis is concerned with financial aspects of production relations as against physical aspects considered in production analysis. A useful cost analysis needs a clear understanding of the various cost concepts which are dealt here under.

Types of Costs :
Broadly, types of costs can be classified into three types, namely, money costs, real costs and opportunity costs.

1) Money Costs :
The money spent by a firm in the process of production of its output is money cost. These costs would be in the form of wages and salaries paid to labour, expenditure on machinery, payment for materials, power, light, fuel and transportation. These costs are further divided into explicit costs and implicit costs. The amount paid to all factors of production hired from outside by the producer is called as explicit cost. And the amount of own resources and services applied by the producer in the production process is called as implicit cost.

2) Real Costs :
According to Alfred Marshall, “the pains and sacrifices made by labourers and entrepreneurs / organizers in the process of production activity are real costs”. The amount of crop (produce) sacrificed by the landlord by giving his land to tenants, the amount of leisure sacrificed by the labourer in extending labour to produce goods, the amount of consumption sacrificed by the investor by saving his money for investment are some of the examples of real costs.

3) Opportunity Costs :
It is also called as alternative cost or economic cost. Opportunity cost is next best alternative of factors of production. The alternate uses capacity of factors of production signifies opportunity costs. If a factor possesses alternative uses, the factor can be used only in one activity by forgoing other possibilities. In other words, opportunity cost is nothing but next best alternative foregone by a factor. For example, if a farmer decides to grow wheat instead of rice, the opportunity cost of the wheat would be the rice, which he might have grown rather. Thus, opportunity cost is the cost of foregone alternative.

Short-Run Cost Curve analysis :
In shortrun, the costs faced by a firm can be classified into fixed and variable costs.

4) Fixed Costs :
The fixed costs of a firm are those costs that do not vary with the size of its output. It is due to this, the value of fixed cost is always positive even if production activity does not take place or it is zero. The best way of defining fixed costs is to say that they are the costs which a firm has to bear even when it is temporarily shut down. Alfred Marshall called these costs as ‘Supplementary costs’ or ‘Overhead costs’. E.g.: costs of plant and equipment, rent on buildings, salaries to permanent employees are part of fixed costs.

5) Variable Costs :
On the other hand, Variable costs are those costs which change with changes in the volume of output. Marshall called these costs as ‘prime costs’. Daily wages to employees, payments to raw materials, fuel and power, excise taxes, interest on short-term loans etc., are examples for variable costs.

Question 10.
Explain the relationship between total cost, total variable cost and total fixed cost.
Answer:
In short-run, the costs faced by a firm can be classified into fixed and variable costs.

1) Fixed Costs and Variable Costs :
The fixed costs of a firm are those costs that do not vary with the size of its output. It is due to this, the value of fixed costs is always positive even if production activity does not take place or it is zero. The best way of defining fixed costs is to say that they are the costs which a firm has to bear even when it is temporarily shut down. Alfred Marshall called these costs as ‘Supplementary costs’ or ‘Overhead costs’. E.g.: costs of plant and equipment, rent on buildings, salaries to permanent employees are part of fixed costs. On the other hand, variable costs are those costs which change with changes in the volume of output. Marshall called these costs as ‘Prime costs’. Daily wages to employees, payment to raw materials, fuel and power, excise taxes, interest on short-term loans etc., are examples for variable costs.

2) Nature of short run Cost Curves :
As mentioned earlier, short-run is a period of time within which the firm can vary its output by varying only variable factors of production. The fixed factors such as capital equipment, top management personnel etc., cannot be varied. Therefore, short-run cost structure of a firm reveals fixed costs and variable costs, Total Cost (TC), Total Fixed Costs (TFC), Total Variable Costs (TVQ, Total Average Costs (SAC) and Marginal Costs (SMC). But in the long-run, all costs are variables. The nature of short-run costs and the curvature of these costs are explained by using table and figure.

In table, short-run costs faced by a firm are analyzed. As mentioned earlier, total fixed cost is the cost of fixed factors which remains constant irrespective of level of output. It is at ₹ 300/- Total variable cost, on the other hand, implies expenses on variable factors of production. It is zero when output is nothing or zero and goes on increasing along with the level of output. Total cost is the sum of total fixed cost and total variable cost i.e., TC = TFC + TVC. Though TFC remains constant, TVC increase along with the level of output, TC also increases if TVC increases. A description of the relationship between these three curves is presented in figure.
TS Inter 1st Year Economics Study Material Chapter 4 Production Analysis 16

Question 11.
Explain the relationship between Average Cost and Marginal Cost.
Answer:
Cost analysis refers to the study of behavior of production costs in relation to one or more production criteria, namely, size of output, scale of operations, prices of factors of production and other relevant economic variables. In other words, cost analysis is concerned with financial aspects of production relations as against physical aspects considered in production analysis. A useful cost analysis needs a clear understanding of the various cost concepts which are dealt hereunder.

Relationship Between Average Cost and Marginal Cost :
Average cost (AC) is the sum of Average Variable Cost (AVC) and Average Fixed Cost (AFC). It is total cost divided by the number of units produced. In short, cost per unit is known as Average Cost (AC). AC = TC / Q = TFC / Q + TVC / Q = AFC + AVC. Marginal Cost (MC) is the addition made to the total cost by the production of additional units of output. It is the change in total cost associated with a change in output. We can therefore, write MC = Change in Total Cost / Change in Output = ∆TC / ∆Q or MC_n = TCn – TC_n-1

As per the nature of costs, both AC and MC curves gradually decrease, reach to mini-mum and gradually increase thereafter along with increase in level of output. It is to be noted that both AC and MC curves will have ‘U’ shape implying three phases i.e., decreasing, minimum (constant) and increasing. This is shown with the help of the following diagram.
TS Inter 1st Year Economics Study Material Chapter 4 Production Analysis 17

By the figure, output is measured on OX axis and costs on OY axis. It can be seen from this graph that in the beginning as output increases, both AC and MC decrease but the rate of decrease in MC is more than the decrease in AC. At point A, AC = MC and after this point both AC and MC increase but rate of increase in MC is greater than the rate of increase in AC.

Properties of AC and MC :

Both AC and MC curves are U shaped.
As output increases, both AC and MC decrease in the beginning.
MC curve cuts AC curve from its minimum points, at which point AC = MC.
Both AC and MC increase after certain level of output.

Question 12.
Explain diagramatically the nature of average revenue and marginal revenue under perfect competition and monopoly.
Answer:
The amount of money that the producer receives in exchange for the goods (sale proceeds) is called producer’s receipts or revenue. In other words, the total sale proceeds of a firm are known as revenue. We can conceive three types of revenue. They are : total revenue, average revenue and marginal revenue.

c) Marginal Revenue (MR) :
It is the net addition to the total revenue by selling additional units of the goods i.e., the revenue which would be earned by selling an additional unit of the good. Marginal revenue can be expressed as : MR = ∆TR / ∆Q, where, ∆TR = change in total revenue and ∆Q = change in quantity. In other form, MR_n = TR_n – TR_n-1.

AR and MR Curves under Perfect Competition:
Under perfect competition, there exist large number of sellers and large number of buyers. The sellers under this competition offer homogenous products and, therefore, neither sellers nor buyers have any control on the price of the product. The seller can sell any amount of the good and buyers can buy any amount of the good at the ruling market price. In this case, total revenue (TR), average revenue (AR) and marginal revenue (MR) of a perfectly competitive firm are analyzed here under using table and diagram.
TS Inter 1st Year Economics Study Material Chapter 4 Production Analysis 18

In figure, AR and MR represent average revenue and marginal revenue curves respectively. The monopolist can sell higher quantity at lower price and therefore, always AR is greater than MR. Thus, curve lies above MR curve.

Very Short Answer Questions

Question 1.
Explain the Characteristics of land.
Answer:
Land means not only earth’s surface alone but also refers to all free gits of nature which include soil, water, air, natural vegetation etc.

Characteristics of Land – The following are the characteristics of land as a factor of ‘ production
a) Free gift of nature.
b) Supply of land is perfectly inelastic.
c) Cannot be shifted from one place to another place.
d) Land provides infinite variation of degree of fertility.

Question 2.
What is Division of Labour?
Answer:
It is an important feature of modern industrial organisation. It refers to scheme of dividing the given activity among workers in such a way that each worker is supposed to do one activity or only a limited and narrow segment of an activity. Thus, division of labour increases output per worker on account of higher efficiency and specialised skill.

Question 3.
Define the Production Function.
Answer:
The production function is the relationship between the physical inputs and the physical outputs of a firm. Production of a firm, production function explains the functional relationship between inputs and outputs this can be as follows Gx = f (L, K, R, N, T).

Question 4.
Explain the concepts of Average Productand Marginal product
Answer:
It is the additional product by employing an additional labour.
MP = \(\frac{\Delta \mathrm{TP}}{\Delta \mathrm{L}}\)

It refers to the product per unit of labour it is obtained by dividing total product by the number of labourers employed.
Ap = \(\frac{TP}{L}\)

Question 5.
Explain the classification of Factors of production.
Answer:
Factors that help in the production process are called factors of production.
Ex : land, labour, capital and organization.

Question 6.
Explain the Technical economies.
Answer:
It is one of the internal economies.

The large firms will have more resources at their disposal. Hence, these firms can install the most suitable machinery. As a result larger firms experience lower cost of production. There are four different ways in which technical economies can arise.
a) Large size machines.
b) Linking processes.
c) Superior techniques.
d) Increased specialization.

Question 7.
What is the Importance of capital?
Answer:
Importance of Capital: The importance of capital in brief :

Capital plays a very vital role in the modem productive system. Production without capital is almost impossible.
The productivity of workforce depends upon the amount of capital available per worker. The greater the capital per worker, the greater the efficiency and productivity of the worker.
Capital occupies a central position in the process of economic development.
It promotes the technological progress.
It helps in the creation of employment opportunities.

Question 8.
Explain the External Economies.
Answer:
External economies are those economies which accure to each member firm as a result of the expension of the industry as a whole as the name tells us, these economies are common in nature which benefit all the firms working in an exponding industry external economies are as follows.
a) Economies of concentration.
b) Economies of information.
c) Economies of specialisation
d) Economies of welfare.

Question 9.
What is Capital Accumlation?
Answer:
Capital accumulation typically refers to an increase in assets from investment or profits. Individuals and companies can accumulate capital through investment. Investment assets usually earn profit they contributes to a capital base.

Question 10.
Define Supply function.
Answer:
Supply of a commodity depends upon a number of factors, the important among these can be presented in the form of a supply function. It explains the functional relationship between supply of a commodity and other determinants of supply of that commodity. This can be explained as follows.
S_x = f(P_x, P_y, P_f, T G_f, G_p)
S_x = Supply of commodity x
f = Functional relationship
P_x’ = Price of good x
P_y = Price of related good
P_f = Price of factors
T = Technical progress
G_f = Goal of the producer
G_p = Government policy.

Question 11.
Define Law of supply.
Answer:
The law of supply explains the functional relationship between price of a commodity and its quantity supplied. The law of supply can be stated as follows “Other things remaining the same, as the price of a commodity rises its supply is extended and as the price falls its supply is contracted”.

Question 12.
Explain the Supply schedule and supply Curve.
Answer:
Supply Schedule and Supply Curve :
The supply schedule is a table which explains various amounts of a good that the seller offered for sale at different prices. This table can be explained by the table as price increases from ₹ 30 to ₹ 60, the supply increases from 1,000 kgs to 4,000 kgs. It is to be noted that larger quantites are offered at a higher price than at a lower price.

Price (₹)	Quantity Supplied
30	1,000
40	2,000
50	3,000
60	4,000

Supply Curve :
Supply curve can be derived based on the supply schedule. By the diagram price is shown on Y – axis supply is shown on X – axis SS is the supply curve which slopes upwards from left to right. It implies that as price increases, supply also increases and vice versa. If price increases from p – p₁, supply also increases from M to M₁ and vice Versa.
TS Inter 1st Year Economics Study Material Chapter 4 Production Analysis 22

Question 13.
What are Money costs? [Mar.’17]
Answer:
The money spent by a firm in the process of production of its output is money cost. These costs would be in the form of wages and salaries paid to labour, expenditure on machinery, payment for material, power, light, fuel and transportation. These costs are further divided into explicit costs and implicit costs.

Question 14.
What is an Opportunity cost?
Answer:
Opportunity cost :
It is also called alternative cost or economic cost. Opportunity cost is next best alternative use of factors of production. If a scarce factor possesses alternative uses, the factor can be used only in one activity by foregoing other possibilities. In other words, opportunity cost is nothing but next best alternative foregone by a factor. For example, if a farmer decides to grow wheat instead of rice, the opportunity cost of the wheat would be the rice, which he might have grown rather. Thus, opportunity cost is the cost of foregone alternative.

Question 15.
Describe the Total fixed cost curve.
Answer:
The fixed costs of a firm are those costs that do not vary with the size of its output. It is due to this the value of fixed costs is always positive even if production activity does not take place or it is zero. The best way of defining fixed costs is to say that they are the costs which a firm has to bear even when it is temporarily shut down. Alfred Marshall called these costs as supplementary costs or over head costs. For examples cost of plant and equipment, rent on building, salaries to permanent employees are part of fixed costs.

Question 16.
Explain the relationship between AC and MC.
Answer:
Average cost :
Average Cost (AC) is the sum of the Average Variable Cost (AVC) and Average Fixed Cost (AFC). It is total cost divided by the number of units produced. In short, cost per unit is known as average cost (AC).
AC = TC / Q = TFC / Q + TVC / Q = AFC + AVC.

Marginal Cost :
Marginal Cost (MC) is the addition made to the total cost by the production of additional units of output. It is the change in total cost associated with a change in output. We can therefore, write

MC = Change Total Cost / Change in Output or MC_n = TC_n – TC_n-1.

Question 17.
Explain the nature of AR and MR curves in perfect competition.
Answer:
TS Inter 1st Year Economics Study Material Chapter 4 Production Analysis 23
Under perfect competition, there exist large number of sel1 rs and large number of buyers. In this market neither sellers nor buyers have any control on the price of the product. The seller can sell any amout of the good and buyers can buy any amount of the good at the ruling market price. Here the goods are sold at single price under perfect competition therefore, additional units are also sold at the same price. Hence, under perfect competition the AR = MR, because of this P = AR = MR. Since P = At = MR, the AR and MR curves will be parallel to OX axis as shown in the following diagram.

Question 18.
Explain the nature of AR and MR curves in Monopoly.
Answer:
Under monopoly, there is a single seller. The commodity offered by a monoplist may be or may not be homogenous. Monopolist can control price and output of the commodity, but he can’t determine both simultaneously due to existance of left to right downward sloping demand curve in the market. He can sell more quantity at lower pric e and less quantity at higher price. The relationship between TR, AR and MR is shown in table.
TS Inter 1st Year Economics Study Material Chapter 4 Production Analysis 24

TS Inter 1st Year Economics Study Material Chapter 3 Demand Analysis

November 16, 2022October 27, 2022 by Srinivas

Telangana TSBIE TS Inter 1st Year Economics Study Material 3rd Lesson Demand Analysis Textbook Questions and Answers.

TS Inter 1st Year Economics Study Material 3rd Lesson Demand Analysis

Long Answer Questions

Question 1.
What is a Demand Function? What are the factors that determine the demand for a good?
Answer:
The functional relationship between the demand for a commodity and its various determinants may be explained mathematically in terms of a demand function.
D_x = f(P_x, P₁ P_n, Y, T)
Where, D_x = Demand for good X;
P_x = price of X;
P₁ …. P_n = Prices of substitutes and complementaries
Y Income,
T = Taste of the consumer.

Determinants of demand:
1) Price of commodity :
The demand for any good depends on its price, more will be demanded at lower price and vice-versa.

2) Prices of substitutes and complementaries :
Demand is influenced by changes in price of related goods either substitutes or complementary goods.
Ex : Increase in the price of coffee leads an increase in the demand for tea in the case of substitutes positive relation and complementaries negative relationship between price and demand.

3) Income of the consumer :
Demand always changes with a change in the incomes of the people. When income increases the demand for several commodities increases and vice-versa.

4) Population :
A change in the size and composition of population will effect the demand for certain goods like food grains, clothes etc.

5) Taste and preferences :
A change in the taste and the fashions bring about a change in the demand for a commodity.

6) Technological changes :
Due to economic progress technological changes the quantity the quality of goods available to the consumers increase.
Ex : Demand for cell phones reduced the demand for landline phones.

7) Change in the weather :
Demand for commodity may change due to a change in climatic condition.
Ex : During summer demand for cool drinks, in winter demand for woollen clothes.

8) State of business :
During the period of prosperity, demand for commodities will expand and during depression demand will contract.

Question 2.
Explain the law of demand and examine its exceptions.
Answer:
Demand means a desire which is backed up by ability to buy and willingness to pay the price is called Demand in Economics. Thus demand will be always to a price and time. Demand has the following features.

Desire for the commodity.
Ability to buy the commodity.
Willing to pay the price of commodity.
Demand is always at a price.
Demand is per unit of time i.e., per day, week etc.

Therefore, the price demand may be expressed in the form of small equation.
D_x = f(P_x)

Price demand explains the relation between price and quantity demanded of a commodity. Price demand states that there is an inverse relationship between price and demand.

Law of demand :
Marshall defines the law of demand as, “The amount demanded increases with a fall in price and diminishes with a rise in price when other things remain the same”. So, the law of demand explains the inverse relationship between the price and quantity demanded of a commodity.

Demand schedule :
It means a list of the quantities demanded at various prices in a given period of time in a market. An imaginary example given below.

Price in ₹	Quantity Demanded units
5	10
4	20
3	30
2	40
1	50

The table shows that as the price falls to ₹ 1/- the quantity demanded 50 units, when price ₹ 5/- he is buying 10 units. So, there is inverse relationship between price and demand. Price is low demand will be high and price is high demand will be low. We can illustrate the above schedule in a diagram.
TS Inter 1st Year Economics Study Material Chapter 3 Demand Analysis 1

In the above diagram on X-axis demand is shown and price is on Y-axis. DD is the demand curve. Demand curve slopes downwards from left to right.

Assumptions :

No change in the income of consumer.
The taste and preferences consumers remain same.
The prices of related goods remain the same.
New substitutes are not discovered.
No expectation of future price changes.

Exceptions :
In certain situations, more will be demanded at higher price and less will be demanded at a lower price. In such cases the demand curve slopes upward from left to right which is called an exceptional demand curve.

This can be shown in the following diagram.
TS Inter 1st Year Economics Study Material Chapter 3 Demand Analysis 2

In the diagram when price increases from OP to OP₁, demand also increases from OQ to OQ₁ This is opposite to law of demand.

1) Giffen’s Paradox :
This was stated by Sir Robert Giffen. He observed that poor people will demand more of inferior goods, if their prices rise. Inferior goods are known as Giffen goods.
Ex : Ragee, Jowar etc. He pointed out that in case of the English workers, the law of demand does not apply to bread. Giffen noticed that workers spend a major portion of their income on bread and only small portion on meat.

2) Veblen Effect (Prestigious goods) :
This exception was stated by Veblen. Costly goods like diamonds and precious stones are called prestige goods or veblen goods. Generally, rich people purchase those goods for the sake of prestige. Hence, rich people may buy more such goods when their prices rise.

3) Speculation :
When the price of a commodity rises the group of speculators expect that it will rise still further. Therefore, they buy more of that commodity. If they expect that there is a fall in price, the demand may not expand.
Ex : Shares in the stock market.

4) Illusion :
Sometimes, consumer develop to false idea that a high priced good will have a better quality instead of low priced good. If the price of such good falls, demand decreases, which is contrary to the law of demand.

Question 3.
Explain the concepts of income and cross demands with suitable diagrams.
Answer:
The concept of demand has great significance in economics. In general language, demand means a desire but in economics the desire backed up by ability to buy and willingness to pay the price.

Types of demands :
The demand may be classified into 3 types.

Price demand.
Income demand.
Cross demand.

1) Price demand :
Price demand explains the relationship between price and quantity demanded of a commodity it shows the inverse relationship between price and demand when the other things like consumer’s income, taste etc., remains constant. It means the price falls demand extends and price rises demand contracts. The price demand can be expressed D_x = f(P_x)

Price demand can be explained with the help of demand schedule.

Price	Quantity Demanded
5	10
4	20
3	30
2	40
1	50

As price falls to ₹ 1/- the quantity demand is 50 units, when price of apple is ₹ 5/- he is buying 10 units. So, the table shows inverse relationship between price and demand.

Price demand can be explained with the help of the demand curve.
TS Inter 1st Year Economics Study Material Chapter 3 Demand Analysis 3

On OX axis shows demand, OY axis shows price. We can obtain the demand curve ‘DD’ by joining all the points A, B, C, D, E which represents various quantities of demand at various prices. ‘DD’ is demand curve. It slopes downwards from left to right. It shows the inverse relationship between price and demand.

2) Income demand :
It explains the relationship between consumer’s income and various quantities of various levels of income assuming other factors like price of goods, related goods, taste etc., remain the same. It means if income increases quantity demand increases and vice-versa. This can be shown in the following form.
D_x = f(Y)

The functional relationship between income and demand may be inverse or direct depending on the nature of the commodity. This can be shown in the following table.

Income	Demand
Income	Superior good	Inferior good
2,000	4	12
4,000	6	10
6,000	8	8
8,000	10	6
10,000	12	4

Superior goods :
In case of superior goods quantity demanded will increase when there is an increase in the income of consumers.
TS Inter 1st Year Economics Study Material Chapter 3 Demand Analysis 4

In the diagram ‘X’ axis represents demand, OY axis represents income, YD represents the income demand curve. It showing positive slope whenever income increased from OY to OY₁; the demand of superior or normal goods increases from OQ to OQ₁.

This may happen in case of Veblen goods.

Inferior goods :
On the contrary quantity demanded of inferior goods decreases with the increase in incomes of consumers.
TS Inter 1st Year Economics Study Material Chapter 3 Demand Analysis 5

In the diagram on ‘OX’ axis measures demand and OY axis represents income of the consumer. When the consumer income increases from OY to OY₁ the demand for a commodity decreases from OQ to OQ₁ So the YD’ curve is negative sloping.

3) Cross demand :
Cross demand refers to the relationship between any two goods which are either complementary to each other or substitute for each other. It explains the functional relationship between the price of one commodity and quantity demanded of another commodity is called cross demand.
TS Inter 1st Year Economics Study Material Chapter 3 Demand Analysis 6
D_x = f(P_y)
Where, D_x = demand for ‘X’ commodity
P_y = Price of ‘Y’ commodity
f = function

Substitutes :
The goods which satisfy the same want are called substitutes.
Ex: Tea and coffee; pepsi and coca-cola etc. In the case of substitutes, the demand curve has a positive slope.
TS Inter 1st Year Economics Study Material Chapter 3 Demand Analysis 7

In the diagram ‘OX’ axis represents demand of tea and OY axis represents price of coffee. Increase in the price of coffee from OY to OY₂ leads to increase in the demand of tea from OQ to OQ₂.

Complementaries :
In case of complementary goods, with the increase in price of one commodity, the quantity demanded of another commodity falls. Ex: Car and Petrol. Hence, the demand curve of these goods slopes downward to the right.

In the diagram, if price of car decreases from OP to OP₂ the quantity demand of petrol increases from OQ to OQ₂. So cross demand i.e., CD curve is downward sloped.

Question 4.
Define the concept of elasticity demand. Also explain income and cross elasticities of demand.
Answer:
The concept of elasticity demand was first introduced by Cournot and Mill. Later it was developed in a scientific manner by Marshall. Elasticity of demand means the degree of sensitiveness or responsiveness of demand to a change in its price.

According to Marshall, “The elasticity of demand in a market is great or small according as the amount demanded increases much or little for a given fall in price”.

The concept of elasticity of demand explains how much or to what extent a change in any one of the independent variables leads to change in the dependent variable.

There are three kinds of elasticity of demand.

Price elasticity of demand
Income elasticity of demand
Cross elasticity of demand

1) Price Elasticity of Demand :
Alfred Marshall developed the concept of price elasticity of demand. Price elasticity of demand is generally defined as the degree of respon siveness or sensitiveness of demand for a commodity to the changes in its price. Thus, price elasticity of demand is the ratio of percentage change in quantity demanded of a good and percentage change in its price. The following formula to measure price elasticity of demand
TS Inter 1st Year Economics Study Material Chapter 3 Demand Analysis 8

where, q= quantity; p = price; ∆q = change in quantity demanded;
∆p = change in price.

There are five kinds of price elasticity of demand. They are :

Perfectly Elastic demand (Ed = ∝)
Perfectly Inelastic demand (Ed = 0)
Unitary Elastic demand (Ed = 1)
Relatively Elastic demand (Ed > 1)
Relatively Inelastic demand (Ed < 1)

2) Income Elasticity of Demand :
Income elasticity of demand shows the degree of responsiveness of quantity demanded of a commodity to a change in the income of the consumer, other things remain constant.
TS Inter 1st Year Economics Study Material Chapter 3 Demand Analysis 9
where, q = Quantity; y = income; ∆Q = change in quantity demanded;
∆y = change in income.

Income elasticity of demand will be positive in case of superior goods like milk and meat and negative in case of inferior goods like porridge and broken rice.

3) Cross Elasticity of Demand :
Cross elasticity of demand refers to change in the quantity demanded of one good in response to change in the price of related good, other things remaining constant. There are certain goods whose demand depend not only on their price but also on the prices of related goods.
TS Inter 1st Year Economics Study Material Chapter 3 Demand Analysis 10
Where, Q(x) = Quantity demanded for X; P(y) = price of commodity (Y), ∆Q(x) = change in quantity demanded of X commodity, ∆P(y) = change in price of commodity Y.

Substitute goods like tea and coffee have positive cross elasticity demand where as complementary goods like shoes and socks have negative cross elasticity of demand.

Question 5.
What is price elasticity of demand? Illustrate the various types of price elasticities of demand.
Answer:
Alfred Marshall developed the concept of price elasticity of demand. Price elasticity measures, other things remaining constant, change in the demanded of a good in response to a change in its price. Thus, price elasticity of demand is the ratio of percentage change in quantity demanded of a good and percentage change in its price. Price elasticity can be written as stated below.
TS Inter 1st Year Economics Study Material Chapter 3 Demand Analysis 11

Where, q = quantity; p = price; ∆q = change in demand; ∆p = change in price

Types of Price Elasticity of Demand : Based on numerical value, price elasticity of demand can be of five types.

Perfectly Elastic demand (Ed = ∞)
Perfectly Inelastic demand (Ed = 0)
Unitary Elastic demand (Ed = 1)
Relatively Elastic demand (Ed > 1)
Relatively Inelastic demand (Ed < 1)

1) Perfectly Elastic demand :
It is also known as “in-finite elastic demand”. A small change in price leads to an infinite change in demand is called perfectly elastic demand. It is horizontal straight line to ‘X’ axis. The numerical value of perfectly elastic demand is infinite (Ed = ∞). It can be shown in the diagram.
TS Inter 1st Year Economics Study Material Chapter 3 Demand Analysis 13
In the diagram, Ed = \(\frac{OQQ_1}{OQ}\) ÷ \(\frac{O}{OP}\)
\(\frac{QQ_1}{OQ}\) × \(\frac{OP}{O}\) = ∞

2) Perfectly Inelastic demand :
It is also known as “zero elastic demand”. In this case even a great rise or fall in price does not lead to any change in quantity demanded is known as perfectly inelastic demand. The demand curve will be vertical to the Y axis. The numerical value is ‘O’. This can be shown in the following diagram.
TS Inter 1st Year Economics Study Material Chapter 3 Demand Analysis 14
In the diagram, Ed = \(\frac{O}{OQ}\) ÷ \(\frac{PP_1}{OP}\) = 0
∴ Ed = 0

3) Unitary Elastic demand :
The percentage change in price leads to same percentage change in demand is called unitary elastic demand. In this case the elasticity of demand is equal to one. The shape of demand curve is “Rectangular Hyperbola”. This can be shown in the following.
TS Inter 1st Year Economics Study Material Chapter 3 Demand Analysis 15
In the diagram, Ed = OP₁Q₁ = OPQ
(or) OQ₁ = PP₁
∴ Ed = 1

4) Relatively Elastic demand :
When a percentage change in price leads to more than percentage change in quantity demand is called relatively elastic demand. In this case the numerical value of Ed is greater than one (Ed > 1)
TS Inter 1st Year Economics Study Material Chapter 3 Demand Analysis 16
In the diagram, Ed = OQ₁ > PP₁
∴ Ed > 1

5) Relatively Inelastic demand :
When the percentage change in price leads to a less than percentage change in quantity demand is called relatively inelastic demand. Here the numerical value is less than one (Ed < 1). This can be shown to following diagram.
TS Inter 1st Year Economics Study Material Chapter 3 Demand Analysis 17
In the diagram, Ed = QQ₁ < PP₁
∴ Ed < 1

Question 6.
Discuss the factors that determine price elasticity of demand.
Answer:
The term elasticity refers to the measure of extent of relationship between two related variables. The elasticity of demand is the measure of responsiveness or sensitiveness of demand for a commodity to the change in its demand.

Determinants of Elasticity of Demand :
The elasticity of demand varies from commodity to commodity.

1) Nature of Commodity :
Commodities can be grouped as necessaries, comforts and luxuries. In case of necessaries, the elasticity of demand will be inelastic.
Ex : Rice, salt etc. On the other hand in case of luxuries the demand will be more elastic.
Ex : Diamonds and gold etc.

2) Availability of Substitutes :
Prices of substitutes influence the demand for a commodity up to a certain extent. The closer the substitute, the greater the elasticity of demand for the commodity. Ex: Cool drinks, soaps etc., but in case of non-availability of substitutes the elasticity of demand will be low.

3) Complementary Goods :
Price elasticity for a good is also depends on the nature of price elasticity of jointly demand goods. If the demand for car is elastic, then the demand for petrol will also be elastic.

4) Multiple Uses of the Commodity :
The wider the range of alternative uses of a product, the higher the elasticity of demand and vice-versa.
Ex : Coal and electricity have multiple uses and will have elastic demand.

5) Proportion of Income Spent :
If proportion of income spent on commodity is very small, its demand will be less elastic and vice-versa.

6) Period of time :
In the long run, demand will be more elastic. Longer the time period considered, greater will be the possibility of substitution for a cheaper good.
Ex : If the price of petrol increases in the short run, it may not be possible to replace the petrol engines with diesel engines but in the long run it can be possible.

7) Price Level :
Goods which are in very high range or in very low range have inelastic demand but it is high at moderate price.

8) Habit :
The demand for a commodity to which the consumer is accustomed is generally inelastic.
Ex : Tobacco and alcohol.

9) Income Group :
The demand of higher income groups will be inelastic as they do not bother about price changes. On the other hand, the demand of middle and lower income groups will be elastic.

10) Postponement of Purchase :
The demand for a commodity, the consumption of which can be postponed is more elastic than that of the use of the commodity cannot be postpone the purchases of such goods like life saving medicines.

Question 7.
Describe the importance of price elasticity of demand.
Answer:
The term elasticity refers to the measure of extent of relationship between two related variables. The elasticity of demand is the measure of responsiveness or sensitiveness of demand for a commodity to the change in its demand.

Importance :
1) Useful to Monopolist :
Monopolist should study the elasticity of demand for his commodity before fixing up the price. Monopolist will fix a higher price when the commodity has inelastic demand, but he will fix a lower price when the commodity has elastic demand.

2) Useful to Joint Products :
It is useful in the price fixation of joint goods like meat and fur. In such case the producer will be guided by elasticity of demand to fix the prices of the joint goods.

3) Useful to the Government :
The concept of elasticity can be used in form using government policies relating public utility service like Railways, drug industry etc.

4) Useful to International Trade :
In calculating the terms of trade both countries have to take into account the mutual elasticities of demand for the products.

5) Useful to Finance Minister :
The concept of elasticity is useful to the Finance Minister in imposing taxes on goods. The finance minister studies the elasticity of commodities before he imposes new taxes or enhances old taxes.

6) Useful to Management :
Before asking for higher wages trade union leaders must know the elasticity of demand of the product produced by them. Trade union leaders may demand for higher wages only when the goods produced by them have inelastic demand.

7) Useful to Producers :
Volume of goods must be produced in accordance with demand for the commodity. Whenever, the demand for the commodity is inelastic, the producer will produce more commodities to take advantage of higher price. So, it helps in determining the volume of output.

Short Answer Questions

Question 1.
What are the factors that determine the demand?
Answer:
There are a number of factors that determine the demand for a good. The demand function shows the relationship between the demand and the factors that determine the demand for a good. The following are some of the important factors that determine demand :
1. Price of the Commodity :
The demand for a commodity is inversely related to its price. If the price of a commodity decreases its demand will increase and vice-versa. The demand for any good depends on its price being other things remaining constant. More quantity will be demanded at a lower price and vice-versa.

2. Prices of Substitutes and Complementaries :
Demand is also influenced by the changes in the prices of related goods i.e., either substitutes or complementaries. Prices of substitutes influence the demand for a commodity up to a certain extent. For instance, an increase in the price of coffee leads to an increase in the demand for tea. In case of substitutes, there exists a positive relationship between the price and the quantity demanded. Automobiles and fuel are complementary goods. In case of complementaries there exists a negative relationship between the price and the quantity demanded.

3. Income of the Consumer :
Income of the consumer is another important determinant. An increase in the income of a consumer leads to an increase in his purchasing power or quantity demanded. Being other things remaining constant, whenever the income of a consumer increases the demand for normal goods increases but the demand for inferior goods decreases.

4. Tastes and Preferences :
Demand for a commodity may change due to change in tastes, preferences and fashions. Tastes vary from person to person. Tastes do not remain the same forever. An increase in the use of trousers reduced the demand for dhotis due to change in fashions. Advertisements also influence the demand for a particular commodity.

5. Population :
Size of population of a country is another important determinant of demand. In other words, a change in the size of population will affect the demand for certain goods. For instance, larger the population more will be the demand for certain goods like food grains, clothes, housing etc.

6. Technological Changes :
Due to technical progress, new discoveries enter the market. As a result, old goods are substituted by new goods. For instance, increase in the demand for ‘cell phones’ reduced the demand for ‘land line’ phones.

7. Change in Weather :
Demand for a commodity may change due to a change in climatic conditions. For instance, during summer demand for cool drinks, cotton clothes and ACs increases. During winter demand for woolen clothes increases.

8. State of Business :
During the period of prosperity demand for commodities will expand and during depression demand will contract. Therefore, demand for goods depends on the state of business and economic activities.

Question 2.
Explain the Law of Demand.
Answer:
Demand means a desire which is backed up by ability to buy and willingness to pay the price is called demand in Economics. Thus, demand will be always to a price and time. Demand has the following features.

Desire for the commodity.
Ability to buy the commodity.
Willing to pay the price of commodity.
Demand is always at a price.
Demand is per unit of time i.e, per day, week etc.

Therefore the price demand may be expressed in the form of small equation.
D_x = f(Px)

Price demand explains the relation between price and quantity demanded of a commodity. Price demand states that there is an inverse relationship between price and demand.

Demand schedule :
It means a list of the quantities demanded at various prices in a given period of time in a market. An imaginary example is given below.

Price in ₹	Quantity Demanded in units
5	10
4	20
3	30
2	40
1	50

TS Inter 1st Year Economics Study Material Chapter 3 Demand Analysis 18
The table shows that as the price falls to ₹ 1/- the quantity demanded is 50 units, when price ₹ 5/- he is buying 10 units. So, there is inverse relationship between price and demand. Price is low demand will be high and price is high demand will be low. We can illustrate the above schedule in a diagram.

In the above diagram, on X-axis demand is shown and price is on Y-axis. DD is the demand curve. Demand curves slopes downward from left to right.

Assumptions :

No change in the income of consumer.
The taste and preferences of the consumers remain same.
The prices of related goods remain the same.
New substitutes are not discovered. ,
No expectation of future price changes.

Question 3.
Explain the exceptions of law of Demand.
Answer:
In Economics demand means a desire which is backed up by ability to buy and willingness to pay the price. Thus demand will be always at a price and time.
TS Inter 1st Year Economics Study Material Chapter 3 Demand Analysis 19

According to Marshall “The amount demanded increases with a fall in price and diminishes with rise in price when other things remain the same”.

In the diagram when price increases from OP to OP₁ demand also increases from OQ to OQ₁ This is opposite to law of demand.

1) Giffen’s Paradox :
This was stated by Sir Robert Giffen. He observed that poor people will demand more of inferior goods, if their prices rise. Inferior goods are known as Giffen goods.
Ex : Ragee, Jowar etc. He pointed out that in case of the English workers, the law of demand does not apply to bread. Giffen noticed that workers spent a major portion of their income on bread and only small portion on meat.

2) Veblen Effect (Prestigious goods) :
This exception was stated by Veblen. Costly goods like diamonds and precious stones are called prestige goods or veblen goods. Generally rich people purchase those goods for the sake of prestige. Hence, rich people may buy more such goods when their prices rise.

Question 4.
Illustrate the reasons for negative sloping demand curve.
Answer:
According to Marshall, “The amount demanded increases with a fall in price and diminishes with a rise in price when other things remain the same”.

The law of demand explains inverse relationship between the price and quantity demanded of a commodity. Therefore, the demand curve slopes downward from left to right.
TS Inter 1st Year Economics Study Material Chapter 3 Demand Analysis 20

There are some other reasons also responsible for downward sloping demand curve.
1) Old and New Buyers :
If the price of a good falls, the real income of the old buyers will increase. Hence, the demand for the good will increase. In the same way, the fall in price attracts new buyers and will be able to built after a fall in its price. So the demand curve slopes downwards from left to right.

2) Income Effect :
Fall in price of commodity the real income of its consumers increase. The increase in real income encourages demand for the commodity with reduced price. The increase in demand on account of increased in real income is known as income effect.

3) Substitution Effect :
When the price of commodity falls, it will become relatively cheaper than its substitutes. The increase in demand on account of increase in real income is known as income effect.

4) Law of Diminishing Marginal Utility :
According to this law, if consumer goes on consuming more units of the commodity, the additional utility goes on diminishing. Therefore, the consumer prefers to buy at a lower price. As a result the demand curve has a negative slope.

Question 5.
Discuss the concept of income demand.
Answer:
Income demand :
It explains the relationship between consumers income and various quantities of various levels of income assuming other factors like price of goods, related goods, taste etc; remain the same. It means if income increases quantity demand increases and viceversa. This can be shown in the following form.
D_x = f(Y)

The functional relationship between income and demand may be inverse or direct depending on the nature of the commodity. This can be shown in the following table.

Income	Demand
Income	Superior good	Inferior good
2000	4	12
4000	6	10
6000	8	8
8000	10	6
10,000	12	4

Superior goods :
In case of superior goods quantity demanded will increase when there is an increase in the income of consumers.
TS Inter 1st Year Economics Study Material Chapter 3 Demand Analysis 21

In the diagram ‘X’ axis represents demand, OY axis represents income, YD represents the income demand curve. It is showing positive slope whenever income increased from OY to OYx, the demand of superior or normal goods increases from OQ to OQ₁

This may happen in case of Veblen goods.

Inferior goods :
On the contrary quantity demanded of inferior goods decreases with the increase in incomes of consumers.
TS Inter 1st Year Economics Study Material Chapter 3 Demand Analysis 22

In the diagram, on ’OX’ axis measures demand and OY axis represents income of the consumer. When the consumer income increases from OY to OY₁ the demand for a com-modity decreases from OQ to OQ₁ So the YD’ curve is negative sloping.

Question 6.
Explain the concept of Cross Demand.
Answer:
Cross demand :
Cross demand refers to the relationship between any two goods which are either complementary to each other or substitute for each other. It explains the functional relationship between the price of one commodity and quantity demanded of another commodity is called cross demand.
D_x = f(P_y)
Where, D_x = demand for ‘X’ commodity
P_y = Price of y commodity
f = function
TS Inter 1st Year Economics Study Material Chapter 3 Demand Analysis 23

Substitutes :
The goods which satisfy the same want are called substitutes.
Ex : Tea and coffee; pepsi and coca-cola etc. In the case of substitutes, the demand curve has a positive slope.

In the diagram ‘OX’ axis represents demand of tea and OY axis represents price of coffee. Increase in the price of coffee from OY to OY₂ leads to increase in the demand of tea from OQ to OQ₂.

Complementaries :
In case of complementary goods, with the increase in price of one commodity, the quantity demanded of another commodity falls.
Ex: Car and Petrol. Hence, the demand curve of these goods slopes downward to the right.
TS Inter 1st Year Economics Study Material Chapter 3 Demand Analysis 24

In the diagram if price of car decreases from OP to OP₂ the quantity demand of petrol increases from OQ to OQ₂. SO cross demand i.e., CD curve is downward sloping.

Question 7.
What is elasticity of demand?
Answer:
In Economic theory, the concept of elasticity of demand has a significant role. Elasticity of demand means the percentage change in quantity demanded in response to the percentage change in one of the variables on which demand depends.

Elasticity of demand changes from person to person, place to place, time to time and one commodity to another.

Accoridng to Marshall, “The elasticity of demand in a market is great or small according as the amount demanded increases much or little for a given fall in price”.

The concept of elasticity of demand explains how much or to what extent a change in any one of the independent variables leads to a change in the dependent variable.

There are three kinds of elasticity of demand.

Price Elasticity of demand
Income Elasticity of demand
Cross Elasticity of demand.

Question 8.
Define Price Elasticity of demand.
Answer:
Price elasticity of demand is the responsiveness of quantity demanded of a good to a change in the price of that commodity. Alfred Marshall developed the concept of price elasticity of demand. A change in the price of a particular good will never bring uniform change in the quantity demanded.

Other things remaining constant, price elasticity measures the change in the quantity demanded of a good in response to a change in its price. Thus, price elasticity of demand is the ratio of percentage change in quantity demanded of a good and percentage change in its price.

Prof. Marshall suggested the following formula to measure price elasticity of demand.
TS Inter 1st Year Economics Study Material Chapter 3 Demand Analysis 25
Where, q = quantity; p = price;
∆q = change in demand; ∆p = change in price

It is to be noted that while calculating price elasticity of demand other things like income, prices of all related goods, tastes, preference etc. are assumed to be constant. It is also to be noted that price elasticity of demand is negative because of the inverse relationship between price and quantity demanded. For the sake of convenience or simplicity the minus sign is ignored and only the numerical value of the elasticity coefficient is considered.

Types of Price Elasticity of Demand :
If the price of a commodity increases, its quantity demanded will fall. The rate of change in demand is not always proportionate to the rate of change in price. For some commodities a smaller change in price leads to a greater change in quantity demanded. In such a case, the demand is elastic on the other hand, even a greater change in price may lead to only a smaller change in the quantity demanded. In such a case, we say that the demand is inelastic. The following are the types of elasticity of demand :

Perfectly Elastic demand (Ed = ∞)
Perfectly Inelastic demand (Ed = 0)
Unitary Elastic demand (Ed = 1)
Relatively Elastic demand (Ed > 1) and
Relatively Inelastic demand (Ed < 1).

Question 9.
What are the basic determinants of price elasticity of demand?
Answer:
It is not easy to say that the demand for a commodity is elastic or inelastic. Elasticity of demand for a commodity varies from person to person, place to place and time to time. Many factors determine the degree of elasticity. Among them, the following are some of the important factors on which elasticity of demand for a commodity depends.

1) Nature of the Commodity :
In case of necessaries, the elasticity of demand will be inelastic. For example, rice, pulses, sugar and salt. Though the prices of these necessaries change, the quantity demanded remains the same. On the other hand, in case of luxuries the demand is more elastic. Ex. demand for gold, diamonds and other costly goods are more elastic.

2) Availability of Close Substitutes :
Prices of substitutes influece the demand for a commodity up to a certain extent. For instance, an increase in the price of Colgate leads to an increase in the demand for Close Up and vice versa. In case where substitute are available the elasticity of demand will be high but in case of non-availability of substitutes the elasticity of demand will be low.

3) Complementary Goods :
Car and fuel or shoes and socks are used jointly because they are complementaries. For instance, if the price of car increases the demand for fuel decreases and if the price of car decreases the demand for fuel increases. If the demand of car is elastic, then the demand for petrol will also be elastic and viceversa.

4) Multiple Uses of the Commodity :
The more the possible uses of commodity the greater will be its price elasticity and vice versa. Let us illustrate with an example of milk which has several uses. If its price falls, it can be used for a variety of purposes like preparation of curd, cream, ghee and sweets. But if its price rises, its use will be restricted only to feed children and sick persons. Similarly, coal and electricity have multiple uses and will have elastic demand.

5) Postponement of Purchases :
One can certainly postpone the purchases of certain goods like vehicles, ornaments and AC units from present to furture as they have elastic demand. But in case of life saving medicines the demand wall be inelastic, as we cannot postpone the purchases of such goods even if the prices of medicines increase.

6) Proportion of Income Spent :
If the propotion of income spent On a particular commodity is very small, demand for it will tend to be inelastic. For instance, demand for salt, newspapers, match boxes etc. is inelastic. Others like ACs, vehicles etc. will have elastic demand because a major amount has to be allotted to purchase these goods.

7) Period of Time :
In the long run, demand will be more elastic. Longer the time period considered, greater will be the possibility of substitution for a cheaper good. For example, if the price of petrol increases in the short run, it may not be possible to replace the petrol engines with diesel engines but in the long run, it can be possible to replace petrol engines because diesel is now relatively cheaper.

8) Price Level :
If the price of a good is too high or too low, then the elasticity of demand for these goods will be inelastic. On the other hand, if the price is moderate, then the elasticity of demand of these goods will be elastic.

9) Goods Leading to Addiction :
In case of habit forming commodities like tobacco and alcohol, the demand for such goods will tend to be inelastic. Consumers who are accustomed to these goods will buy them even if the prices of these goods increase.

10) Income Group :
The economy consists of the various income groups. In general, the demand for major commodities purchased by higher income groups will be inelastic as they do not bother about price changes. On the other hand, the demand of middle and lower income groups will be elastic as they will be very sensitive to price changes.

Thus, it will be difficult to say whether a commodity has elastic or inelastic demand.

Question 10.
Point out the importance of price elasticity of demand.
Answer:
There are several uses of price elasticity of demand both for business and government particularly in decision making. The following are the some of the important areas where price elasticity of demand is useful.

1) Monopoly Market :
If the demand for a product has different elasticities in different markets, the producer can fix different prices in different markets. A monopolist will fix a higher price when the commodity has inelastic demand but he will fix a lower price when the commodity has elastic demand.

2) Joint Products :
The elasticity of demand is useful in the price fixation of joint goods like meat and fur, sugar and molasses etc. It is too difficult to ascertain separate costs of these joint goods. In such a case, the producer will be guided by elasticity of demand to fix the prices of joint goods. So, a higher price is fixed for a good with inelastic demand and lower price for a good with elastic demand.

3) Government :
The commodities of some industries have inelastic demand. Such industries are declared as ‘public utilities’. Keeping in view the welfare of the people, the government will undertake these industries which have inelastic demand. Railways is one of the best examples.

4) International Trade :
Trade between two countries is possible only by taking into consideration the mutual elasticities of demand for each other’s products. Terms of trade’ implies the rate at which one unit of domestic commodity will exchange for unit of a foreign commodity. In claculating the terms of trade, both countries have to take into account the mutual elasticities of demand for their products.

5) Ministry of Finance :
The government imposes taxes for revenue. While imposing taxes on commodities, the finance minister selects different goods based on their price elasticities. When the government is in need of more revenue it chooses those commodities which have inelastic demand for tax imposition.

6) Management :
If the demand for workers is inelastic, the demand of trade unions to rasie wages will be fruitful. If the demand for workers is elastic, the efforts of trade unions to raise wages may not be successful.

7) Prosperity in Midst of Plenty :
The concept of elasticity explains the paradox of poverty i.e., poverty in the midst of plenty. For instance, bumper crop of food grains should bring agricultural prosperity. But due to inelastic nature of food grains demand, the agricultural sector receives low prices for the produce.

8) Producers :
Volume of goods must be produced in accordance with demand for the commodity. Whenever the demand for the commodity is inelastic, the producer will produce more commodities to take advantage of higher price. Hence, elasticity of demand helps in determining the volume of output.

Question 11.
Describe the income and cross elasticities of demand.
Answer:
The income elasticity of demand and cross elasticity of demand are as follows.

Income Elasticity of Demand :
Income elasticity of demand shows the degree of re-sponsiveness of quantity demanded of a commodity to a change (increase or decrease) in the income of the consumer, other things remaining constant.
TS Inter 1st Year Economics Study Material Chapter 3 Demand Analysis 26
Where, q = quantity, y = income, ∆q = change in quantity demanded,
∆y = change in income.

Cross Elasticity of Demand :
Cross elasticity of demand refers to the change (increase or decrease) in the quantity demanded of a good in response to the change (increase or decrease) in the price of its related goods, other things remaining constant. There are certain goods whose demand depends not only on their price but also on the prices of related goods.
TS Inter 1st Year Economics Study Material Chapter 3 Demand Analysis 27

Where, Qx = quantity demanded for commodity x, Py = price of commodity Y, ∆Qx = change in quantity demanded for commodity X, and ∆Py = change in price of commodity Y.

Very Short Answer Questions

Question 1.
What is Price Demand?
Answer:
It explains the functional relationship between price of good and quantity demanded when the remaining factors are constant. It shows inverse relationship between price and demand.
D_x = f(P_x)
D_x = Demand for X commodity
P_x = Price of X

Question 2.
Prepare Individual Demand Schedule.
Answer:
It explains the relationship between various quantities purchased at various prices by a single consumer in the market.

Question 3.
Prepare Market Demand Schedule.
Answer:
It shows the total demand for a group at a particular time at different prices in the market.

Question 4.
What is Demand Function?
Answer:
Demand function shows the functional relationship between quantity demanded at various factors that determine the demand for a commodity. It can be expressed as follows.
D_x = f(P_x, P₁, …………. P_n, Y, T)
Where,
D_x = Demand for good X
P_x = price of X
Pi₁ …. P_n = Prices of substitutes and complementary
Y = Income of consumer
T = Tastes
f = functional relationship

Question 5.
Explain Giffen’s Paradox (or) Giffen Goods.
Answer:
It means necessary goods. Sir Robert Giffen in mid 19^th century observed that the low paid workers in England purchased more bread when its price increased by decreasing in the purchase of meat. The increase in demand for bread when price increased is an exception to the law of demand, it is known as Giffen’s Paradox.

Question 6.
Explain Veblen Goods (or) Prestigious Goods.
Answer:
This is associated with the name of T. Veblen. Costly goods like diamonds and cars are called Veblen goods. Generally rich people purchase those goods for the sake of prestige. Hence, rich people may buy more such goods when their prises rise.

Question 7.
What is Income Demand?
Answer:
It shows the direct relationship between the income of the consumer and quantity demanded when the other factors remain constant. There is direct relationship between income and demand for superior goods. Inverse relationship between income and demand for inferior goods.
D_x = f(Y)

Question 8.
What is Cross Demand?
Answer:
Cross demand refers to the relationship between any two goods which are either complementary to each other or substitute of each other at different prices.
D_x = f(P_y)

Question 9.
Explain Substitute goods.
Answer:
These are goods which satisfy the same want.
Ex : Tea and coffee. In this case the relationship between demand for a product and the price of its substitute is positive in its nature.

Question 10.
Explain Complementary Goods.
Answer:
These are goods which satisfy the same wants jointly.
Ex: Shoes and socks, car and petrol. The relationship between complementary goods is inverse.

Question 11.
What is Price Elasticity of Demand?
Answer:
It is the percentage change in quantity demanded of a commodity as a result of percentage change in price of a commodity.

Question 12.
What are the types of price elasticity of demand?
Answer:
If the price of a commodity increases, its quantity demanded will fall. The rate of change in demand is not always proportionate to the rate of change in price. For some commodities a smaller change in price leads to a greater change demand, here the demand is elastic. A greater change in price many lead to only a smaller change in quantity demanded, here the demand is inelastic. The following are the types of elasticity of demand.
a) Perfectly elastic demand.
b) Perfectly inelastic demand,
c) unitary elastic demand.
d) Relatively elastic demand,
e) Relatively inelastic demand.

Question 13.
Explain Income Elasticity of Demand.
Answer:
It is the percentage change in quantity demanded of a commodity as a result of percentage change in the income of the consumer.
TS Inter 1st Year Economics Study Material Chapter 3 Demand Analysis 29

Question 14.
Explain Cross Elasticity of Demand.
Answer:
It is the percentage change in the quantity demanded of a commodity as a result of proportional change in the price of related commodity.
TS Inter 1st Year Economics Study Material Chapter 3 Demand Analysis 30

Question 15.
What is Perfectly Elastic Demand?
Answer:
If a negligible change in price leads to an infinite change in demand is called perfectly elastic demand. In this case the demand curve is horizontal to ‘X’ axis.

Question 16.
What is Perfectly Inelastic Demand?
Answer:
Even a great rise or fall in price does not lead and change in quantity demanded is known as perfectly inelastic demand. The demand curve is vertical to ‘Y axis.

Question 17.
Explain Unitary Elastic Demand.
Answer:
The proportionate change in demand is equal to the proportionate change in price. In this case the demand curve will be a rectangular hyperbola.

Question 18.
Explain Relatively Elastic Demand.
Answer:
When a proportionate change in price leads to more than proportionate change in quantity demand is called relatively elastic demand.

Question 19.
Explain Relatively Inelastic Demand.
Answer:
When the proportionate change in price leads to a less than proportionate change in quantity demanded is called relatively inelastic demand.

Question 20.
Define Superior goods.
Answer:
In case of superior or normal goods, quantity demanded increases when there is an increase in the income of consumers. Income demand for superior goods exhibits a positive relationship between the income and quantity demanded. In such a case, the demand curve slopes upwards from left to right.
TS Inter 1st Year Economics Study Material Chapter 3 Demand Analysis 31

In figure OX-axis represents quantity demanded for superior goods and OY-axis rep-resents the income of the consumer. YD represents the income demand curve showing a positive slope. Whenever income increases from OY to OY₁ the quantity demanded of superior or normal goods increases from OQ to OQ₁ This may happen in case of Veblen goods.

Question 21.
Define Inferior Goods.
Answer:
The goods whose income elasticity of demand is negative for levels of income are termed as inferior goods. In case of inferior goods if income increases demand decreases and vice-versa. The income demand for inferior goods has a negative slope.

TS Inter 1st Year Economics Study Material Chapter 2 Theories of Consumer Behaviour

November 16, 2022October 27, 2022 by Srinivas

Telangana TSBIE TS Inter 1st Year Economics Study Material 2nd Lesson Theories of Consumer Behaviour Textbook Questions and Answers.

TS Inter 1st Year Economics Study Material 2nd Lesson Theories of Consumer Behaviour

Long Answer Questions

Question 1.
Describe the law of diminishing marginal utility, its limitations and importance. [Mar. ’16]
Answer:
Hermann Heinrich Gossen was the first economist to explain the law of diminishing marginal utility in 1854. It is also known as Gossen’s ‘first law’. In 1890, Marshall in his principles of economics developed and popularised this analysis. This law explains the functional relationship between the stock of commodity and the marginal utility of commodity.

According to Marshall, “The additional benefit which a person derives from a given increase of his stock of a thing diminishes with every increase in stock that he already has”.

“As a consumer increases the consumption of any one commodity, keeping constant the consumption of all other commodities, the marginal utility of the variable commodity must eventually decline”. Kenneth E.Boulding.

The law says that as we gone consuming a commodity, satisfaction that derives from its additional units goes on diminishing.

Assumptions :
1) Rationality :
Consumer is a rational man which means he always tries to get maximum satisfaction.

2) Cardinal Measurement of Utility :
Utility is a cardinal concept i.e., utility can be measured and compared numerically.

3) Utilities are Independent :
It implies that utility of any commodity depends on its own quantity.

4) Homogeneous :
Units of the commodity are similar in quantity, size, taste and colour etc.

5) No Time Lag :
There should not be any time lag between the consumption of one unit and other unit.

6) Constant Marginal Utility Unit :
It is assumed that the marginal utility of money remains constant.

7) Total & marginal utility :
Total utility: Total satisfaction obtained by the consumer from the consumption of a given quantity of commodity.

TU_n = f(Q_n)
Where, TU_n = Total utility of n commodity,
f = functional relationship,
Q_n = Quantity of n commodity.

Marginal utility :
Marginal utility is the addition made to the total utility by consum¬ing one more unit of the commodity.

It can be explained as :
MU_n = TU_n – TU_n-1
MU_n = Marginal utility of n^th unit
TU_n = Total utility of n^th unit
TU_n-1 = Total utility of n – 1 units.
MU may also be expressed as follows.

Marginal utility is the additional utility derived from the consumption of an extra unit of commodity.
MU = \(\frac{\Delta \mathrm{TU}}{\Delta \mathrm{C}}\)
Where, ∆TU = Change in total utility
∆C = Change in no. of units consumed.

Explanation of the law :
The law of diminishing marginal utility explains the relation between the quantity of goods consumed and its marginal utility. If a person goes on increasing his stock of a thing, the marginal utility derived from an additional unit declines. We show this tendency with an imaginary table given below.

Unit of X apples	Total utility	Marginal utility
1	40	40 – 0 = 40
2	70	70 – 40 = 30
3	90	90 – 70 = 20
4	100	100 – 90 = 10
5	100	100 – 100 = 0
6	90	90 – 100 = -10

In the table, let us suppose that one is fond of apples. As he consumes one apple after another he derives less and less satisfaction. The first unit is consumed with utmost pleasure. For the second, the intensity of his desire diminishes. The third will be still less and so on. The total utility increases until the consumption of fourth unit of good but at diminishing rate. Fifth unit of apple gives him maximum total utility. But, marginal utility becomes zero. Further consumption of sixth unit TU diminishes and MU becomes negative.

The relationship between total utility and marginal utility is explained in the following three ways :

When total utility increases at diminishing rate, marginal utility falls.
When total utility is maximum, marginal utility becomes zero.
When total utility decreases, marginal utility becomes negative.

This can be shown in the following diagram.

TS Inter 1st Year Economics Study Material Chapter 2 Theories of Consumer Behaviour 1
In the diagram, on ‘X’ axis measures units of apples and on Y axis measures total utility and marginal utility. TU curve represents total utility and MU curve represents marginal utility. TU curve is maximum at 5^th unit where MU curve will become zero. TU curve slopes downwards from 6^th unit, while MU become negative.

Limitations or Exceptions :
1) Hobbies :
This law does not operate in the case of hobbies like collection of stamps, old paintings, coins etc. Greater the collections of a person, greater is his satisfaction. Marginal utility will not diminish.

2) Drunkers :
It is pointed out that the consumption of liquor is not subject to the law of diminishing marginal utility. The more a person drinks liquor, the more he likes it.

3) Miser :
This law does not apply to money. The more money a person has the greater is the desire to acquire still more of it.

4) Further, this law does not hold good if there is any change in income tastes and preferences of the consumer.

Importance of the Law :
The importance of the law of diminishing marginal utility is as follows :

The law of diminishing marginal utility is the basic law of consumption and it is the basis for the law of demand, the law of equimarginal utility etc.
The changes in design, pattern and packing of goods will be brought by the producers by keeping this law in view.
The law explains the theory of value that the price of a good falls, when supply increases. Because with the increase in the stock of a good, its marginal utility diminishes.
Diamond-water paradox can be explained with the help of this law. Due to relative scarcity, diamonds possess high exchange value and less use value. Similarly, water is relatively abundant and so it posseses low exchange value but more use value.
This law helps the government while formulating taxation policies. The principle of progressive taxation is based on the law of diminishing marginal utility. This law is more useful in the policies of redistribution of income and wealth in favour of the poor people.

Question 2.
Discuss the consumer’s equilibrium with the help of law of equimarginal utility.
Answer:
Law of equimarginal utility is an important law of consumption. It is called as “Gossen’s Second Law”, as its formulation is associated with the name of H.H. Gossen.

According to Marshall, “If a person has a thing which can be put to several uses, he will distribute it among these uses in such a way that it has the same marginal utility in all uses. If it had a greater marginal utility in one use than in another, he would gain by taking away some of it from the second and applying it to the first”.

According to this law the consumer has to distribute his money income on different uses in such a manner that the last rupee spent on each commodity gives him the same marginal utility. Equalisation of marginal utility in different uses will maximise his total satisfaction. Hence, this law is known as the “Law of equimarginal utility”.

The fundamental condition for consumer’s equilibrium can be explained in the following way.
TS Inter 1st Year Economics Study Material Chapter 2 Theories of Consumer Behaviour 2

Where, MU_x, MU_y, MU_z, MU_m = Marginal utilities of commodities x, y, z, money (m), and P_x, P_y, P_z = Prices of x, y, z goods.

This law can be explained with the help of a table. Suppose the consumer is prepared to spend his money income is ₹ 26/- on two goods say X and Y. Market prices of two goods are ₹4/- & ₹ 5/- respectively. Now the marginal utilities of good X, good Y are shown below.
TS Inter 1st Year Economics Study Material Chapter 2 Theories of Consumer Behaviour 3

For explaining consumer’s maximum satisfaction and consequent equilibrium position we need to reconstruct the above table by dividing marginal utilities of X by its price ₹ 4/- and marginal utility of Y by ₹ 5/-. This is shown in the following table.
TS Inter 1st Year Economics Study Material Chapter 2 Theories of Consumer Behaviour 4

In the table it is clear that when consumer purchases 4 units of goods X & 2 units of good Y. Therefore, Consumer will be in equilibrium when he is spending (4 × 4 = 16 + 2 × 5 = 10) ₹ 26/- on them.

Assumptions of the law :
The law of equimarginal utility depends on the following assumptions.

This law is based on cardinal measurement of utility.
Consumer is a rational man always aiming at maximum satisfaction.
The marginal utility of money remains constant.
Consumer’s income is limited and he is proposed to spent the entire amount on different goods.
The price of goods are unchanged.
Utility derived from one commodity is independent of the utility of the other commodity.

Limitations of the law :
The law of equimarginal utility has been subject to certain limitations which are as given below :

The law assumes that consumer is a rational man and always tries to get maximum satisfaction. But, in real life, several obstacles may obstruct rational behaviour.
This law is not applicable when goods are indivisible.
The law is based on unrealistic assumptions like cardinal measurement of utility and marginal utility of money remains constant. In real world, MU of money does not remain constant.
This law will not be applicable to complementary goods.
Another limitations of this law is that there is no fixed accounting period for the consumer in which he can buy and consume goods.

Importance of the Law :
The law of equimarginal utility is of great practical importance in economics.
1) Basis of Consumer Expenditure :
The expenditure pattern of every consumer is based on this law.

2) Basis for Savings and Consumption :
A prudent consumer will try to distribute his limited means between present and future consumption so as to have equal marginal utility in each. This is how the law guides us.

3) In the Field of Production :
To the businessman and the manufacturer the law is of special importance. He works towards the most economical combination of the factors of production. For this he will substitute one factor for another till their marginal productivities are the same.

4) Its application to Exchange :
In all our exchanges, this law works. Exchange is nothing but substitution of one thing for another.

5) Price Determination :
This principle has an important bearing on the determina¬tion of value and price.

6) Public Finance :
Public expenditure of a government conforms to this law. Taxes are also levied in such a manner that the marginal sacrifice of each tax payer is equal.

Question 3.
Illustrate the consumer’s equilibrium using indifference curve analysis. [Mar. 17, 16]
Answer:
A consumer is said to be in equilibrium with given his tastes, prices of the two goods and income on the purchase of two goods in such a way so as to get the maximum satisfaction :

I. Assumptions :
The analysis of consumers equilibrium is based on the following assumptions :

Consumer has an indifference map showing his scale of preferences which remains the same throughout the analysis.
Money income is given and constant.
Prices of the two goods are given and constant.
The consumer is rational and thus maximizes his satisfaction.
There is no change in tastes, preferences and habits of the consumer.
There is a perfect competition in the goods market.

II. Conditions of Equilibrium :
There are two conditions that must be satisfied for the consumer to be in equilibrium. These are : i) At the point of equilibrium, the budget / price line must be tangent to the indifference curve at its minimum point, ii) At the point of equilibrium, the consumer’s MRS_xy and the price ratio must be equal, i.e. MRS_XY = P_x/P_y.

This can be shown in the following diagram.
TS Inter 1st Year Economics Study Material Chapter 2 Theories of Consumer Behaviour 5

In the diagram ‘AB’ is consumer’s budget or price line. IC, IC₁, IC₂ are indifference curves. In the diagram the consumer is equilibrium at OM of x and ON of y. At point E the price line touches to ‘O’ IC₁. At point ‘S’ consumer will be on lower indifference curve IC and will be an getting lesser satisfaction than at E on IC. IC₂ is beyond the capacity of consumer. So it is outside to the budget line.

Short Answer Questions

Question 1.
Explain the concept of utility analysis. What are its shortcomings?
Answer:
The concept of utility was introduced in economic thought by Jevans in 1871. In a general sense, utility is the want satisfying power’ of a commodity or service. In economic sense, utility is a psychological phenomenon. It is a feeling of satisfaction, a consumer derives from the consumption of a commodity. Utility has nothing to do with usefulness. Utility and usefulness are different. A commodity may satisfy a human want but it may not be useful. For example, wine is harmful to health but satisfies the want of a drunkard. Whether the good is useful or not, if it satisfies a human want we can say that it possesses utility.

Utility is a subjective concept. It differs from person to person, from time to time and place to place. As regards to the measurement of utility, there are two different approaches :
1. Cardinal utility and
2. Ordinal utility. Let us introduce then in brief.

Shortcomings of Utility Analysis :
The following are the main defects pointed out on utility analysis.

Cardinal measurement is not possible.
Assumption of rational consumer is not correct.
Wrong assumption of independent utilities. Utility of a good depends on other goods also.
Assumption of constant marginal utility of money is wrong.
One commodity model is unrealistic.
Income effect, price effect and substitution effect are not clearly brought out.
This analysis fails to explain the demand for indivisible goods.

Question 2.
Explain the concepts of Cardinal Utility, Ordinal Utility, Total Utility and Marginal Utility.
Answer:
The concept of utility was introduced in economic thought by Jevans in 1871. In a general sense, utility is the ‘want satisfying power’ of a commodity or service. In economic sense, utility is a psychological phenomenon.

1) Cardinal utility :
Utility is cardinal in the sense that utility is measurable in terms of units called utils. According to the concept of cardinal utility, the utility derived from the consumption of a good can be expressed in terms of numbers such as 1, 2, 3, 4 and so on. For example, a person can say that he derives utility equal to 10 utils from the consumption of one unit of commodity A and 5 utils from the consumption of one unit of commodity B. He can compare different commodities and express which commodity gives him more util¬ity or satisfaction and by how much. Alfred Marshall followed this approach. The law of diminishing marginal utility and the law of equi-marginal utility are based on cardinal utility approach.

2) Ordinal utility :
Utility is ordinal in the sense that utilities derived from the consumption of commodities cannot be measured quantitatively but can be compared by giving ranks. It means that the utilities obtained by the consumer from different commodities can be arranged in a serial order such as 1^st, 2nd, 3^rd, 4^th etc. These numbers tell us that the second number is more than the first number. But, it is not possible to tell how much, because they are not measurable. J.R. Hicks and R.J.D. Allen have used the ordinal approach. The indifference curve analysis is based on ordinal utility approach.

3) Total Utility and Marginal Utility :
a) Total Utility : Total utility is the total amount of satisfaction which a person gets from the consumption of all units of the commodity. Let us assume that a consumer con-sumed 3 apples and first apple gave him 20 utils of utility, second one 15 utils and the third one 10 utils of utility. By adding these utilities we get the total utility, ie., 20 + 15 + 10 = 45. When the quantity of consumption increases total utility also increases but at a diminishing rate. The total utility is a function of total quantity.
TU_n = f(Q_n)

Where TU_n = Total utility of n commodity,
f = functional relationship, and
Q_n = Quantity of n commodity.

b) Marginal Utility :
Marginal utility is the addition made to the total utility by consuming one more unit of the commodity. Let us assume that one apple gives 20 utils of utility and 2 apples gives 35 utils of utility. It means that the additional utility from the second apple is 15 utils i.e., 35 – 20 = 15. This is called marginal utility. It can be expressed

MU_n = TU_n – TU_n-1
where, MU_n = Marginal utility of n^th unit, TU_n = Total utility of n^th units, and
TU_n-1 = Total utility of n – 1 units.
In the example, marginal utility of the second unit is equal to
MU₂ = TU₂ – TU₁ = 35 – 20 = 15
Marginal utility can also be expressed in the following way :
TS Inter 1st Year Economics Study Material Chapter 2 Theories of Consumer Behaviour 6

By adding all the marginal utilities of different units of the commodity, we get total utility.

Question 3.
Define the law of diminishing Marginal Utility. State its assumptions.
Answer:
The law of diminishing marginal utility was originally explained by Hermann Heinrich Gossen in 1854. Jevans called it as Gossen’s first law. But Alfred Marshall popularised this law and analysed it in a scientific manner.

Definitions of the law :
“The additional benefit which a person derives from a given increase of his stock of a thing diminishes with every increase in stock that he already has” – Alfred Marshall.

Assumptions :
The law is based on the following assumptions :

1) Rationality :
The consumer is a rational human being in the sense that he seeks to maximize his satisfaction.

2) Cardinal Measurement of Utility :
Utility is a cardinal concept, i.e. utility is measurable quantitatively. It can be measured in cardinal numbers.

3) Independent Utility :
The utility of any commodity depends on its own quantity, i.e. utility of goods are independent.

4) Constant Marginal Utility of Money :
The marginal utility of money remains constant.

5) Homogeneous Goods :
Goods are homogeneous in the sense that they are alike both quantitatively and qualitatively.

6) Uniform Size of Goods :
Goods should be of suitable size, i.e. neither too big nor too small. They should be identical.

7) No Time Lag :
There is no time lag between the consumption of one unit to another unit.

8) Divisible Commodity :
Commodity is divisible.

9) No Change in Consumer Behaviour :
The income, tastes and preference of the consumer should remain constant.

10) Full Knowledge of the Market :
Consumer will have full knowledge of market.

Question 4.
Examine the limitations of the law of diminishing Marginal utility. Analyse its importance.
Answer:
The law of diminishing marginal utility was originally explained by Hermann Heinrich Gossen in 1854. Jevans called it as Gossen’s first law. But Alfred Marshall popularised this law and analysed it in a scientific manner.

Meaning :
The law says that as a consumer takes more units of good, the extra satisfaction that he derives from extra unit of a good goes on falling. The relationship between quantity consumed and utility derived from each successive unit consumed is called the law of diminishing marginal utility.

Limitations of the Law :
The following are some of the exceptions to the law of diminishing marginal utility:
1) Rational Consumer :
The consumer should be an economic human being with rational behaviour. If he is under the influence of an intoxicant, the utility of the later units will rise in the beginning but ultimately it falls and even becomes negative.

2) If goods are not independent, this law will not work. Complimentary goods can be one of the example.

3) Marginal utility of money is not constant. Our desire for money increases as we have more of it. The marginal utility of money will not be zero, but definitely it falls, when a person acquires more and more money.

4) If the goods are not homogeneous, this law will not work.

5) If the goods are too big or too small in size, problem arises. If the size is too big, consumer may not require second unit and similarly if the size is too small. Utility of the subsequent units may increase.

6) In the case of durable goods, it is not possible to calculate their utility because their use is spread over a period of time. A consumer does not buy more durable goods for personal consumption.

7) If there is any change in consumer’s income or tastes or habits, this law does not hold good.

8) If the goods are not ordinary, like diamonds or hobby goods like stamps and coins, the utility of the additional units may be greater than the earlier units. Infact law is applicable in these cases also. The collector of stamps or coins never like to have innumerable pieces. The person may not collect more than one or two of the same coin or same stamp.

Importance of the Law :

The law of diminishing marginal utility is the basic law of consumption and it is the basis for the law of demand, the law of equi-marginal utility etc.
The changes in design, pattern and packing of goods will be brought by the producers by keeping this law in view.
The law explains the theory of value that the price of a good falls when supply increases. Because with the increase in the stock of a good, its marginal utility diminishes.
Diamond water paradox can be explained with the help of this law. Due to relative scarcity, diamonds possess high exchange value and less use value. Similarly, water is relatively abundant and so it posseses low exchange value but more use value.

Question 5.
Explain the concept of law ofequi-marginal utility. Point out its assumptions.
Answer:
This is an important law of consumption and was derived from the law of diminishing marginal utility. It is known by various names such as the law of equi-marginal utility, the law of substitution, the law of maximum satisfaction etc. It is also called as Gossen’s Second Law as its formulation is associated with the name of H.H. Gossen. The law of diminishing marginal utility explains the consumer’s behaviour, consuming only one good. But in actual life, consumer buys a certain combination of goods with his limited income and maximises utility. The law of equimarginal utility explains the same.

Definition of the Law :
“If a person has a thing which can be put to several uses, he will distribute it among these uses in such a way that it has the same marginal utility in all. If it has a greater marginal utility in one use than in another, he would gain by taking away some of it from the second and applying it to the first.” – Alfred Marshall.

Assumptions of the Law :
The law of equimarginal utility depends on the following assumptions :

Cardinal measurement of utility is assumed.
Rationality on the part of the consumer so as to get maximum satisfaction and to attain equilibrium is also assumed.
Marginal utility of money remains constant.
The income of the consumer is given and remains constant and he spends entire amount on different goods.
The prices of goods are given and constant.
Utilities are independent.

Question 6.
Discuss the limitations and importance of law of equimarginal utility.
Answer:
Definition of the Law :
“If a person has a thing which can be put to several uses, he will distribute it among these uses in such a way that it has the same marginal utility in all. If it has a greater marginal utility in one use than in another, he would gain by taking away some of it from the second and applying it to the first.” -Alfred Marshall.

Limitations of the Law of EquiMarginal Utility :
The equimarginal principle is subject to certain limitations which may be set forth hereunder :

The law is based upon the assumption of rationality on part of the consumer. But in real life, several obstacles may obstruct rational behaviour.
This law works out fully only if the goods are divisible. If goods happen to be large and indivisible, it is not possible to equate the marginal utility of money spent on them.
Non availability of certain goods prevents the consumers from maximizing their satisfaction out of their expenditure. Therefore, the law fails to work.
Prices of goods often fluctuate in the market with the result that their utilities also keep changing from time to time. This prevents the working of the law.
The law of maximum satisfaction will not be applicable to complementary goods.
Another limitation of this law is that there is no fixed accounting period for the consumer in which he can buy and consume goods.
Cardinal measurement of utility, marginal utility of money remaining constant etc., are not realistic assumptions. They are not valid.
It is assumed that the consumer has a perfect knowledge. But this is not correct.

4) Its application to Exchange :
In all our exchanges, this law works. Exchange is nothing but substitution of one thing for another.

5) Price Determination :
This principle has an important bearing on the determina¬tion of value and price.

6) Public Finance :
Public expenditure of a government conforms to this law. Taxes are also levied in such a manner that the marginal sacrifice of each tax payer is equal.

Question 7.
What is an indifference curve? What are its assumptions?
Answer:
Indifference curve :
An indifference curve represents satisfaction of a consumer from two commodities. An IC curve can be defined as the locus of points each representing a different combination of two goods yielding the same level of satisfaction.

Assumptions :
1) Rationality :
It is assumed that the consumer tries to obtain maximum satisfaction from his expenditure.

2) Scale of preference :
Consumer is able to arrange the available combinations of goods according to scale of preference.

3) Ordinal utility :
It assumes ordinal utility approach. So utility is in measurable only ordinal terms i.e., 1^st, 2^nd, 3^rd etc.

4) Diminishing marginal rate of substitution :
It is the rate at which a consumer is willing to substitute commodity to another. So that this satisfaction remains the same.

5) Consistency :
Consumer’s choices have to be consistent. It means if consumer prefers A to B and B to C his choice reflects his rationality.

6) Completeness :
The consumer’s scale of preferences is to complete that he is able to choose any one of the two combinations of commodities presented to him.

Question 8.
Explain the concept of indifference curve. Discuss its properties.
Answer:
An indifference curve can be defined as the locus of points each representing a different combination of two goods yielding the same utility or level of satisfaction. Therefore, a consumer is indifferent between any two combinations of goods when it comes to making a choice between them. It is also called iso – utility curve or equal utility curve.

Indifference Schedule :
An indifference curve is drawn on the basis of an ‘indifference schedule’. It may be defined as a schedule of various combinations of two goods which yields same level of satisfaction.

Combinations	Commodity X	Commodity Y
1	1 +	15
2	2 +	11
3	3 +	8
4	4 +	6
5	5 +	5

The table shows five combination of two goods, X and Y, which give the same utility. The consumer’s satisfaction from 1^st combination (1 unit of X + 15 units of Y) is the same as that of other combina- o tion i.e., 2^nd, 3^rd, 4^th and 5^th. Since all combinations yield the same level of satisfac- g tion, the consumer is indifferent among these combinations.
TS Inter 1st Year Economics Study Material Chapter 2 Theories of Consumer Behaviour 7

Indifference Curve :
Basing on the indifference schedule, we can draw an indifference curve.
TS Inter 1st Year Economics Study Material Chapter 2 Theories of Consumer Behaviour 8

In the above figure, good X is measured on the OX-axis. Good Y is measured on OY – axis. Consumer’s utility at point a on the IC with 1 unit of good X and 15 units of good Y, is equal to the utility at point b with 2 units of X and 11 units of Y or at point C with 3X and 8Y and so on. These combinations give him the same level of satisfaction. If we join the points a, b, c, d and e, we get an indifference curve (TC) and utility as all points on this curve are same. Hence, the consumer is indifferent regarding the combinations.

When the consumer moves from A to B on IC, he gives up AS of Y (∆Y) for SB of X (∆X).

Properties of Indifference Curves :
Indifference curves have the following basic properties :
1) An indifference curve is negatively sloped towards down. It implies that when the amount of one good in combination is increased, the amount of other good is reduced. This is essential if the level of satisfaction is to remain the same on an indifference curve. It is neither positively sloped towards up nor horizontal.

2) Indifference curves are always convex to the origin. The convexity rule implies diminishing marginal rate of substitution. Indifference curves cannot be concave to the origin.

3) Indifference curves can never intersect each other. If two IC curves intersect, it would imply that an indifference curve indicates two different levels of satisfaction. It is not proper.

4) A higher indifference curve represents a higher level of satisfaction than a lower indifference curve. In other words, an IC to the right represents more satisfaction. This is because of combinations lying on a higher IC contain more of either one or both goods. Similarly, an indifference curve to the left represents less satisfaction.

Question 9.
How do you define Budget line of the consumer.
Answer:
TS Inter 1st Year Economics Study Material Chapter 2 Theories of Consumer Behaviour 9
The budget line or price line shows all possible combinations of two goods that a consumer can buy with the given income and prices of the two goods.

The concept of budget / price line will be shown in the following example. Suppose that a consumer has ₹ 150 (income) to buy two goods namely X and Y. Whose prices are ₹ 15 and ₹ 30 each. With the given information now we can draw the budget or price line as shown in the diagram.In the diagram AB’ is the ‘budget or price line’.

The slope of the line AB represents the ratio of the prices of X and Y in such a manner that 10 of X will be equal to 5 of Y.

Very Short Answer Questions

Question 1.
Define Utility.
Answer:
The want satisfying power or capacity of a commodity or service is known as utility. It is the basis of consumer’s demand for a commodity.

Question 2.
Explain Cardinal utility. [Mar. 17]
Answer:
Alfred Marshall developed cardinal utility analysis. According to this analysis, the utilities derived from consumption of different commodities can be measured in terms of arbitary units called utils. 1, 2, 3, 4 are called cardinal numbers.

Question 3.
Explain Ordinal utility.
Answer:
This was developed by J.R. Hicks, Allen. Utility is subjective and measurement of utility in numerical terms is not possible. We can observe the preference for one good more than for another. Ordinal numbers such as 1^st, 2^nd, 3^rd etc. The ordinal numbers are ranked.

Question 4.
Explain Total utility.
Answer:
Total utility is the total amount of utility which a consumer derives from a given stock of a commodity.
TU_n = f(Q_n)

Question 5.
Define Marginal utility.
Answer:
Marginal utility is the additional utility obtained from the consumption of additional unit of the commodity.
MU_n = TU_n – TU_(n-1)
(or)
MU = \(\frac{\Delta \mathrm{TU}}{\Delta \mathrm{Q}}\)

Question 6.
What is Price Line / budget line?
Answer:
It shows all possible combinations of two goods that a consumer can buy, with the given income and prices of the two goods.

Question 7.
Explain law of diminishing marginal utility.
Answer:
The law of diminishing marginal utility is based on the fact that though human wants are unlimited, but any particular want is satisfiable. This law analyses consumers’ behaviour in case of a single good. If a person goes on consuming more and more units of a commodity, the additional utility he derives from the additional units of the commodity goes on diminishing. This phenomenon of human behaviour is explained by this law. The law of diminishing marginal utility explains the relationship between the quantity of goods consumed and the utility derived.

Question 8.
Explain law of equi-marginal utility.
Answer:
The law states that a consumer having a fixed income and facing given market prices of goods will achieve maximum satisfaction when the marginal utility of the last rupee spent on each good is exactly the same as the marginal utility of the last rupee spent on any other good. Equalisation of marginal utilities will maximize the consumer’s satisfaction and consumer attains equilibrium. The fundamental condition for consumer’s maximum satisfaction and equilibrium of the consumer.

Question 9.
What is scale of preference?
Answer:
Guides the consumer in his purchases.

Question 10.
Explain Marginal rate of substitution.
Answer:
The additional amount of one product required to compensate a consumer for a small decrease in the quantity of another, per unit of the decrease.

This can be explained with the help of table.
TS Inter 1st Year Economics Study Material Chapter 2 Theories of Consumer Behaviour 10

By the table, the consumer is ready to sacrifice 4 units of Y to get 1 more unit of X. The MRSX for diminishes.

Question 11.
Draw the indifference map.
Answer:
A set of indifference curves drawn for different income levels is called indifference map.
TS Inter 1st Year Economics Study Material Chapter 2 Theories of Consumer Behaviour 11

From the above diagram it is clear that an indifference map of IC₁, IC₂, IC₃. Each curve shows a certain level of satisfaction to the consumer.

Question 12.
Explain the relationship between total utility and marginal utility.
Answer:
The relationship between total utility and marginal utility is explained in three ways.
They are :

When total utility increases at a diminishing rate, marginal utility falls.
When total utility is maximum, marginal utility becomes zero.
When total utility decreases, marginal utility becomes negative.

Question 13.
Write in brief, about the properties of indifference curves.
Answer:
It represents the satisfaction of a consumer from two goods of various combinations. It is drawn and the assumption that for all possible combinations of the two goods on an indifference curve, the satisfaction level remains the same.

TS Inter 1st Year Economics Study Material Chapter 1 Introduction to Economics

November 16, 2022October 26, 2022 by Srinivas

Telangana TSBIE TS Inter 1st Year Economics Study Material 1st Lesson Introduction to Economics Textbook Questions and Answers.

TS Inter 1st Year Economics Study Material 1st Lesson Introduction to Economics

Long Answer Questions

Question 1.
Examine the wealth and welfare definitions of Economics.
Answer:
Wealth Definition :
Adam Smith was the first person to give a precise definition of Economics and separate this study from other social sciences. Adam Smith is considered as ‘Father of Economics’. He defined it in his famous book Wealth of Nations’, as “An enquiry into the nature and causes of wealth of nations”. Most of the economists in the 19th century held this view.

J.B. Say states that “The aim of political economy is to show the way in which wealth is produced, distributed and consumed”. The other economists who supported this definition are J.B. Say, J.S. Mill, Walker and others.

The main features of Wealth definition :

Acquisition of wealth is considered as the main objective of human activity.
Wealth means material things.
Human beings are guided by self-interest, whose objective is to accumulate more and more wealth.
Economics deals with the activities of wealth production, consumption, preservation and increasing.

Criticism :
The Wealth definition was severely criticised by many writers due to its defects.

Economists like Carlyle and Ruskin pointed out that economics must discuss ordinary man’s activities. So they called it as a ‘Dismal Science’.
In Adam Smith’s definition, wealth was considered to consist of only material things and services are not included. Due to this the scope of economics is limited.
Marshall pointed out wealth is only a means to an end but not an end in itself.
This definition concentrated mainly on the production side and neglected distribution side.

Welfare definition :
Alfred Marshall tried to remedy the defects of wealth definition in 1890. He shifted emphasis from production of wealth to distribution of wealth.

According to Marshall, “Political Economy or Economics is a study of mankind in the ordinary business of life. It examines that part of individual and social action which is most closely connected with the attainment and with the use of material requisites of well-being. Thus, Economics is on one side, a study of wealth and on the other and more important side, a part of study of man”.

Edwin Cannan defined it as “The aim of political economy is the explanation of the general causes on which the material welfare of human beings depends”.

In the words of Pigou, “The range of enquiry becomes restricted to that part of social welfare that can be brought directly or indirectly into relation with the measuring rod of money”.

The main features of Welfare definition :

Economics as a social science is concerned with man’s ordinary business of life.
Economics studies only economic aspects of human life and it has no concern with the social, political and religious aspects of human life. It examines that part of individual and social action which is closely connected with acquisition and use of material wealth for promotion of human welfare.
According to Marshall, the activities which contribute to material welfare are considered as economic activities.
He gave primary importance to man and his welfare and to wealth as means for the promotion of human welfare.

Criticism :

Robbins criticised Marshalls economics as a ’social science’ rather than a human science, which includes the study of actions of every human being.
Marshalls definition mainly concentrated on the welfare derived from material things only. But non – materialistic goods which are also very important for the well being of the people. Hence, it is incomplete.
Critics pointed out that quantitative measurement of welfare is not possible. Welfare is a subjective concept and relative concept and changes according to time, place and persons.
According to Marshall, economics deals with those activities which will promote human welfare. But production of alcohol and drugs do not promote human welfare. Hence, the scope of economics is limited.
Another important criticism is that it is not concerned with the fundamental problem of scarcity of resources. According to Robbins the economic problem arises due to unlimited wants and limited resources. These factors are ignored in this definition.

Question 2.
Critically examine the scarcity definition of economics.
Answer:
Marshall’s Welfare definition until the publication of Lionel Robbins’ book “An Essay on the Nature and Significance of Economic Science” in 1932. Robbins’ definition brought out the logical inconsistencies and inadequacies of the earlier definitions and formulated his own definition of economics. He has given a more scientific definition of economics. In the words of Robbins, “Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses”.

I. Main Features:
1) Human Wants are Unlimited :
The fulfillment of one want gives rise to a number of new wants.

2) Means are Scarce :
The means of a person by which his wants may be satisfied are limited. It leads to economic problems as all wants cannot be satisfied by these limited means.

3) Alternative Uses of Scarce Means :
Resources are not only scare but also have multiple uses. For example electricity can be used in homes and also in industries. A piece of land can be used to produce rice or wheat. If a scarce factor is used for the satisfaction of one want, less of it will be available for other wants. Hence, man has to make a decision regarding the alternative uses of resources.

4) Man has therefore to choose between wants. Problem of choice arises.

II. Superiority of Robbins’ Definition :
Robbins’ definition is superior to the earlier definitions in more than one way. The reasons are given below :

It is non-classificatory, as it includes all human activities whether they promote human welfare or not.
This is a universally accepted definition. It is applicable to all types of societies, because the scarcity of resources is felt by individuals as well as societies.
Robbins’ definition of economics is neutral between ends. Being a positive science it does not pass any value judgments regarding ends.

III. Criticism :
Some followers of Marshall like Durban, Fraser, Beveridge and Wootton have criticised Robbins’ definition by saying that it lacks human touch and that it is personal, neutral and devoid of any normative or ethical element. He does not seek to make economics a study of human welfare. Some of them criticized as “barren scholasticism” while others accused him of “behaviourism”.

Even though Robbins criticized Marshall’s welfare definition, he has introduced the welfare concept indirectly in his definition. Therefore, the criticism of welfare definition is equally applicable to it.
Another criticism of Robbins’ definition is that this definition does not distinguish between ‘ends’ and ‘means’.
Scarcity definition has been criticized by economists as to say “economics is neutral between ends”. But economics cannot be neutral between ends.
Robbins made economics a positive science. As per Macfie, “economics is fundamentally a normative science, not merely positive science like chemistry”.
Robbins’ definition is not applicable to a dynamic society where changes take place and the problem of scarcity of resources can be overcome with the passage of time.
Mrs. Joan Robbinson took serious objection to scarcity of resources. How best you utilize them is more important than the idle resources.
Robbins’ scarcity definition neglects the more important problems of growth and stability.

Question 3.
Explain the nature and scope of Economics.
Answer:
The nature of economics took a definite shape with the writings of Adam Smith, known as Father of Economics, made a beginning in defining economics and its scope with the publication of his famous book on the wealth of nations. Then a number of economists defined economics and its subject matter in different ways.

The scope of any science explains what the science is concerned with. In economics, traditional economic theory is divided into various branches like consmption, production, exchange, distribution, income, employment, planning and development; where as modem economic theory is divided into two branches viz. micro economics and macro economics.

Economics not only explains things as they are, but also elucidates with what it ought to be. For example, economics discuses the existing level of wages, prices and tax rates in the economy and also suggest how they ought to be. Economics is thus, both a positive and normative science.

Traditional economics is basically concerned with consumption, productio, exchange distribution, income, employment, planning and development.

1. Consumption :
Consumption can be defined as ‘extracting utility from goods and services’. Consumption is the act of using final goods and services to satisfy current wants. Consumption is the basis for production, exchange, distribution.

2. Production :
In the economics production is the process of conversion of raw materials into final goods by adding form, place and time utility to the raw materials. The factors which participate in production are called factors of production. They are land, labour, capital and organization.

3. Exchange :
It is concerned with exchange of a good. A good may be exchanged for another good or for money. Before the evolution of money when barter system was in practice, goods were exchanged for goods. There were many problems in barter system. With the introduction of money, value of every good is expressed in terms of money and can be exchanged for money.

4. Distribution :
Distribution is another important activity in economics. It explains how goods and services are distributed amongst the various factors of production which are responsible for the production. Each factor of production gets its reward. Various theories are there to determine the factor prices.

5. Income :
Individuals earn income by participating in various economic activities. The activities are related to production of material goods or the services. Income is a continuous flow. Various concepts of national income and the measuring methods of national income are discussed as part of macro economics for analysing economic growth and development.

6. Employment :
The level of employment in an economy depends on the demand for consumption goods and demand for investment goods. Full employment means employment of all those who are able and willing to work at.the prevailing wage rates.

7. Planning and Economic Development :
Economic planning is essential for proper and efficient utilization of the available resources. By economic planning we mean achieving the various predetermined targets systematically in a specific period of time. Economic planning is the method by which an optimum allocation of scarce resources amongst the various sectors is made in order to acheive speedy development of the economy and improve the welfare of the people.

Question 4.
Explain the concepts and scope of Micro Economics and Macro Economics.
Answer:
Modem economic theory divided it into two branches, namely (i) Micro Economics (ii) Macro Economics. Ragnar Frisch was the first economist to use the words “Micro and Macro” in economic theory in 1930.

Micro Economics :
The term “Micro Economics” is derived from the Greek word MIKROS’ which means small. Thus, micro economics is the theory of small. It was developed by classical economists like Adam Smith, J.B. Say, J.S. Mill, Ricardo, Marshall etc. It studies about individual units or behaviour of that particular units like individual income, price, demand etc. Micro Economics is also known as partial analysis. It mainly,’ concentrates on the determination of prices of commodities and factors of production. It is also known as “Price theory”. According to K.E. Boulding, “Micro Economics is the study of particular firms, particular households, individual prices, wages, incomes individual industries and particular commodities”.

Shapiro says “Micro Economics has got relation with small segments of the society.
TS Inter 1st Year Economics Study Material Chapter 1 Introduction to Economics 1

Macro Economics :
The term Macro Economics is derived from the Greek word ‘MAKROS’ which means large. Thus, Macro Economics is the study of economic system as a whole. It was developed by J.M. Keynes. It studies aggregates in the economy like national income, total consumption, total saving and total employment etc. It is also known as Income and Employment theory.

According to Boulding “Macro Economics studies national income not individual income, general price level instead of individual prices and national output instead of individual output”. Macro Economics also studies the economic problems like poverty, unemployment, economic growth, development etc. It also deals with the theory of distribution.
TS Inter 1st Year Economics Study Material Chapter 1 Introduction to Economics 2

The difference between Micro Economics and Macro Economics :
Micro and Macro Economics are interrelated to each other. Inspite of close relationship between the two branches of economics, fundamentally they differ from each other.

Micro Economics	Macro Economics
1. The word micro derived from the Greek word ‘Mikros’ means “small”.	1. The word macro derived from the Greek word ‘Makros’ which means “large”.
2. Micro Economics is the study of individual units of the economy.	2. Macro Economics is the study of economy as a whole.
3. It is known as ‘Price theory’.	3. It is known as ‘Income and Employment theory’.
4. Micro Economics explains price de-termination in both commodity and factor markets.	4. Macro Economics deals with national income, total employment, general price level and economic growth etc.
5. Micro Economics is based on price mechanism which depends on demand and supply.	5. Macro Economics based on aggregate demand and aggregate supply.

Question 5.
Explain the different types of goods.
Answer:
Goods are the articles and services which satisfy a human want like books, pens, cell phones etc. Hence, all tangible things that satisfy human wants are called goods. Goods can be divided into two types : free goods and economic goods.

1. Free Goods :
Goods which are freely supplied by the nature and without prices are known as free goods. The supply of these goods is always abundantly greater than their demand and therefore, do not have any price. Free goods possess only value in use, but no exchange value. Examples are air, water and sunshine. Now-a-days, some of these also became economic goods due to several reasons and these goods are priced.

2. Economic goods :
An economic good is any physical object, natural or man made or service rendered that can be commanded a price in a market. They always fall short of the demand for them. These economic goods have both value in use and value in exchange such as pens, books, laptops, etc. Economic goods possess three important characteristics i.e., utility, scarcity, and transferability. Economic goods are also divided into three types, i.e. consumer, product, and intermediary.

3. Consumer Goods :
A consumer good is an economic good or commodity purchased by households for final consumption. Thus, consumer goods are those goods which directly satisfy human wants. For example fruits, milk, pens, clothes, etc.

4. Producer or Capital Goods :
Goods which are used in the production of other goods are called producer or capital goods. They satisfy human wants indirectly. For example machines, buildings etc. are capital goods. A good can be classified into consumer good or capital good depending on the nature of its use. For example, when paddy is used for food it becomes a consumer good and when used as seed in cultivation, it becomes a capital good.

5. Intermediary Goods :
Goods which are under the process of production and semi finished goods are known as intermediary goods. Examples are cement, bricks and steel used as intermediary goods in construction work. The goods which are not yet finished and under different stages of production are known as intermediary goods.

Short Answer Questions

Question 1.
Examine the welfare definition of economics.
Answer:
Alfred Marshall raised economics to a dignified status by advancing a new definition in 1890. He shifted emphasis from production of wealth to distribution of wealth (welfare). In the words of Marshall, “political economy or economics is a study of mankind in the ordinary business of life; it examines that part of individual and social action which is most closely connected with the attainment and with the use of the material requisites of well – being. Thus, it is on the one side, a study of wealth and on the other and more important side, a part of the study of man”.

I. Important Features of Welfare Definition :

Marshall used the term “Economics” for “Political economy” to make it similar to physics. He assumed that economics must be a science even though it deals with the ever changing forces of human nature.
Economics studies only economic aspects of human life and it has no concern with the political, social and religious aspects of life. It examines that part of individual and social action which is closely connected with acquisition and use of material wealth which promotes human welfare.
Marshall’s definitions considered those human activities which increased welfare.
This definition has given importance to man and his welfare and recognised wealth as a mean for the promotion of human welfare.

II. Criticism:
Marshall’s definition is not free from critics. Robbins in his “Essay on the Nature and Significance of Economic Science” finds fault with the welfare definition of economics.

Economics is a human science rather than a social science. The fundamental laws of economics apply to all human beings and therefore, economics should be treated as a human science and not as a social science.
Lionel Robbins criticized it as classificatory. It distinguishes between materialistic and non materialistic goods and not given any importance to non-materialistic goods which are also very important. Therefore, it is incomplete.
Another serious objection is about the quantitative measurement of welfare. Welfare is a subjective concept and changes according to time, place and persons.
Marshall includes only those activities which promote human welfare. But the production of alcohol and drugs do not promote human welfare. Yet economics deals with the production and consumption of those goods.
Robbins has taken serious objection for not considering ‘scarcity of resources’. According to Robbins’ economic problem arises due to limited resources which are to be used to satisfy unlimited wants.

Question 2.
Explain the scarcity definition of economics.
Answer:
Marshall’s welfare definition until the publication of Lionel Robbins’ book “An Essay on the Nature and Significance of Economic Science” in 1932. Robbins’ definition brought out the logical inconsistencies and inadequacies of the earlier definitions and formulated his own definition of economics. He has given a more scientific definition of economics. In the words of Robbins, “Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.”

I. Main Features :
1. Human Wants are Unlimited :
The fulfillment of one want gives rise to a number of new wants.

2. Means are Scarce :
The means of a person by which his wants may be satisfied are limited. It leads to economic problems as all wants cannot be satisfied by these limited means.

3. Alternative Uses of Scarce Means :
Resources are not only scarce but also have multiple uses. For example, electricity can be used in homes and also in industries. A piece of land can be used to produce rice or wheat. If a scarce factor is used for the satisfaction of one want, less of it will be available for other wants. Hence, man has to make a decision regarding the alternative uses of resources.

4. Man has, therefore, to choose between wants. Problem of choice arises.

II. Superiority of Robbins’ Definition :
Robbins’ definition is superior to the earlier definition in more than one way. The reasons are given below :

It is non-classificatory, as it includes all human activities whether they promote human welfare or not.
This is universally accepted definition. It is applicable to all types of societies, because the scarcity of resources is felt by individuals as well as by societies.
Robbins’ definition of economics is neutral between ends. Being a positive science it does not pass any value judgements regarding ends.

Question 3.
Explain the growth definition of economics.
Answer:
In the words of Samuelson, “Economics is the study how people and society choose, with or without the use of money, to employ scarce and productive resources which could have alternative uses, to produce various commodities over time and distribute them for consumption, now and in the future, among various people and groups in the society. It analyses the benefits of improving patterns of resource allocation”.

1. Important Points
Some of the important points in Samuelsons’ definition are :

His definition like Robbins agreed that resources are not only limited but also have several uses.
Samuelson’s definition is dynamic in nature as it considers both the present and future consumption, production and distribution.
Growth definition deals with the problem of choice in a dynamic society. Hence, this definition broadened the scope of economomics.
Samuelson’s definition is superior to that of Robbins’ because he shifted the emphasis from the scarcity of resources to income, output and employment and later to the problems of economic growth.

Samuelson’s definition appears to be the most acceptable at the moment.

Question 4.
Explain the fundamental problems of an economy.
Answer:
Fundamental Problems of an Economy

There are certain fundamental problems in any type of economy with which economists are concerned. The following are the basic economic problems. These are interrelated and interdependent.

What type of goods are to be produced and in what quantities?
How to produce these goods?
For whom to produce these goods and services?
How efficient the productive resources are in use? Whether available resources are fully utilized?
Is the economy growing or static over a period of time?

Question 5.
What is Micro Economics? What is its importance?
Answer:
The term ‘Micro Economics’ is derived from the Greek word ‘MIKROS’ which means ‘small’. Thus, Micro Economics deals with individual units like individual demand, price, supply etc. It was popularised by Marshall It is also called as ‘Price Theory’ because it explains pricing in product market as well as factor market.
TS Inter 1st Year Economics Study Material Chapter 1 Introduction to Economics 3

Importance :

Micro Economics provides the basis for understanding the working of the economy as a whole.
This study is useful to the government to frame suitable policies to active economic growth and stability.
This study is applicable to the field of international trade in the determination of exchange rates.
Micro Economics provides an analytical tool for evaluating the economic policies of the government.
It can be used to examine the condition of economic welfare and it suggests ways and means to bring about maximum social welfare.

Question 6.
Explain the concept of Macro Economics, and its Importance.
Answer:
The term Macro Economics is derived from the Greek word ‘MAKROS’ which means large. It was developed by J.M. Keynes. Macro Economics deals with economic system as a whole like national income, aggregate demand, aggregate supply, general price level etc. It is also known as Income and Employment’ theory.
TS Inter 1st Year Economics Study Material Chapter 1 Introduction to Economics 4

Importance :

Macro Economics study is more useful to the government for formulation and execution of policies for achievement of maximum social benefit.
It helps in understanding the problems of unemployment, poverty, inflation etc, and suggests how to solve them.
It gives us a picture of the working of the economy as a whole.
The study of Macro Economics is helpful in analysing the causes of business cycles and in providing remedies.
Macro Economics includes economic growth and suggests how developing countries can use their resources to maximise their growth.
Macro Economic study is useful for making international comparisons in terms of average national income.

Question 7.
Distinguish between Microeconomics and Macroeconomics.
Answer:
Differences between Microeconomics and Macroeconomics

Microeconomics	Macroeconomics
1. The word mikro derived from the Greek word “micros” means “small”.	1. The word makro derived from the Greek word “macros” means “large”.
2. Microeconomics is the study of individual units of the economy.	2. Macroeconomics is the study of economy as a whole.
3. It is known as ‘price theory’.	3. It is known as ‘income and employment theory’.
4. It explains price determination in both commodity and factor markets.	4. It deals with national income, total employment, aggregate savings and investment, general price level and economic development etc.
5. It is based on price mechanism which depends on demand and supply.	5. It is based oh aggregate demand and aggregate supply.
6. It is based on partial equilibrium analysis which explains the equilibrium of an individual unit.	6. It is based on general equilibrium analysis which explains the simultaneous equilibrium in all the sectors of the economy.
7. It is a static analysis without time element.	7. It is a dynamic analysis with time element.

Question 8.
Explain the differences between free goods and Economic goods.
Answer:
Differences between Microeconomics and Macroeconomics

Free Goods	Economic Goods
1. free goods are nature’s gift.	1. Economic goods are man made.
2. Their supply is abundant.	2. Supply is always less than their demand.
3. They do not have price.	3. These goods have prices.
4. There is no cost of production.	4. These goods have cost of production.
5. They have value in use and do not have value in exchange.	5. These goods have value in use and also value in exchange.
6. Their values are not included in national income.	6. Their values are included in national income.

Question 9.
What is utility? What are its types?
Answer:
The want satisfying capacity of a commodity at a point of time is known as utility. Types of Utility:
1) Form Utility :
Form utilities are created by changing the shape, size and colour etc., of a commodity so as to increase its want satisfying power.
Ex : Conversion of a wooden log into a chair.

2) Place Utility :
By changing the place some goods acquire utility.
Ex : Sand on the sea shore has no utility. If it is brought out and transported to market, it gains utility. This is place utility.

3) Time Utility :
Time utilities are created by storage facility.
Ex : Business men store food grains in the stock points in the off season and releases them to markets to meet high demand and obtain super normal profits.

4) Service Utility :
Services also have the capacity to satisfy human wants.
Ex: Services of Lawyer, Teacher, Doctor etc. These services directly satisfy human wants. Hence, they are called as service utilities.

Question 10.
Analyse the characteristics of wants. [Mar. 17]
Answer:
Human wants are starting point of all economic activities. They depend on social and economic conditions of individuals.
Characteristic features of wants :
1) Unlimited wants :
Human wants are unlimited. There is no end to human wants. When one want is satisfied another want takes its place. Wants differ from person to person, time to time and place to place.

2) A Particular Want is Satiable :
Although a man cannnot satisfy all his wants, a particular want can be satisfied completely in a period of time.
Ex : If a person is thirsty he can satisfy it by drinking a glass of water.

3) Competition :
Human wants are unlimited. But the means to satisfy therr are limited of scarce. Therefore, they complete with each other in priority of satisfaction.

4) Complementary :
To satisfy a particular want we need a group of commodities at the same time.
Ex : Writing need is satisfied only when we have pen, ink and paper together.

5) Substitution :
Most of our wants can be satisfied by different ways.
Ex : If we feel hungry, we can eat rice or fruits satisfy this want.

6) Recurring :
Many wants appear again and again though they are satisfied at one point of time.

7) Habits :
Wants change into habits, which cannnot be given up easily.
Ex : Smoking cigarettes for joke results into a habit if it is not controlled.

8) Wants vary with time, place and person :
Wants go on changing with the passage of time. They are changing from time to time, place to place and person to person. Human wants are divided into

Necessities,
Comforts and
Luxuries.

Very Short Answer Questions

Question 1.
Explain the wealth definition.
Answer:
Wealth means stock of assets held by an individual or institution that yields has the potential for yielding income in some form. Wwalth includes money, shares of companies, land etc. Wealth has three properties. 1. Utility 2. scarcity 3. Transferability.

Question 2.
What is Micro Economics?
Answer:
The word Micro’ is derived from Greek word ‘Mikros’ which means ‘small’. It was devel-oped by Marshall. It is the study of the individual units like individual demand, price, supply etc.

Question 3.
What is Macro Economics?
Answer:
The word Macro’ is derived from Greek work ‘Makros’ which means ‘Large’. It was developed by J.M. Keynes. It studies aggregates or economy as a whole like national income, employment, general price level etc. It is also called “Income and Employment” theory.

Question 4.
What is Positive Economics?
Answer:
A positive science is defined as a body of systematised knowledge concerning ‘what it is’. The classical school economists were of the opinion that economics is purely a positive science which had no right to comment upon the rightness or wrongness of economic policy. Here, economists cannot give any final judgement on any matter.

Question 5.
What is Normative Economics?
Answer:
Normative economics may be defined as a body of systematised knowledge relating to the object of “what ought to be’ and concerned with the ideal as distinguished from the actual. Historical school of Germany has introduced this in Economics.

Question 6.
What are Free goods?
Answer:
Anything which satisfy human want is known as good. Goods which are freely supplied by the nature and without prices are known as free goods. The supply of these goods is always abundantly greater thatn their demand. Hence, they do not command price. Free goods possess only value-in-use, no value-in-exchage. For example, air, water, sunshine.

Question 7.
Explain Economic goods.
nswer:
Economic goods are man made, they have cost of production and price. They are limited in supply. They have both value in use and value in exchange. Ex : Pen, Book etc.

Question 8.
Explain the Consumer Goods.
Answer:
Consumer good is an economic good or commodity purchased by households for final consumption. Thus, consumer goods are those goods which directly satisfy human wants. For Ex : Fruits, Milk, Pen, Clothes etc. Consumer goods are divided into two types.
a) Perishable goods – Which loose their value in single use, Ex : Milk, fruits etc.
b) Durable goods – Which yields service over time. Ex : TVs & Computers.

Question 9.
Explain the Capital Goods.
Answer:
Goods which are used in the production of other goods are called producer or capital goods. They satisfy human wants indirectly. Ex : Machines, tools, buildings etc.

Question 10.
What are single use and durable use goods?
Answer:
Single use capital Goods :
There goods are used only once in the production process. For Example : Raw materials coal and Electricity.

Durable use capital Goods :
These goods are used for long time in the process of production. Machines, tools etc., are the durable capital Goods.

Question 11.
What is Wealth?
Answer:
Wealth means stock of assets held by an individual or institution that has the potential for yielding income in some form. Wealth includes money, shares of companies, land etc. Wealth has three properties. 1. Utility 2. Scarcity 3. Transferability.

Question 12.
What is Income concept?
Answer:
Income is a flow of satisfaction from wealth per unit of time. In every economy income flows from households to firms and vice versa. Income can be expressd in two types.

Money income which is in terms of money.
Real income which is in terms of goods and services.

Question 13.
Explain Value in use concept.
Answer:
The value of any good or service is the power to command other article or service in exchange. Value’ in economics is classified into two concepts. They are;

Value in Use :
It refers to the capacity of the good to satisfy human wants. Free goods have value in use and they do not have any value in exchange. For example, water has a greater value in use but no value in exchange.

Question 14.
Explain value in exchange concept.
Answer:
Exchange value is the purchasing power of one commodity for another. Only economic goods have exchange value.

Question 15.
What is the Price?
Answer:
The price of anything is its value measured in terms of money
Ex: A commodity is exchanged for 50 rupees then the price of a commodity is 50 rupees.

TS Inter 1st Year Political Science Study Material Chapter 12 Forms of Governments

November 16, 2022October 26, 2022 by Srinivas

Telangana TSBIE TS Inter 1st Year Political Science Study Material 12th Lesson Forms of Governments Textbook Questions and Answers.

TS Inter 1st Year Political Science Study Material 12th Lesson Forms of Governments

Long Answer Questions

Question 1.
What is Unitary form of Government? Explain its features.
Answer:
In the Unitary Government the entire power of the government is vesed with the central government only.

A.V Dicey :
‘Unitary government is one in which the central power habitually exercises the supreme Legislature authority’.

Herman Finer :
Unitary government is one in which all powers and authorities are lodged with a centre whose will and agents are legally omnipotent over the whole area’.

J.W. Gamer :
Unitary government is one in which the whole power of the government is conferred by the constitution upon a single central organ from which the local governments derive their authority7′.

Features of Unitary Government:
a) Centralization of powers :
In unitary system, all powers are centralized in the hands of the central government and only centre is the reservoir of all state powers.

b) Provincial governments :
In unitary states, local/provincial governments are created and given power by the central governments. A provincial government directs their powers always derived from the central government. Ex. England.

c) Flexible constitution :
The central government alone has the power to amend the constitution and in this sense the constitution of a unitary state is always flexible like England.

d) Simple uniform administration :
The existence of an all-powerful government exercising power over all the people and places leads to the existence of simple, state and strong administration or the whole state.

e) Single citizenship :
In a unitary government, there is only single citizenship – the citizenship of the whole country. No provincial citizenship is given to its people.

Question 2.
What is Federal Government? Examine its Characteristics.
Answer:
The term, federation is derived from Latin word ’Foedus’ meaning treaty or agreement. A federal polity comes into existence, either as a result of centripetal or centrifugal forces. The instrument by which a federation is brought about by the nature of a treaty or agreement between independent states and the new units of government, national or central which they agree to create. A new federal state is thus created to which sovereign states surrender their sovereignty and agree to become its component parts, for example, United States of America, Australia, India, Canada, etc.

Definitions of Federal Government :
Several political scholars have defined federation in different ways. Some definitions are the following.

Montesquieu :
Federation is a convention by which several parties agree to become members of larger on which they intend to establish’.

Herman Finer :
‘Federal states are one in which part of the authority and powers are vested in the local areas while another part is vested in a central institution deliberately constituted by an association of the local areas’.

A.V. Dicey :
‘A federal state is a political set-up intended to reconcile national unity and powers with the maintenance of state sights’.

J. W. Gamer :
‘Federal government is a system in which the totally of government power is divided and distributed between the centre and the states by the national constitution’.

K. C. Wheare :
A Federal government is a method of dividing power. So that the regional and central government independent’.

Features of Federal Government:
a) Written Constitution :
For a federal government the constitution must almost necessarily be a written constitution which determines the relation between the central and provincial/regional governments.

b) Rigid Constitution :
The natural corollary of the supremacy of the constitution and it being a written document, is that it should not be altered either by the central Legislatures.or by Regional Legislatures under their ordinary law-making procedure.

c) Division of powers :
In a federal political system, there is an essential feature of distribution of powers between central and regional governments under the constitution. Major sectors are vested with union/central and National and Provincial important things are vested with regional governments. For example, external affairs, exports and ports and education, agriculture health are exercised by union and state governments respectively.

d) Bicameralism :
Bicameralism is another important character of the federal government. In federal government, there should be Two-Chambers, representing people and states such as House of people and House states respectively.

e) Dual citizenship :
In a federal political system, constitution provides for dual citizenship to the citizens. Accordingly, the citizens have membership in both the centre and states simultaneously.

f) Independent Judiciary :
In a federal political system, independence of judiciary and intensity of judicial system is another important feature. Independence of judiciary will safeguard the minimum rights of people against the acts of Legislature and administrative authorities.

Question 3.
What is presidential form of Government? Discuss its features.
Answer:
Under the presidential system, the Legislature and executive are two distinct departments of the government. There is more or less a separation between the two. The head of the state, the president, is real executive both as a Matter of law and fact and such power is the result of a direct grant from the constituent authority effected through express promises of the constitution.

Features of the Presidential Government :
a) President as Head of the state and government :
In a presidential government, president serves as the head of the state and government. He enjoys all the executive powers in practice. He implements the decisions and programmes of the government with the help of secretaries.

b) Separation of Legislature from the Executive :
In this form of government executive and Legislature are separate and independent of each other and do not interfere in the jurisdiction of each other.

c) Election/Head of the state and government :
Presidential executive, is not hereditary or nominated by the Legislature, but is elected by the people.

d) Impeachment of the President :
The removal by the impeachment is provided according to constitution, in case he is held guilty of violating, the oath of office. Usually, the power of impeachment is given to the legislature.

e) Checks and balances :
In a presidential government, there is another important feature that is, the principle of ‘checks and balances’. In presidential system, every organ enjoys autonomy and exercise powers independently. At the same time, every organ acts as a check against the excessive authority of the other organ. The legislature must give its consent to all decisions of the president and president must give his approval to the all decisions of the legislature. At the same time, judiciary reviews all constitutional cases and interprets them.

Question 4.
What is Parliamentary form of government?
Answer:
In a parliamentary system a clear distinction is made between the head of the state and the head of the Government here, the head of the state King or Queen in Britain or President of India, possesses nominal or titular authority whereas real authority rests with the government of which Prime Minister is the head. Example : Australia, Canada, Japan etc.

Parliamentary form of government as a system in which the real executive, the cabinet, is immediately and legally responsible to the Legislature for its political policies and acts, ultimately responsible to the electorate.

Features of Parliamentary Governments :
a) Nominal and Real executives :
In parliamentary form of government there should be two kinds Of executive in the Political system one of them, National Executive is the Head of the state and other one is real executive, Head of the government is president and Head of the government is the Prime Ministers.

b) Co-ordination between the Legislature and executive :
Another important feature among, is that, there is a close relationship and co-ordination between legislature and executive bodies of the government. The executive members are selected from the Legislature and so executive remained as responsible for the Legislature for all its acts.

c) Significant role of the prime minister :
In parliamentary form of government, the prime minister holds the real executive authority. He holds the government as comer stone. He has the authority to from the council of ministers and also has right to reshuffle and dissolve the government.

d) Collective responsibility :
The most important feature of the parliamentary government works on the principle of collective responsibility. It means the ministers enjoy the office only as long as they have confidence of the parliament.

e) Individual responsibility :
In a parliamentary government, every minister is individually responsible to the Legislature for the efficient conduct of his department or office. In case there is any lapse in the administration, the ministers are personal answerable to parliament.

f) Dissolution of Lower House :
The head of the state can dissolve the lower house on the recommendation of the prime minister. If deadlock rises between cabinet and Legislature they can appeal to the electorate through elections.

g) Effective opposition :
In a parliamentary form of government opposition party is considered as soul of the democracy. If the ruling party loses its confidence in the Legislature, opposition party is the alternative to form a government and it works against ruling party through questioning the acts.

Short Answer Questions

Question 1.
Write a note on merits and demerits of Unitary form of Government.
Answer:
Merits of Unitary Government:
a) Powerful Administration :
In unitary government, all the powers of the government are vested in the hands of central government. It helps to take decisions fast and work timely and to maintain internal peace, laws and order.

b) Simple and less Expressive :
The unitary system of government easy and less in expressive for administration.

c) Flexible in Administration :
The administration of a unitary state is flexible and can easily adapt itself to the changing social needs and environment. Because it can amend the constitution as and when required.

d) Suitable for small states :
unitary form of government as it is simple and less expressive suitable for smalls states.

e) Quick decisions :
It can be very useful in meeting emergencies. Being a unitary governments, is provincial in nature and can take all necessary decisions quickly and implement with full force.

f) National integration :
In unitary government, there is a simple citizenship which shows no discrimination among its people and helps to national unity integrity and solidarity among its people.

Demerits of the Unitary Government:
a) Fascist Powers :
In unitary government, all powers are vested with single government and there is a scope for Fascist or dictatorial attitude.

b) Centralization of administration :
In unitary government, all powers are concen-trated with the single government and no scope for distribution of powers between union and provincial government and it leads to more burden on the central government to manage whole nation.

c) Unsuitable for Larger States :
unitary governments are suitable for smaller states whereas it is not suitable for larger state which has vast land larger population. Because such states have multi religions, racial and cultural people and unitary government cannot tackle with such society.

d) Neglect of local initiatives :
In unitary governments with centralization of powers and with sanctioning of limited powers to provincial governments, it discourages local governments from making their own policies.

e) Scope for growth of inefficiency :
In unitary government, with centralization of powers, each and every aspect of the society should be administered by the single administrative unit and it leads to inefficiency in providing provisions for its people.

Question 2.
Explain the merits and demerits of Parliamentary form of Government.
Answer:
Merits of Parliamentary Government:
a) Harmony and co-ordination between Legislature and executive :
In a parliamentary government, it secures co-operation and co-ordination from the Legislature because it was formed with the single majority party from Legislature. It enacts laws and implementing laws through taking confidence of legislators.

b) A Scrub on Autocracy :
Parliamentary government effectively checks the despotic attitude of the majority party in the lower house of the Legislature. Legislators prevent the government from the making mistakes against public interest through its questioning and a vote of no-confidence in the other motions.

c) Governmentally Able and Experienced :
In a parliamentary government, Government should be consisted with the top leaders of the majority party. Able and experienced people from the party have a hold on the party and government.

d) Responsible Government :
In a parliamentary from a government, council of ministers along with prime minister hold the offices and enjoys the powers and acts on the collective responsibility to the Legislature. In a parliamentary system, opposition party controls the ruling party through its vigilance in the outside of the Legislature.

e) Flexible Government :
Flexibility is another merit of the parliamentary from of a government, according to Bagehot, under this government; the people can choose a ruler for the occasion who may be especially qualified to successfully pilot the ship of the state through motional crisis.

f) Alternative to Government :
Parliamentary system is in the real sense a government by criticism. The majority from the government the majority continues the opposition. The opposition must criticises the government. The lapses of the government are its opportunities and ruling party lost confidence opposition party is ready to hold the office.

Demerits of the Parliamentary Government:
a) Unstable Government :
The government has no fixed life. It remains in office only so long as it can retain parliamentary majority which is sentient to the vagaries of the represent actives.

b) Violation of the theory of separation of powers :
In a parliamentary of government, there is a combination of executive and Legislature functions in the same set of individuals lead to tramp while the same men may be at one members of the Legislature and the executive, their functions in the two roles are distinct but in political experience, they worked in no distinction.

c) Executive becomes Autocratic / tyranny of majority :
When the executive is confident of support by majority members in the Legislation, at is likely to become autocratic. The opposition feels helpless in correcting the erratic behaviour of the government because all decisions taken on the basis of voting.

d) Unsuitable for emergencies :
A national crisis cannot meet with promptness in parliamentary government because much of tis time wasted in discussions. Get emergency needs prompt action, while taking decisions, be fear of the opposition and the masses at large.

e) Bureaucratic Dictatorship :
In a parliamentary government, bureaucracy becomes unduly important. The ministers being amateurs heavily rely on bureaucratise for everything.

f) National Interests ignored :
In a parliamentary government, political parties often gnore the interests of the nation for the sake of interest of the party in power. All national aspects are divided in the interest of the party only.

Despite all there defects, parliamentary government is very popular. It is considered more democratic and a true reflection of the public opinion.

Question 3.
Discuss the merits and demerits of Federal form of Government.
Answer:
a) Scope for unity in diversity :
The federal government, there is scope for achieving unity in diversity. It is very essential to the multireligions, multicultural and multilinguistic societies.

b) Against Dictatorship :
In the federal political system, there is a scope for preventing the rise of a single despotism, check the growth of bureaucratic authority and conserves the political liberties of people.

c) Less-burden on the centre :
In federal political system, there is distribution of powers between centre and state governments, according to the constitution and each discharges its duties accordingly. So, it decreases the burden upon the central govemment while executing its functions.

d) Scope for New Political experiments :
In a federal political system, regional gov-ernments will introduce new policies / and programmes and make experiments for the development of socio-economic spheres of the society.

e) Suitable for larger states :
Federation is said to be the only form of government which is suitable for vast or larger area states. Larger states can be administered with the constitutional distribution of powers between central and state governments.

f) Leads to efficient Administration :
In a federal form of governments, powers and functions are transferred to the local / state governments. As a result, with the limited subjects, centre can work efficiently and it has scope for concentrating on all important national interests.

Demerits of Federal Government:
a) Weak central government :
Federal government is a weak government due to dis-tribution of powers between the centre and state governments. Regional or provincial governments demand the centre for their regional cause.

b) Lack of uniform laws :
In a federal government, there is a chance to adopt different laws by federal and state governments. Laws passed by the various provincial governments are complex in nature. It leads to controversy between federal and state governments, or among state governments.

c) Controversies and dispute :
In federal political system, there is a distribution of subjects between centre and state governments. When it comes to the concurrent list, centre and state governments try to escape from their duties and subjects remain unimplemented or unfulfilled.

d) Expensive mechanism :
In federal political system, there are two sets of govern-ments, i.e., federal government at centre level and provincial government at regional level. It is more expensive to establish infrastructure of administrative units and re-cruitment and maintenance of bureaucracy.

e) Fear of Disintegration :
In federal political system, federal state itself is formed through treaty of federation or confederation. There is no certainity of sustainability of federation which stands upon the willingness of the provinces / states. For examples U.S.A. experienced such fear in 1882, USSR disintegrated and several states like Latin America, Balkan states faced such problems.

Question 4.
Distinguish between unitary and Federal form of Government.
Answer:
Distinction between Unitary and Federal Governments :

Unitary Government	Federal Government
1. May or may not be written constitution.	1. There will be written constitution.
2. It has Flexible constitution.	2. It has rigid constitution.
3. There is only one Government for the entire country.	3. There will be two types of governments, i.e., union level and provincial level.
4. Centralization of powers.	4. Decentralization of powers between centre and state governments.
5. Government is not as much Democratic form of government.	5. It is purely Democratic government which all governments take their part in Decision-making.
6. There are uniform laws throughout the country.	6. There are central laws and state laws.
7. No need of independent Judiciary.	7. A special judiciary with wide powers.
8. Possibility of despotism.	8. Centre and state work according to constitution, so no chance for despotism.
9. Government machinery is simple and flexible.	9. Government machinery is complex and rigid.
10. Suitable for smaller states.	10. Suitable for larger states.
11. Legislature may be bicameral (Britain) or unicameral (China).	11. Legislature should have two chambers.
12. Constitution may be supreme (Japan) / or may not be supreme (Britain).	12. Supremacy of the constitution.
13. Scope for political stability and integrity.	13. Limited scope for political stability and integrity.
14. The powers of regional governments are easily altered by the central government.	14. The powers of regional governments cannot be altered by the central government.

Question 5.
Write a Note on Presidential form of Government.
Answer:
Presidential government is one in which the Executive is not responsible to the legislature for its acts. It is also known as single Executive government. Fixed Tenure government and Non- responsible government. Under this system a single person, namely, the President exercises all executive powers. The President as well as the Legislators assume their office and continue in power for a prescribed tenure as stipulated in the constitution.

The President is directly elected by the people who form into an Electoral college. “Further the president or the legislators are not responsible to others in exercise of their Powers and Functions. This system is based on the theory of separation of powers as proposed by Montesquieu. The United States of America is a classical example of this system. We also find this system in several Latin American and African countries like Argentina, Bolivia, Chile, Congo, Mexico, Peru, Peruguay, Uganda, Zaire, etc.

Prof. Garner defined presidential government as “one in which the executive is constitutionally Independent of Legislature in respect of its duration of tenure and political policies”.

Question 6.
Examine the differences between presidential and parliamentary form of government.
Answer:

Parliamentary government	Presidential government
1. Exists two types of executives; real and nominal	No distinction between real and nominal executives or it has one real head
2. Head of the state is nominal and head of the government is real	Head of the state is real executive and legislature, both are
3. It is said that there should be co-operation between executive and legislature	No coordination and co-operation between independent of each other
4. Tenure of the executive is uncertain	Tenure of the executive is fixed
5. Council of ministers is appointed by the head of the state on the advice of the prime minister.	Cabinet is the creation of the president
6. Ministers are members of the legislature	Ministers of cabinet or secretaries are not the members of the legislature
7. Ministers are responsible to head of the state and collectively to legislature in practice	Secretaries are not responsible for the legislature but to head of the state.
8. Equal representation to all sections and regions in administration.	No equal representation to all regions and sections of the society.
9. Actions of the executive is scrutinized by the legislature	Both legislature and executive are independent of each other and have mutual checks and balances
10. Scope for flexibility to adapt to the changing situations	It lacks flexibility. It does not mould itself to changing situations.

Question 7.
Explain the merits and demerits of presidential form of government.
Answer:
Merits of Presidential Government:
a) More democratic :
In a presidential form of government, it is said to be more democratic because of two principles of checks and balances. Every decision of executive and legislature checked by the judiciary and they can be interpreted by the judiciary.

b) Stable government :
In presidential system, the president is elected for a fixed tenure. He cannot be removed by ordinary process of law making. There is a special procedure of impeachment in the constitution for the removal of the president.

c) Efficient governance :
The presidential executive can take decisions with energetic promptitude. Power is concentrated in the hands of the executive so it can take decisions and works promptly.

d) Responsibility for Popular :
In a presidential government, real executive is president and he retains its representative character and president is never responsible for legislature and always president is responsible for the people.

e) Independent legislature :
Since the legislature cannot be controlled by the executive it can be more independent. The members of the legislature are not required to adopt the line of the party ideology as it is in a parliamentary system.

Demerits of the Presidential Government:
a) Dictatorial executive :
The presidential executive is likely to be authoritarian. All executive powers are concentrated in the hands of the president and as he is not accountable to legislature, he may be tempted abuse power and behave in a dictatorial manner.

b) Conflict and deadlock :
As the president and his ministers are not members of the legislature, they find it difficult to persuade the members of the latter to accept their proposals. The legislature is inclined to find fault with the president and vice versa. Conflict between the executive and the legislature leads to deadlock in the administration.

c) Absence of accountability :
The executive is not accountable to the legislature, nor it is accountable to the people. The people of the America directly elect their president, they cannot recall him even if they find incompetent or dishonest or useless.

d) No co-ordination between executive and legislature :
In a presidential government, executive and legislature are two distinct bodies and they work indecently, so it is said that, presidential government is lacking co-ordination.

e) Insignificant position of legislature :
In presidential system, legislature became secondary. Executive receives top priority. The president is treated as most capable and influential person in the government.

Question 8.
Write a note on Modem classification of Governments.
Answer:
In modern times, the Governments have been classified into various forms by different political scientists of a different point of time based on nature of exercise of power. The modem classification of governments broadly consists of two types. 1. Despotic Government, 2. Democratic Governments. Democratic governments are further divided into limited monarchical form of government and republican form of Governments. The Governments are either in the form of unitary or federal based on territorial division of powers and presidential or parliamentary form of Government based on division of powers between the organs of Government.
TS Inter 1st Year Political Science Study Material Chapter 12 Forms of Governments 1

Despotic Government :
Despotism is a form of government in which a single entity rules with absolute power and its other connotations are : tyranny and dictatorship. The despotic ruler rules at his will and pleasure without any concern for public opinion and welfare.

Democratic Government :
Democratic government is a government in which all the people participate in the decision making and it is run as per the aspirations of all the groups. It aims and provided for equality.

Very Short Answer Questions

Question 1.
Aristotle’s classification of Governments.
Answer:
Aristotle classified governments on the basis of two elements, namely, i) Number of rulers ii) Aims of the State. He again classified Governments into normal and perverted ‘ forms. He says monarchy, aristocracy and polity as the normal form of governments. Tyranny, oligarchy and democracy are the perverted form of Governments.

Question 2.
Unitary form of Government.
Answer:
The word ‘Unitary’ consists of two words, namely, ‘Uni’ and ‘Tary’, uni means one and tary means ‘rule’. Unitary Government is a single integrated government with all executive powers. The Constitution vests all powers in the Central Government.

Definition :
A.V. Dicey “A Unitary government is the habita] exercise of supreme legislative authority by one central power”.

Question 3.
Federal Government.
Answer:
Governments are classified into Federal and Unitary on the basis of the distribution of powers between the Centre and the States. A federal system is one in which the powers of the government are distributed constitutionally between the Centre and the State Governments. Ex : America, Switzerland etc.

Meaning :
The term “Federation” is derived from a Latin word “Foedus” which means ‘Treaty of Agreement”.

Question 4.
Presidential Form of government.
Answer:
A Presidential government is one in which the Executive Powers are exercised by an elected President. His term of office does not depend on the will of the legislature. He is not only the Head of the state but also the head of the government. He is not responsible to the legislature for his actions and policies. This type of government is found in America, Brazil etc.

Question 6.
UnWritten Constitution.
Answer:
A constitution which is not in the written form is called unwritten constitution. The Rules of the governmental Organisation are in the form of customs, conventions, Traditions and usages. If is not in the form of a written document. It is the product of growth. If is the result of evolution. It is not created by any particular body at any particular period For Example Britain has an unwritten constitution.

Question 7.
Parliamentary Executive.
Answer:
Parliamentary government is one in which the executive ie.; the council of Ministers headed by the Prime Minister owes to the legislature for Its Formation, Continuation, and Survival in office. It is also known as Responsible government, cabinet government, Prime Ministerial government etc., Britain is a classical example of this form of government. Besides many states like Australia, Canada, India, Japan etc. have been following this system.

Question 8.
Separation of powers?
Answer:
Theory of separation of powers is propounded by Montesquieu in his famous book ‘The Spirit of Laws’. The powers among the three organs of the Government in presidential executive will be distributed on the basis of the theory of separation of powers. Its main feature is ‘Checks and Balance’, which means the three organs of the Government possess equal powers and each organ checks the other two organs from crossing their limits.

Question 9.
Checks and Balances.
Answer:
The Principle of checks and Balances is most important feature of presidential government. In presidential system, every organ enjoys autonomy and exercises powers independently. At the same time, every organ acts as a check against the executive authority of the other organs. The legislature must give its consent to all the appointments made by the president. Similarly, the President must give his assent on all the Bills approved by the Legislature. Judiciary reviews all the constitutional cases. It declares the Presidential warrants and Legislative enactments as ‘ultravires’ when the latter are made against the letter and spirit of the constitution.

Question 10.
Collective Responsibilities.
Answer:
Collective Responsibility is a salient feature of Parliamentary government. The Ministers are collectively Responsible to the lower house of the Legislature. They take policy decisions collectively under the Leadership of the Prime Minister. The Council of Ministers cease to hold office when loses it the confidence of the lower house of the legislature A Minister may express his dissent towards the policy during unforeseen is discussed in the cabinet meeting. But he has to defend and support the cabinet decision. He is also Individually and jointly responsible to the Legislature for Omissions and Commissions made in his department..

Question 11.
No – Confidence Motion.
Answer:
No – confidence motion is an important power of the Legislature especially in a parliamentary system of government in which the legislature exercises control over the executive for all its decisions over policies, the council of Ministers are directly responsible to the Lok sabha in India and to the House of Commons in Britain where the parliamentary system is in existence. The Lok sabha in India and the House of Commons in Britain can fail the government by passing the direct vote of No – Confidence against the prime minister and his Ministers.

Question 12.
Prime Minister.
Answer:
Parliamentary government is described as Prime Ministerial government. The Prime Minister in this system acts as the Real executive head of the government. He acts as the Leader of the Majority party or coalition Ministry in the lower house of the legislature. He remains as the main pillar to the structure of union cabinet and union council of Ministers. He is central to the formation, continuance and survival of the Ministry. He Presides over the meetings of the union cabinet and decides its agenda. He enforces the Principle of Collective Responsibility. All the Ministers take oath of office, assume powers and discharge their Public and political obligations under his stewardship.

Question 13.
President.
Answer:
Presidential government confers both the Nominal and Real executive powers in a single person namely the president. So the president is not only a nominal executive but also the Real executive. He serves as both the head of the state and government. He enjoys all executive powers both in name and in practice. He takes Independent decisions keeping in view the popular wishes and national interests. He implements the policies and programmes of the government with the help of some secretaries who owe their existence, continuance and survival to him only.

TS Inter 1st Year Political Science Study Material Chapter 11 Organs of Government

November 16, 2022October 26, 2022 by Srinivas

Telangana TSBIE TS Inter 1st Year Political Science Study Material 11th Lesson Organs of Government Textbook Questions and Answers.

TS Inter 1st Year Political Science Study Material 11th Lesson Organs of Government

Long Answer Questions

Question 1.
Explain the structure of Bicameralism and the functions of the Legislature.
Answer:
Legislature may be Bicameral or Unicameral. In Bicameralism there are two houses, namely, lower and upper house or first chamber and second chamber. The lower house represents the will of the people. The upper house represents the interests of the states.

Ex’s in India Rajyasabha is the upper house and Loksabha is the lower house.

The members of the upper house are elected from the component states. These members represent their respective states in the central government. The people directly elect the members of the lower house .through universal adult franchise.

Functions of the legislature :
The basic function of the legislature is to enact laws as per the will of the people. The legislature in modern times is discharging certain administrative and judicial duties besides forming the laws. The functions of the legislature also depend upon the form of the government. The role of the legislature is limited ina presidential form of government. But, it has an extensive role in the parliamentary government. The functions fo the legislature can be analysed under different heads like : Legislative functions, Executive functions, Financial functions, Judicial functions, Constitutional functions and other functions.

1. Legislative functions :
To frame the laws is the basic function of the legislature. It is the important duty of the legislature to pass laws as per the will of the people. The legislature has powers to frame new laws and also to change, revise or cancel the laws which are outdated. The legislature not only makes laws but also conducts detailed discussions and consultations on different subjects. The legislature discusses extensively every bill before it becomes law.

2. Functions to control executive :
In the parliamentary government, the council of ministers is responsible to the legislature. The legislature exercises control on the council of ministers in dealing with the problems cropping up in the country, and their solutions through different resolutions and questions. It can also pull down the government through a no confidence motion if such a need arises.

3. Financial functions :
The financial functions of the legislature are of much importance in democratic countries. The legislature has to approve the income and expenditure under different heads shown in the budget. The legislature can decide the amount of expenditure under different heads. Levying new taxes or abolishing already existing taxes can be taken up with the consent of the legislature only.

4. Judicial functions :
The legislature, especially the upper house performs some judicial functions. The House of Lords in England functions as the highest court of justice. In U.S.A. and India, the legislature has to try impeachment cases against the president or the Justices of Supreme Court and High Courts. Some times the legislature conducts enquiry through separate committees on the allegations against the government. The legislature has the authority to punish anybody who commits breach of privileges of members and those who violate the rules of the house.

5. Constitutional functions :
The legislature has the right to amend the constitution besides framing the laws. It can amend the constitution as per the needs and requirements of the country which change from time to time.

6. Other functions :
Besides the above functions, the legislature has some more functions like, accepting or rejecting the ordinances declared by the government; electing the speaker, appointing necessary committees to enquire into the lapses of the government and to formulate rules and procedures of the legislative business.

Question 2.
What is Executive? What are its functions?
Answer:
Of the three organs of government, the Executive occupies the most important place. Very often it is referred to as the government. It refers to that branch of government which executes or enforces the laws of the state those are framed by the legislature that is why the executive is identified with government in modem times. Broadly speaking, the executive has three parts :

The Head of the state
The Council of ministers and
The Employees.

Functions of the Executive :
Defence and Foreign affairs :
The executive takes suitable decisions and implements them in case of any threat to the national independence and sovereignty and protects the country from foreign aggression. The duties of the executive include establishing embassies in others countries, recognising newly formed states and concluding treaties and alliances with the foreign countries.

Administrative functions :
The entire administration is carried on in the name of the executive. In this context, its functions include appointment of the officers in highest ranks allotting their duties, providing training, giving directions to different administrative departments, changing the rules and regulations from time to time, to protect law and order, to appoint and advise the council of ministers in parliamentary system, to create new departments or reorganise the existing ones or abolish them altogether as deemed necessary.

Legislative functions :
The executive prepares the draft bills to be presented to the legislature and gets them enacted. In the parliamentary government as the members are directly associated with the legislature the ministers present the draft bills to the legislature and get its acceptance. After acceptance by the legislature, the draft bills can become acts with the assent of the chief executive. In the presidential government, the president sends to the legislature for its acceptance certain messages embodying the various legislative measures considered necessary by him. All the bills passed by the legislature can become acts only with the assent of the president. When the legislature does not meet, the executive can issue ordinances.

Financial functions :
It is the duty of the executive to prepare the annual budget containing income and expenditure of the government and gets the approval of the legislature. The legislature cannot levy new taxes without the consent of the executive. Levy or abolition of taxes, provision of capital funds, reduction of prices etc. come under the domain of executive responsibility.

Judicial functions :
The executive has the certain functions like : To implement the judgements of the courts of law, to reduce or cancel the punishment, to appoint the Judges, to appoint special courts for the enquiry of certain special problems etc. In some of the democratic countries the chief executive appoints judges of the highest courts of justice.

Welfare functions :
It is the Prime duty of the executive in the modern times to undertake welfare measures. The executive has to work for the planned development and contribute for the improvement of the standards of living.

Question 3.
Discuss Judiciary and its Functions.
Answer:
The Judiciary is the third important organ of the government. Legislature enacts the laws. The executive implements them. But it is the judiciary which decides the constitutional validity of these laws both in theory and practice. The judiciary keeps the democratic government within the constitutional limits. The judiciary also has to protect the law abiding citizens and punish the criminals. It consists of the judges and magistrates charged with the duty of administering justice. In brief, it is the branch of the government which settles disputes and administers justice.

Functions of the Judiciary :
Dispensing Justice :
It has to solve the disputes between the citizens, the citizens and the government and different governments. It punishes the criminals after due trial.

Protection of Civil rights :
The courts of law protect the fundamental rights given to the citizens by the constitution. The citizens can approach the court of law when their fundamental rights are violated. The courts issue writs for enforcement of these rights. The citizens can obtain stay orders from courts in advance when they apprehend violation of their rights. In order to protect the rights of the individuals, the courts of law can issue writs like Habeas Corpus, Mandamus, Prohibition etc.

Constitutional protection :
The Judiciary safeguards the constitution in the democratic countries. The Judiciary annuls the unconstitutional decisions of the legislature and the executive. By interpreting the constitution and laws it reviews the laws of the legislature and the actions of the executive and strikes down unconstitutional measures. This authority of the judiciary is called as ‘Judicial Review’.

Protection of equilibrium in federal system :
Judiciary plays a key role in the federal system. The courts of law solve the disputes between the provinces and the central government and also between one province and another. It supervises to see that neither the disputes between the central and provincial governments that arise due to matters relating to the division and distribution of powers.

Advisory functions :
The highest court of justice provides advice to the head of the State on request. For instance in India, the President takes the advice of the Supreme Court on certain problems of constitutional applications. Appellate Jurisdiction: The highest court of justice has to provide justice on the appeals made against the judgements of the lower courts. At times, it ratifies the judgements given in the lower courts and some other times, such judgements are reversed.

Protection of records :
The judiciary has to preserve all the cases along with their judgements. These records will help lawyers and judges in the trial of similar cases in future.

Providing service regulations :
The courts of justice prescribe service regulations of employees working in courts of law.

Functioning as the Head of State :
In some countries and under certain conditions, as identified in India, the Chief Justice of the Supreme Court can function as acting Head of the State when there is no Vice-President in office.

Short Answer Questions

Question 1.
What are the reasons for the decline of the significance of legislature?
Answer:
The political thinkers opine that the legislature, which has wide powers theoretically, is losing its significance gradually in the democratic countries. There are many reasons for this.

The executive acquired a lot of constitutional and legal powers to achieve comprehensive Socio-economic development.
The legislature has to depend on the executive as it does not possess even the fundamental capacity to understand the novel measures introduced in the administrative system due to advancement of science and technology.
Since the highest political offices are filled in through direct elections, the government gained importance by directly influencing the people. It could develop direct relations with the people lessening the importance of the legislature.
Another reason for the reduction of the importance of the legislature is delegated legislation. The legislature, passess a law in a skeleton form and delegates power to the executive to fill in the details of it in the shape of rules and regulations. This is called ‘delegated legislation’. This power is used by the executive to implement plans and welfare schemes.
Other reasons the political thinkers are worried about the fact that the significance of the legislature is further reduced due to certain reasons like lack of a powerful opposition, less duration of the sessions of the parliament, the irresponsible behaviour of the ruling party and also the misbehaviour of the legislators.

Question 2.
Discuss the reasons for the growth of importance of the Executive.
Answer:
In recent years, several factors have led to a steady increase in the powers, functions, prominence and prestige of the Executive organ all over the world. The factors are as follows :
1. Concept of welfare state :
As a result of the advent of the concept of welfare state, the functions of the modem state are gradually increasing. The present state is called upon to look after multifarious activities like labour welfare, education, social security, health, production, distribution etc., which promote the welfare of the people. Hence, the executive requires vast powers to cope with the problems of the modern welfare state.

2. Delegated legislation :
Today the legislative organ is overburdened with work. As a result, it passes laws in a skeleton farm only and empowers the executive to make detailed bye-laws, rules and regulations. This is known as delegated legislation. This has led to the growth of executive importance.

3. Party system :
The present representative system is under the control of the political parties. Parties have provided leadership to the executive and reduced the legislatures to the level of registering bodies. Now, it is the executive organ which performs most of the legislative functions by extra constitutional methods.

4. Economic planning :
For the planned economic development, the government interferes in’ all economic, aspects. As a result the executive branch is becoming more prominent.

Question 3.
Discuss Judicial Review.
Answer:
Judicial Review means reviewing the laws made by the legislatures. The laws of the legislatures (parliament, assemblies, Councils, Parishades etc.,) must not be unconstitutional. The courts of law can nullify all laws which are unconstitutional. This is the Judicial Review. The Judicial Review is not limited only to laws. It is applicable to all the activities of the executive at different levels of central, state and local government institutions. Every State will have a constitution. It is its basic law and all the laws must be within the limits of the constitution. The constitution provides the courts of law with the right to see that all laws and activities conform to the constitution. Judicial Review is not found in all the countries.

The Judicial Review first originated in United States of America in the context of the judgement given by the Supreme Court in the Marbury-Madison dispute in the beginning of the nineteenth century. The courts of law follow different theories, principles and views in reviewing the constitutional viability of the laws. The Judicial Review is based on the following theories which can be studied in detail in higher classes.

Theory of the efficiency of law.
Theory of separation of powers.
Theory of constitutional dynamism.
Theory of activity.
Theory of decision by experience.
Theory of constitutional development.

Question 4.
Write brief note on Rule of Law.
Answer:
Rule of law is a unique feature of British constitution. It at first originated in England later many states like India and the United States have adopted this feature. Rule of law is purely based on the principle of common law. It denotes that law should be general in form. It should be uniformly applicable to all the citizens living in a state. There should not be different types of law for various sections of the community. In other words the government must treat all the citizens equally as per the law.

The governance and administration in a particular state should be carried on in accordance with the laws. A.V Dicey in his “Law of the constitutions” (1885) gave a precise explanation of the rule of law. According to him, rule of law stands for equality before the law. This implies equal subjection of all classes including the officials or common man. Law makes no discrimination between individuals. A.V Dicey says that “Every official from Prime Minister to the attender, all are equal before the law”.

Therefore, Rule of law is helpful to all the citizens in protecting their responsibilities in a more effective manner. The constitution of India too recognizes the Rule of law as a basic feature of India constitution. The Supreme Court of India time and again declared Rule of law as a basic Structure of Indian Constitution. Articles 14 to 21 of the Indian Constitution have incorporated the spirit of this concept. However, the scope of this concept is gradually shrinking owing to the over burdening of legislative work with enormous functions. On the whole, the cardinal virtue of Rule of law is that “All are equal before law and no one must arbitrarily be punished” constitutes the core value of any democratic system in the world.

Question 5.
What is Judicial Activism?
Answer:
According to the idea of judicial activism judges should use their powers to correct injustices, especially when the other branches a Government do not act to do so. The courts play an active role in shaping social policy on such issues as civil rights, political unfairness protection of individual rights and public morality.

Judicial activism is policy making function of judiciary in competition with poilcy making by the legislative and executive. This element is associated with the doctrine of judicial review. The essence of true judicial activism lies in rendering decisions by the judiciary which are in tune with the temper and tempo of the times.

Behind every judicial decision, judicial activism and judicial restraint are the two aspects that describe the philosophy and motivation. The concept of judicial activism is the polar opposite of judicial restraint. Judicial activism refers to a theory of judgement that takes into account the spirit of the law and the changing times, whereas judicial restraint relies on a strict interpretation of the law and the importance of legal precedent.

Judicial activism is a dynamic process of judicial outlook in a changing society. Arthur Schlesinger jr. introduced the term ‘Judicial activism’ in 1947. According to Black’s Law Dictionary, “Judicial activism is a judicial philosophy which motivates judges to depart from traditional precedents in favour of progressive and new social policies”.

Very Short Answer Questions

Question 1.
How many organs of government are there? What are they?
Answer:
The powers of Government are separated among these three organs – legislature, executive and judiciary. They are inter-related and sometimes independent of each other. Political philosophers like Cicero, Jean Bodin and John Locke wrote treatises on the inter-relationship of three organs of government.

Question 2.
What is meant by the theory of separation of powers?
Answer:
Montesquieu stated that concentration of powers in one person or a body of persons would result in despotism and negate individual liberty. He suggested separation of powers among the three organs of government in a balanced manner. Every organ must check the misuse of powers of other organs. Then only individuals enjoy their liberties without fear from the governmental interference.

Question 3.
What is meant by Plural Executive?
Answer:
Among various types of Executive, Plural Executive is one. If the executive powers are exercised by a body of persons having co-equal authority, it is called “Plural Executive”. The Swiss Federal Council and the President in the former U.S.S.R. are the examples of Plural Executives. This Plural Executive combines the merits of both the parliamentary and the presidential executives, avoiding their defects.

Question 4.
What is independence of the Judiciary?
Answer:
Independence of judiciary implies an opportunity to the judges to perform their duties without fear or favour and act impartially. The judges should have no relation with the legislature and the executive. Both the organs should not interfere in the functioning of the judiciary. It should be protected from political pressure and influence. Otherwise, the very purpose of judiciary stands defeated.

Question 5.
What is Judicial Review?
Answer:
It is the power of a court to enquire whether a law passed by legislature or executive order or other official action is in accordance with the constitution or not If a law, or order or action is against the constitution then the court declares it as “Unconstitutional” and “Invalid”. The Judicial Review power originated in the USA in 1803. The American Supreme God Court and the Indian Supreme Court are some of the courts having this power.

Question 6.
Senate.
Answer:
Senate is the Upper House of United States Congress, which is a small group of elected people who decide the laws of the country. It consists of 100 members. Every U.S. state elects two people to represent them in the U.S. Senate. These people are called senators.

Question 7.
Council of States
Answer:
Council of States is the Upper House of Indian Parliament. It is also known as the Rajya Sabha. It consists of 250 members out of them 238 members are elected by the members of state legislative assemblies through the system of proportional representation by means of single transferable vote. The remaining 12 members are nominated by the President of India from the fields of Arts, Literature, Social Service, Cooperative Movement, Science and Technology. It is a permanent house and it can never be dissolved. Each member shall remain in office for a period of 6 years. For every 2 years 1/3 of its members shall retire.

Question 8.
House of lords.
Answer:
The House of Lords, also known as The House of peers, is the upper House of the parliament of the United Kingdom. Membership is granted by appointment or else by heredity. Like the House of common, it meets in the palace of West Minister. Currently, there are 300 members in the House of Lords members of whom 240 are Elected members and 60 appointed. Independent members upto 12 Church of England Bishops may sit in the House as ex officio Lords spiritual. Elected members will serve a single non-renewable term of 15 years.

Question 9.
Independent Judiciary.
Answer:
Independence of Judiciary implies an opportunity to the Judges to perform their duties without fear or favour and act impartially. The Judges should have no relation with the Legislature and the Executive. Both the organs should not interfere in the functioning of the Judiciary. It should be protected from political pressure and influence. Otherwise the very purpose of Judiciary stands defeated.

Question 10.
Parliamentary Executive.
Answer:
A parliamentary System of government means that the Executive branch of government has the direct or indirect support of the parliament. This support is usually shown by a vote of confidence. The Relationship between the executive and the Legislature in a parliamentary system is called Responsible government. According to this system, there is a President who is the formal Head of the State, and the Prime Minister and the council of ministers, which run the government.

Question 11.
What is Uni-bicameralism?
Answer:
In government, the first organ is the Legislature, it may be unicameral or Bicameral. Unicameralism is derived from two Latin words namely uni, which means one, and camera, which means, the chamber is the practice of having one Legislative or parliamentary chamber. Thus, a unicameral parliament of the unicameral legislature is a legislature that consists of one chamber or house.
Ex.: Armenia, Bulgaria, Denmark, Sweden etc.

Question 12.
What is Bi-bicameralism?
Answer:
‘Bi’ means two and Cameral means house or chamber. If a Legislature consists of two houses or chambers, it is called a Bi-cameral legislature, and such an arrangement is called Bi-cameralism. The bi-cameral legislature is necessary for a federal government as the second chamber gives representation to the states. In the Bi-cameral setup, the upper house is less powerful than the lower house.
Ex.: Rajya Sabha and Lok Sabha in India, Senate and House of Representatives in America.

TS Inter 1st Year Political Science Study Material Chapter 10 Constitution

November 16, 2022October 26, 2022 by Srinivas

Telangana TSBIE TS Inter 1st Year Political Science Study Material 10th Lesson Constitution Textbook Questions and Answers.

TS Inter 1st Year Political Science Study Material 10th Lesson Constitution

Long Answer Questions

Question 1.
Define Constitution and explain the features of Constitution.
Answer:
Introduction :
The age of Democracy led to political civilisation. Now-a-days every civilised state possess a constitution. A Constitution is a condition of modem state. The constitution is a living text of a political system. It represents the political character of the state and its constituents.

The term constitution implies a written document embodying the provisions relating to the powers and functions of the government organs, the rights and duties of the citizens.

Meaning :
The term constitution is an English word. It was derived from a Latin word “Constitution, which means to Establish”.

Definitions:
1) Aristotle :
“Constitution is the arrangement of offices in a state, especially the highest of all”.

2) Lord Bryce :
“Constitution is a set of established rules embodying and enacting the practice of Government”.

3) Stephen Leacock :
“Constitution is the form of Government”.

4) K.C. Wheare :
“Constitution is that body of rules which regulates the ends for which governmental power is exercised”.

Features of the Constitution :
1) Preamble :
Every Constitution will have a preamble. The preamble denotes the aims and aspirations of the Constitution. It is like the soul of the Constitution. Hence, preamble is considered as an important feature of the Constitution.

2) Clarity :
Clarity is another important feature of the Constitution. The Constitution clearly explains about the different policies and methods of governance. It is written in a simple and clear language.

3) Incorporation of Fundamental Rights :
Every Constitution includes some fundamental rights. These fundamental rights are meant for safeguarding the freedoms of the citizens. They enable the citizens to realise their personality in various spheres. They , help the citizens for leading a happy and honorable life in the state.

4) Brevity :
Brevity is another feature of a Constitution. Brevity avoids confusion among the individuals in understanding and interpreting provisions. Unnecessary elements are not included in the Constitution. It should be precise. It must not contain large number of clauses.

5) Flexibility :
The Constitution must be flexible for adapting the wishes are aspirations of the people from time to time. There must be a scope of amending the provisions of the Constitution if necessary. Frequent changes in the Constitution tend to weaken the spirit of the Constitution. But, at the same time, the Constitution of a modem state should be adaptable to the progressive changes.

6) Permanence :
Permanence is one more feature of the Constitution. The Constitution must have everlasting values for the welfare of the whole nation. It represents the actual structure of the state and its political institutions. It obliges the customs of the people.

7) Mode of Amendment :
The Constitution specifies the mode of amendment. It will be relevant to the contemporary conditions of the state. It contains a special chapter on the constitutional amendment procedures. Usually the constitutional amendments are of three types, namely (i) Rigid (ii) Flexible and (iii) Half rigid and Half flexible. On the whole, the constitution of every state comprises both rigid and flexible elements.

8) Explanatory :
The Constitution is explanatory in nature. It denotes and discusses almost all elements relating to the People, Government and State. It contains separate provisions on the structure, powers and limitations of state activity.

Question 2.
Define Constitution and point out the differences between Flexible and Rigid Constitutions.
Answer:
Definition :
The age of Democracy led to political civilisation. Now-a-days every civilised state possess a Constitution. A Constitution is a condition of modern state. The constitution is a living text of a political system. It represents the political character of the state and its constituents.

Flexible Constitution :
Flexible constitution is one whose provisions can be amended easily. It requires no special procedure for changing its provisions. It can be amended by the authorities by adopting the same procedure of ordinary laws. So we do not find differences between ordinary and constitutional laws. Flexible constitutions were prevalent in the ancient period. Ex : British constitution.

Rigid Constitution :
Rigid constitution is one whose provisions cannot be changed easily. In this system the constitutional amendment methods are different from those of ordinary laws. There will be a special procedure for amending the provisions of the rigid constitution. The rigid constitution will have firmness due to its special procedures of amendment. Ex : United States.

Differences between Flexible and Rigid Constitution

Flexible Constitution	Rigid Constitution
1. Constitutional matters are not clearly mentioned.	1. Constitutional matters are clearly written.
2. Not appropriate to a federal state.	2. Appropriate for a federal state.
3. Highly unstable.	3. Highly stable.
4. Constitution can be easily amended.	4. Constitution cannot be easily amended.
5. Provides no scope for judicial review.	5. Provides scope for judicial review.
6. Only one type of law is found.	6. Two types of laws are found, constitutional and ordinary. Constitutional laws precede ordinary laws.
7. Rights, freedoms and liberties of people may not be safeguarded by the Judiciary.	7. Rights, freedoms and liberties of people will be better safeguarded by the Judiciary.
8. No scope for revolutions.	8. Scope for revolutions.
9. Possibility of unlimited legislative power.	9. Possibility of a limited legislative power.
10. More suitable to the politically advanced states.	10. More suitable to the developing nations.
11. It makes no differentiation between constitutional and ordinary laws.	11. It makes differentiation between constitutional and ordinary laws.
12. Appropriate to small states.	12. Appropriate to large states.

Short Answer Questions

Question 1.
Define Constitution. Explain its features.
Answer:
Features of the Constitution :
1) Preamble :
Every Constitution will have a preamble. The preamble denotes the aims and aspirations of the Constitution. It is like the soul of the Constitution. Hence, preamble is considered as an important feature of the Constitution.

3) Incorporation of Fundamental Rights :
Every Constitution includes some fundamental rights. These fundamental rights are meant for safeguarding the freedoms of the citizens. They enable the citizens to realise their personality in various spheres. They help the citizens for leading a happy and honourable life in the state.

4) Brevity :
Brevity is another feature of a Constitution. Brevity* avoids confusion among the individuals in understanding and interpreting provisions. Unnecessary elements are not included in the Constitution. It should be precise. It must not contain large number of clauses.

Question 2.
What are the merits and demerits of a Written Constitution?
Answer:
Written Constitution :
A written constitution is formulated and adopted by a Constituent Assembly or a Convention. It comprises several principles and rules of the Government in a written form or document. The Constitution of India is an example of written constitution. The American Constitution is the first written constitution in the world.

Merits:

A written constitution carries more simplicity. It gives no scope for confusion and ambiguity among the people in understanding the structure and organization of various institutions. .
It protects the fundamental rights of the people.
It puts limitations on the powers of the Government.
It renders political stability due to its rigid nature.
It embodies the aspirations of the people. It cautions the Government about the importance of the accomplishment of popular needs.
It maintains equilibrium between the centre and the states by allocating powers in a judicious manner.
It safeguards the sanctity and spirit of a .federation.

Demerits:

A written constitution cannot provide a better Government as it impose some stipulated conditions on the party in power.
It makes the judiciary a predominant one.
Its provisions cannot be changed according to the needs and wishes of the people. So, the progress of the nations lags behind.
Its rigid nature is not helpful to the development of the state.
It gives scope for conflicts among the governmental organs.
It may not be conductive to the formation of a welfare state.

Question 3.
Explain the merits and demerits of Unwritten Constitution.
Answer:
Unwritten Constitution: Unwritten constitution is one whose provisions are not written in a single document. It includes several customs and traditions which are manifested in the form of the laws.

The Constitution of Britain is the best example of unwritten constitution.

Merits:

An unwritten constitution paves the way for progressive legislation. It has develop-ment orientation.
It always undergoes the process of evolution as it aims at ‘bettering the best’.
It gives no scope for revolutions and such other agitations. It concedes to the popular demands.
It can be amended according to the popular needs and aspirations.
Its provisions are elastic in nature. So, changes in the constitution are easily made.

Demerits :

An unwritten constitution may be changed frequently by the party in power for its political gains. This affects the political stability of the nation.
It fails to protect the rights and freedom of people.
It is more informal in nature.
It is also not suitable for federal states.
An unwritten constitution is considered as a play tool of judges. This may lead to judicial manipulations.
It is prone to frequent amendments.
It is not suitable to democratic states.

Question 4.
Distinguish between Written and Unwritten Constitution. [A.P. Mar. 16]
(or)
5. Explain the difference between Written and Unwritten Constitution.
Answer:
Written Constitution :
A written constitution is formulated and adopted by a Constituent Assembly or a Convention. It comprises several principles and rules of the Government in a written form or document. The Constitution of India is an example of written constitution. The American Constitution is the first written constitution in the world.

Unwritten Constitution :
Unwritten constitution is one whose provisions are not written in a single document. It includes several customs and traditions which are manifested in the form of the laws. The Constitution of Britain is the best example of unwritten constitution.

Differences between Written and Unwritten Constitutions

Written Constitution	Unwritten Constitution
1. Written constitution implies a document or few documents in which the rules regulating the main institutions of Government are written down.	1. Unwritten constitution denotes a sum of customs, conventions and usages which have not been systematically documented.
2. All the basic principles of the State are clearly written.	2. All the basic principles of the State exist in the form of customs and traditions.
3. Written constitution is framed by a special assembly convened at a particular point of time.	3. Unwritten constitution contains some written elements also in the form of enactments of fundamental charters made from time to time.
4. It is suitable to the educated and literate people.	4. It is suitable to the uneducated and illiterate people.
5. Courts of law protect the liberties of the citizens.	5. Courts of law cannot provide much protection.
6. It is formulated at a particular time.	6. It is evolutionary in nature.
7. It provides political stability.	7. It could not ensure political stability.
8. It cannot be easily amended.	8. It can easily be amended.
9. It is useful to federal states.	9. It is advantageous to the unitary states.

Very Short Answer Questions

Question 1.
What do you mean by Constitution?
Answer:
The term constitution implies a written document embodying the provisions relating to the powers and functions of the Government organs, the rights and duties of the citizens.

Question 2.
What is an Unwritten Constitution?
Answer:
An unwritten constitution is one whose provisions are not written in a single document. It includes several customs and traditions which are manifested in the form of Laws. The constitution of Britain is the best example of an unwritten constitution.

Question 3.
What is a Written Constitution?
Answer:
A written constitution is formulated and adopted by a constituent Assembly. It comprises several principles and rules of the government in a written form or document. The constitution of India is an example of written constitution. The American constitution is the first written constitution in the world.

Question 4.
Write is Flexible Constitution.
Answer:
Flexible constitution is one whose provisions can be amended easily. It requires no special procedure for changing its provisions.

It can be amended by the authorities by adopting the same procedure of ordinary laws. So we do not find differences between ordinary and constitutional laws. Flexible constitutions were prevalent in the ancient period.
Ex.: British Constitution.

Question 5.
What is Rigid Constitution?
Answer:
Rigid Constitution is one whose provisions can be changed easily. In this system, the constitutional amendment methods are different from those of ordinary laws. There will be a special procedure for amending the provisions of the Rigid Constitution. The Rigid Constitution will have firmness due to its special procedures of the amendment.
Ex.: Constitution of United States of America.

Question 6.
What is the preamble?
Answer:
Every Constitution will have a preamble. The preamble denotes the aims and aspirations of the constitution. It is the soul of the constitution. Hence, the preamble is considered one of the important features of the Constitution.

TS Inter 1st Year Political Science Study Material Chapter 9 Secularism

November 16, 2022October 26, 2022 by Srinivas

Telangana TSBIE TS Inter 1st Year Political Science Study Material 9th Lesson Secularism Textbook Questions and Answers.

TS Inter 1st Year Political Science Study Material 9th Lesson Secularism

Long Answer Questions

Question 1.
Define Secularism and explain the conceptions of Secularism.
Answer:
Introduction :
Secularism is one of the characteristic feature of a Modem State. Secular State explains the relation between the State and Religion. The concept of secularism was popularised by the state authority to control the religion and religious authority over the state affairs.

Meaning :
The term “Secular” in Latin language means “Of this World”. It denotes the meaning “the opposite of Religion”.

Definitions:
1) E.S. Waterhouse :
Secularism is an ideology which provides a theory of life and conduct as against one provided in Religion”.

2) G.J. Holyoake :
“Secularism is an idea of promoting a social order as separate from religion without actively dismissing or criticising religious beliefs”.

Conceptions of Secularism :
Secularism has many conceptions. Some of them may be explained as below :

1. Secularism a humanistic and atheistic philosophy :
Secularism has several personal, cultural, political and social implications. It was humanistic in nature as it seeks the well being of human beings. It assigns importance to the saying that man is the measure of all things. It neither supports nor opposes religion. It allows individuals with the discretion of choosing and following their religion.

2. Political and social dimension :
Secularism has certain political and social dimensions. It stands for the achievement of autonomous political and social order having naturalistic and materialistic perspectives. It allows religious freedom in the matters of family, association and society.

3. Liberty and democracy :
Secularism serves as a beneficial element of liberty and democracy. It also acts as the basis of liberal democracy. It strongly opposes the existence, continuance and survival of authoritarian religious leaders and institutions. It advocated democracy and decentralisation of governmental powers.

4. Opposition to religion :
Secularism is vehemently opposed to the supporting of religion in public matters. It condemned the presence and dominance of eclesiastical authorities. It relegated religion to unimportant matters of life. It considered that people could follow their rituals without affecting the peace and order in society Individuals must carry on their religious activities without causing harm, hatred and ill-will among the followers of other religious denominations. They must consider the noble aims and aspirations of the makers of the constitution.

Question 2.
Explain the merits of Secularism.
Answer:
Introduction :
Secularism is one of the characteristic feature of a Modem State. Secular State explains the relation between the State and Religion. The concept of secularism was popularised by the state authority to control the religion and religious authority over the state affairs.

Meaning :
The term “Secular” in Latin language means “Of this World”. It denotes the meaning “the opposite of religion”.

Definitions:
1) E.S. Waterhouse :
Secularism is an ideology which provides a theory of life and conduct as against one provided in Religion”.

2) G.J. Holyoake :
“Secularism is an idea of promoting a social order as separate from religion without actively dismissing or criticising religious beliefs”.

Merits of Secularism :
The following are some of the important merits of secularism.

1. Equality :
Secularism forms as the basis of equalitarian society. It treats the people belonging to all religious denominations as equal. It gives no recognition to the man made’ inequalities and. discriminations based on caste, colour, community, region, religion, language, race etc. People will have a strong favourable impression towards the nation.

2. Religious freedom :
Secularism enables the individuals to enjoy their religious freedom to their full extent. The state will not interfere in the religious affairs of individuals. The Constitution and various laws in a Secular State will provide individuals with complete freedom to embrance, profess, practice and propagate any religion as they like.

3. Law and order :
Now a days one can observe unhappy, miserable and pro-religious movements that are organized by different sections of government, state and other department. The maintenance of communal harmony became a challenging task for the state in pacifying the feelings the people belonging to various religious denominations. Secularism avoids communal clashes and religious bigotry and animosities in the society. This is due to the fact that secularism ultimately promotes religious harmony among the people.

4. Rule of law :
Secularism accords recognition to the concept of Rule of Law. A state following secularism will enact laws and implements them keeping in view the interest of not a particular religious denomination, the people belonging to all religious denomination. It will not take into account the religious dogmas while making laws. Similarly it makes no discrimination between the people on the ground of religion.

5. Tolerance :
Secularism preaches tolerance and kindness. It believes in universal brotherhood of man and fatherhood of God. It professes, propagates and practices the noble principles of charity, kindness, love, magnanimity, non-violence etc. As a result, Secularism is characterized by the peaceful co-existence of people and smooth working of the polity and social institutions in the state.

6. National integration :
Secularism serves as the best means for fostering national unity and integrity feelings among the people. It is also considered as the best device for achieving unity in diversity. It brings unity among the people of various religious beliefs and practices.

7. Protection to the minorities :
Secularism treats all alike. It makes no discrimination between the people of majority and other sections of society. At the same time it extends special facilities to the minority sections for preserving and promoting their interests against the dominance of majority religious group. It teaches the people about the significance of religious tolerance towards minority sections.

8. Alround progress :
The greatest merit of secularism relates to the achievement of alround progress of the people. This is possible due to the prevalence of rule of law, religious tolerance, neutral attitude of the government etc. Especially the government will make all efforts for the development of the people of all religious denominations in all spheres of welfare, social justice, protecting the interests of disadvantages sections etc.

Question 3.
Write an essay on Secularism in Indian context.
Answer:
Indian way of using the word “Secularism” is different from the way it is used in Western countries. The cultural co-existence in India is historically a very important phenomena. It is present in India since longtime. It started from the invasions of Muslims in the early medieval period. The later part Of the enlightment period witnessed the British invasion on India. This introduced Christianity in India. Many Christian Missionaries came to India and set up many educational institutions and Churches. After independence the constitution of India provided for secularism as the basic philosophy underlying the organization and functioning of Indian Republic. Accordingly the Indian constitution declared India as a secular state.

The governments in India including the union, state and local adopted secularism in theory and practice. It should not practice religion in public affairs in the matters of legislation, execution and administration of the state. People of India are allowed complete religious freedom for professing, practicing and propogating their respective religious beliefs.

The Indian State will be neither irreligious nor anti-religious. Instead it adopts a neutral policy in religious matters. It is not entitled to impose taxes or collect them purely on religious grounds. Admission into the staff owned or state funding institutions are completely prohibited on religious grounds. Similarly, propagation or religious programmes in public institutions are banned. Hence secularism carries a lot of importance as per the constitutional provisions.

Short Answer Questions

Question 1.
Write about the origin of Secularism.
Answer:
The ancient Roman emperors denied recognition to the Christian religion. In the medieval period social and religious reformers like Martin Luther and Calvin Zwingle challenged the spiritual monopoly of religious heads. They advocated that religion and spiritual matters are purely personal and private matters. Their speeches marked a break through in religious matters. In modem period, political thinkers like Machiavelli and Jean Bodin emphasized the need for the separation of religion from politics.

John Locke and other liberal thinkers advised the people to follow religious tolerance. In course of time, the writings of the above thinkers influenced the people who began to treat religion as a private and personal affair. In the United States, President Thomas Jafforson explained the real meaning of Secularism by stating that there exists a wall of separation between the State and the Religion.

Question 2.
What is essence of Secularism?
Answer:
Secularism is essentially an advocacy in independent, separate or distinct ideologies separate from religion. It is a view of life based on the principle that morality, education and government should not be related to the religion. It contends that ethical standards of society and norms of governance should be determined exclusively on the basis of the present life and world, not of the divine. Secularism does not aim at repudiation of religion. It merely affirms that church and state are two separate entities. Secularism enables the individuals to enjoy their religious freedom to their full extent. The state will not interfere in the religious affairs of individuals. Secularism preaches tolerance and kindness. It believes in universal brotherhood of man. Secularism serves as the best means for fostering national units and integrity feelings among the people.

Question 3.
Explain any four merits of Secularism.
Answer:
Merits of Secularism :
The following are some of the important merits of secularism.

1. Equality :
Secularism forms as the basis of equalitarian society. It treats the people belonging to all religious denominations as equal. It gives no recognition to the man made inequalities and discriminations based on caste, colour, community, region, religion, language, race etc. People will have a strong favourable impression towards the nation.

3. Law and order :
Now a days one can observe unhappy, miserable and pro-religious movements that are organized by different sections of government, state and other department.

The maintenance of communal harmony became a challenging task for the state in pacifying the feelings the people belonging to various religious denominations. Secularism avoids communal clashes and religious bigotry and animosities in the society. This is due to the fact that secularism ultimately promotes religious harmony among the people.

Question 4.
What is Indian Secularism?
Answer:
It is asserted that India is a secular state. The addition of the word secular to our constitution by 42^nd amendment in 1976 proves this fact. Even from the beginning of the Indian constitution, India is a secular state. Several provisions of the Indian Constitution also prove this fact.

1. According to Article 25, every Indian citizen enjoys the freedom to profess, practice and propagate the religion of his own choice. It also allow them to donate their properties for the religious purposes.

2. Article 26 guarantees every person to :
a) Establish and maintain religious and charitable institutions
b) Manage his (or) her religious affairs
c) Own and acquire movable and immovable properties and
d) Maintain such properties in accordance with law.

3. Article 27 states that state shall not impose any tax upon the individual for the development of religions. It also implies that state shall not impose taxes on the basis of the religious principles of individuals.

4. Article 28 forbids the imparting of religious teachings in the educational institutions which are wholly or partly aided by the government. No religious prayers or discussions shall be conducted in educational institutions.

Question 5.
What are the features of Secular State?
Answer:
Features of Secular State : Secular State comprises the following features.

1. No place for religion :
Secular States does not assign significance to any particular religion. It will not make laws or implement them on religious grounds.

2. Equal status :
Secular State accords equal status to its people. It makes no differentiation between individuals on the grounds of their caste, colour, community, religion, race, region, language etc. As a result, people will have satisfaction and extend co-operation to the govemtnent in the implementation of various policies and programmes. They live together with the fellow members of other religious denominations.

3. No state religion :
Secular state does not recognize any particular religion as the state religion. It adopts neutral policy in religious matters. It implements various laws and social welfare measures without basing on the religious feelings of the people. It will not assign special role to any particular religion in public activities. All public places like educational institutions, government offices and judicial organizations will carry on their activities without aligning to a particular religion.

Question 6.
Describe the Secularism and Secular State.
Answer:
Secularism is one of the characteristic feature of a modem state. Secular state explains the relation between the state and religion. The concept of secularism was popularised by the state authority to control the religion and religious aurhority over the state affairs. Secularism is an important social and political phenomenon. Many states of the contemporary world have adopted secularism as their policy in public matters. Secularism is essentially an advocacy in independent, separate or distinct ideologies separate from religion.

Secular state is wholly non-religious in the sense that it has no official Religion of its own is totally indifferent to all the religions followed by its citizens in their private life. It grants every individual the freedom to follow any religion or non religion in his personal life. It does not compel him to promote any religion by paying taxes for its propagation or by any other means. The state will not have any religion of its own. i.e., it will promote any religion and at the same time it interfere with none.

Very Short Answer Questions

Question 1.
Define Secularism.
Answer:
Meaning :
The term “Secular” in Latin language means “Of this World”. It denotes the meaning “the opposite of Religion”.

Definitions :
1) E.S. Waterhouse :
Secularism is an ideology which provides a theory of life and conduct as against one provided in Religion”.

2) G.J. Holyoake :
“Secularism is an idea of promoting a social order as separate from religion without actively dismissing or criticising religious beliefs”.

Question 2.
What is Secularism?
Answer:
Secularism is one of the characteristic feature of a modern state. The concept of secularism was popularised by the state authority to control the religion and religious authority over the sate affairs. Secularism is an important social and political phenomenon. Secularism is essentially an advocacy in independent, separate or distinct ideologies separate from religion.

Question 3.
What is Theocratic State?
Answer:
The state having an official religion is called a theocratic state. In such state all other religions or religious activities are either prohibited or discouraged by the state all the official and important offices of the state are either appointed or elected only those from the official religion. State officially participates in the religious affairs and rituals.

Question 4.
In what ways does secularism enables religious freedom to individual?
Answer:
Secularism does not recognize any particular religion as the state religion. Secular state adopts neutral policy in religious matters. It implements various laws and social welfare measures without basing on the religious feelings of the people. :

Question 5.
How does rule of law promotes Secularism?
Answer:
Secularism accords recognition to the concept of Rule of Law. A state following secularism will enact laws and implements them keeping in view the interest of not a particular religious denomination, the people belonging to all religious denominations. It will not take into account the religious dogmas while making laws. Similarly, it makes no discrimination between the people on the grounds of religion in the matters of legislation enforcement and adjudication of laws.

Question 6.
Define Secular State.
Answer:
D.E. Smith defined Secular State as “None while guaranteeing individual and corporate freedom of religion, which deals with the individual as a citizen irrespective of his religion”.

Question 7.
Write about any two features of Secular State.
Answer:
Features of Secular State : Secular State comprises the following features.

1. No place for religion :
Secular States does not assign significance to any particular religion. It will not make laws or implement them on religious grounds.

2. Equal status :
Secular state accords equal status to its people. It makes no differentiation between individuals on the grounds of their caste, colour, community, religion, race, region, language etc. As a result, people will have satisfaction and extend co-operation to the government in the implementation of various policies and programmes. They live together with the fellow members of other religious denominations.

Question 8.
What is the meanivig of Secular State?
Answer:
The term ‘Secular’ in Latin language means “of this world”. It denotes the meaning “the opposite of religion”. The English word ‘Secular’ comes from the Latin “Saeculum” which means “An age” or “the spirit of an age”. According to E.S. Waterhouse, “Secularism is an ideology which provides a theory of life and conduct as against one provided in religion.

TS Inter 1st Year Political Science Study Material Chapter 8 Democracy

November 16, 2022October 26, 2022 by Srinivas

Telangana TSBIE TS Inter 1st Year Political Science Study Material 8th Lesson Democracy Textbook Questions and Answers.

TS Inter 1st Year Political Science Study Material 8th Lesson Democracy

Long Answer Questions

Question 1.
Define Democracy and explain its features.
Answer:
Democracy is an important and most significant form of government. The term “Democracy” is derived from two Greek words namely ’Demos’ and “Kratio”. In greek language Demos means the people and Kratio means power. Hence Democracy means power of the people.

Definitions of Democracy:
Abraham Lincoln :
” Democracy is a government of the people, by the people and for the people”.

J.R. Seeley :
“Democracy is a government in which everyone has a share.”

Lord Bryce :
“Democracy is that form of government in which the ruling power of the •state is vested not in a particular class but in the members of the community as a whole”.

Features of Democracy :
1) Liberty :
Democratic government aims at securing maximum liberty for its citizens. It is built on the foundations of Liberty and Equality. Democracy is the only government which assures liberties to the people by incorporating them in the constitution.

2) Equality :
In the words of Prof. Seeley, democracy is “a government in which everyone has a share”. A democracy government gives opportunities to all for making them to take part in political matters. Every citizen has the right to vote and to contest in the election.

3) Independent Judiciary :
Independent Judiciary is important principle of Democracy. The higher courts in democratic states act as watchdog of the people’s freedoms. They issue several writs for preserving and upholding fundamental freedoms. They serve as the custodian of people’s rights.

4) Government of the people :
Democracy is government by the representatives of the people and these are elected by the adults, who are free to vote as they please without being coerced or pressurized by anyone. Democracy is the government by ballot not by bullet.

5) Majority Rule :
Democracy stands for a rule of the majority with adequate safeguards to the minorities. Every state has political parties. One of the political parties comes to power by capturing the majority of seats in the legislature. This means democracy is a system of government based on the principle of majority rule.

6) Follows constitution principles :
A democratic government functions strictly according to the principles of a constitution. Whether written or unwritten, this has been accepted by the people.

7) Against to violence and revolutions :
Democracy provides for a change in government according to constitutional principles and it is against any change by violent or revolutionary means.

8) Against to coercive methods :
Democracy opposed to coercive methods, even if they are for the social good. A government cannot be called democratic, if it uses illegitimate coercion in the name of social welfare.

9) Importance to Human Rights :
Democracy upholds the dignity of the human personality and gives various kinds of rights to the individual. Actually, to providing constitutional rights to the people is the fundamental principle of the democracy. The constitutions of India and U.S.A. had provided several rights to their people.

10) Right to speak :
Democracy allows all individuals the right to speak, criticize and disagree with others constructively.

11) Encouragement to Ideas :
Democracy allows plurality of ideas and ideologies and stands firmly on the principles of tolerance. In the legislature there is plenty of worth full discussions occurred among the public representatives related to public issues.

12) Against Imperialism and war :
Democracy in the international sphere stands for the principle of self determination and for the regulation of interstate relation on the basis of equality, justice and reason. Democracy is against aggressive nationalism, imperialism and war.

Besides the above, Democracy has some more principles like Rule of law, welfare mechanism, Decentralization of powers, Judicial review etc.

Question 2.
What are the two types of Democracy.
Answer:
Democracy is an important and most significant form of government. The term Democracy is derived from two greek words namely Demos and Kratio. In greek language Demos means the people and Kratio means power. Hence Democracy means power of the people.

Definitions of Democracy:
Abraham Lincoln :
“Democracy is a government of the people, by the people and for the people”.

J.R. Seeley :
“Democracy is a government in which everyone has a share.”

Lord Bryce:
“Democracy is that form of government in which the ruling power of the state is vested not in a particular class but in the members of the community as a whole”.

Types of Democracy :
Democracy is mainly classified into two types, namely Direct Democracy and indirect Democracy. These two types are explained as below.

1) Direct Democracy :
When the people themselves directly express their will on public affairs, this type of government is called direct democracy. In direct democracy the citizens are the real makers of the state policy and programme of action. The will of the state is directly formulated by them and not through their elected delegates.

Some direct democratic checks such as referendum and initiative are in operation today Switzerland and in a few states of the United States. In some small Cantons of Switzerland adult citizens meet in any Sunday in April or May and by show of hands, elect their representative offices as also approve the measures they needed.

2) Indirect Democracy :
Indirect democracy is also known as representative democracy. In this type of democracy a clear distinction is made between the immediate sovereign and the ultimate sovereign. The legislature which consists of the elected representatives of the people formulates and expresses the will of the state. Hence, the legislature is the immediate sovereign authority.

In this type of democracy the people elect their representatives periodically and review their activities during their full term. If their activities are proved to be unsatisfactory, the people can with draw their trust in them and choose new representatives. Representative democracy thus combines efficient administration with popular sovereignty. In representative democracy the parties articulate and organize the will of the people and act as the transmission belt between the government and the governed. In a representative democracy the ultimate source of authority remains the people.

Question 3.
What is Democracy? Explain its merits and Demerits?
Answer:
Democracy is an important and most significant form of government. The term “Democracy” is derived from two greek words namely ‘Demos’ and “Kratio”. In greek language Demos means the people and Kratio means power. Hence Democracy means power of the people.

Definitions of Democracy:
Abraham Lincoln :
“Democracy is a government of the people, by the people and for the people”.

J.R. Seeley :
“Democracy is a government in which everyone has a share.”

Merits of Democracy :
In modem world almost every state has choose the Democracy because of its merits. So, here we mentioned the merits of the Democracy.

1) Efficient form of Government :
In democracy, the representatives of the people will run the administration on efficient lines. As they are responsible and responsive to the people, they always make laws and implement them by consulting various administrative experts and eminent leaders. They also try to minimize the expenditure of the government by following simplicity and economy in administration. The administrative and executive personnel will be recruited on the basis of merit, efficiency, experience and their service will be utilized in implementing various public welfare programmes.

2) Upholds Individual Liberties :
It is only in democracy that the liberties of individuals can be guaranteed to a great extent. Citizens living in democracy enjoy a great amount of liberty. Their rights, liberties and freedoms are incorporated in and guaranteed by a written constitution. Any attempt made to take away or confiscate one’s liberties are forbidden. The various courts preserve, protect and promote individual liberties through their interpretation and analysis of different provisions of the constitution.

3) Importance to Equality :
Democracy gives preference to equality. Democracy provides equal rights and liberties to all citizens alike in political, economic and social matters. It opposes the practice of untouchability, bonded labour and discrimination on the grounds of religion, region, language, birth etc.

4) Political awareness :
Democracy is a large scale experiment in Public education or political awareness. Election campaigns give education to the masses. At the time of election, the canvassing through press and platform enlightens the mind of the electorate.

5) Promotes Patriotism :
Democracy promotes patriotic feelings among the people. People get several opportunities in selecting and electing their representatives to various bodies. They feel conscious and proud in participating in the working of the democratic institutions in a perfect manner. They show enthusiasm by extending their co-operation and support to the nation at the times of crisis. This is evident in the case of Indians during the Chinese and Pakistani invasions at the borders on several occasions.

6) Democracy serves as a school of citizenship :
One more advantage of democracy is that it serves as a training school of citizenship. In democracy right to vote, right to contest, right to criticize the government and other political rights make the citizens politically trained in citizenship and other matters.

7) Democracy inculcates moral values :
Democracy promotes a better and higher standard of natural character than any other government whatever. It teaches co-operation, responsibility, toleration and self-sacrifice. According to Lowell “the best government in the long run is the one that nurtures a people strong in moral fiber, in integrity, industry, self-reliance and courage”.

8) Democracy gives Preference to public opinion :
In fact, Democracy is the real representative of the Public opinion. According to Hearen Shaw, ‘Democracy ties a nerve to every individual; it makes a connection between him and the centre”.

9) It reduce the danger of revolution :
Democracy is a government by discussion and persuasion. Every other form of government rests on force. Democracy gives every individual and every group of people a chance to express their views on public matters, to demonstrate their dissatisfaction and resentment against governmental measures and to convert the masses to their own point of view. They have a right to change the government by their vote. So, there is no chance to people opt revolutionary methods.

10) Symbol of progress and welfare programmes :
Democracy is the only form of government which ensures always the progress and welfare of the people.

11) Support World Peace :
Democracy promotes world peace and opposed to war and violence. It seeks the change through evolutionary process with the purview of constitution. Democracy believes in peaceful co-existence and co-operation. According to Bums, “Democratic movements have always been movements for peace”.

Demerits of Democracy:
1) Expensive Government :
Democracy is the most expensive type of government. A lot of money is spent on election propaganda. Millions of money is spent on the sessions of the national and provincial legislatures. Carlyle said the parliament as a Talking shop’. Italian dictator Mussolini could, therefore, correctly say that democracy is not suited to a poor country.

2) Weak and instable Government :
Democracy is a weak and instable type of government. In those countries where there are multiple party systems, the coalitions fall frequently and bring instability in the government. For ex; In India 1977 to 79; 1989 to 1991; 1996 to 1999 coalition governments failed to rule the government with stable.

3) Government by the minority :
In practical Democracy does not represent majority opinion. Actually Democracy is said to be government by the majority. This claim on behalf of democracy is not sustainable. In every state a large number of people never exercise their vote. Besides, in most democratic states the first-past-the-post electoral system prevails (majority vote system). Under this system it often happens that the party securing a minority vote is returned to power. The number of votes secured by the party in power is less than those obtained by the opposition. Democracy thus ceases to be government by the majority.

4) Discouragement to culture, civilization and intellectual development :
Democracy is the government by masses and always have conservative outlook. They show no interest in the development of literature, art and architecture. In Democracy intellectuals always keeps distance from elections. So many examples are in history defeat of intellectuals in direct elections.

5) Slow decision making :
Democracy is slow decision making government. Because it takes lot of time to take decision. It delays the work. Legislature process, party system, opposition parties, coalition politics plays key role in decision making in Democratic governments.

Question 4.
Discuss the essential conditions for the success of Democracy.
Answer:
The following conditions are essential for the success of democracy.
1) Sound system of Education :
The success of democracy requires adequate education for the citizens. Ignorance, innocence and under education prevent them from adopting right attitudes and large-scale reforms. Education sharpens the intellect of individuals. It develops a proper understanding of various things. It makes the citizens vigilant. Besides, this enables them to assess and criticise the policies of government.

2) Enlightened Citizenship :
Enlightened citizens are an asset to the democratic state. They can excise proper vigilance. They can actively participate in public affairs and help their fellow citizens in the exercise of their rights and discharge of their reproducibilities. They extend co-operation to the government in all its good work.

3) Independent Press :
An independent press is a prerequisite of democracy. It enables the people to receive accurate and unbiased information regarding the activities of the government. It not only keeps the people in touch with government activities but also ventilates their grievances. It strives to promote harmonious relationship between the people and the government.

5) Decentralization of powers :
Decentralization of powers and establishment of democratic institutions at the grass roots level is indispensable for the healthy organisation of democratic institutions. The representative bodies at the grass roots level (as known as Panchayat Raj Institutions (PRIs) in India) will act as the mini legislatures. The residents of local areas will be able to know how to exercise their franchise.

6) Absence of economic disparities :
Democracy can not function smoothly when there are economic disparities in a country. When a country comprises a large number of poor people and a few wealthy persons, democracy could not work successfully.

7) Social Equality :
Social equality is another prerequisite of democracy. Caste, class and racial differences will impede the healthy working of democracy. Such elements encourage of democratic polity. To be successful, democracy must open its doors to everybody on equal basis by providing equal social opportunities to all in social sphere. Social equality must not only be proclaimed but also be practiced.

8) Faith in democracy :
Certain democratic beliefs and values like individual’s worth, need for tolerance of differences, decisions through discussions etc., should be inculcated among the people.

9) Sagacious Leadership :
Sagacious leadership is another essential condition of democracy. Sagacious leaders, by dint’ of their administrative acumen, political propriety, social commitment and economic perspective, will be able to lead the democratic state to greater heights of glory.

10) Honesty and transparency :
Honest persons belonging to various walks life, when entrusted with major responsibilities of the government, will strive for the success of democracy. Similarly transparency in administration also acts as a basic ingredient for the success of democracy.

11) Absence of militarism :
Democracy functions mostly in countries which are relatively free from militarism. In rules out the use of force and believes in the worth of individuals. It provides adequate opportunities to the people basing on worth, ability and dedication militarism, on the other hand, demands concentration of authority and favours despotism.

Short Answer Questions

Question 1.
Define Democracy and mention its merits?
Answer:
Definitions :
1) Abraham Lincoln :
“Democracy is a government of the people, by the people and for the people”.

2) Lord Bryce :
“Democracy is that form of government in which the ruling power of the state is vested not in a particular class but in the members of the community as a whole”.

3) J.R. Seeley :
“Democracy is a government in which everyone has a share”.

Merits :
Democracy has the following merits.

a) Efficient government :
Prof. Garner described democracy as an efficient and effective government. The government in democracy carries all its activities efficiently and effectively both in normal times and emergencies.

b) Upholds individual liberties :
Democracy is the only government that upholds individual liberties. It guarantees certain civil rights to the people thereby providing an opportunity for them to become ideal and responsible citizens.

c) Assures equality :
Democracy assures equality of individuals in political and economic spheres. The people living in democratic nation enjoy all the political, civil and economic rights and privileges equally without any discrimination.

d) Educates the masses :
Democracy is described as a laboratory for a large scale experiments in public education. The masses in democracy are educated and enlightened through public meetings, election campaigns, distribution of pamphlets, etc.

e) Promotes patriotism :
The people in a democracy think that the country is their own property. When the country is in difficulties, they come forward to protect the interests of the nation. Therefore democracy develops patriotic spirit in the people.

f) Develops sense of responsibility :
J.S. Mill says that “democracy promotes a better and higher form of national character than any other policy whatever”. Since it is a rule by themselves, the people behave with a great sense of responsibility.

g) Training school for citizenship :
De Tocqueville, a French writer said that democracy serves as a training school for citizenship. Democracy promotes intellectual and moral qualities among the people.

h) A rational government :
Democracy is based on the principle that no man is infallible. It adopts a process of discussion and criticism which serves as necessary correctives to the abuse of power. Besides, they safeguard the rational nature of the political system.

Question 2.
What is Democracy and mention its de-merits?
Answer:
Demerits :
Democracy has the following demerits.

1) Expensive Government :
Democracy is the most expensive type of government. A lot of money is spent on election propaganda. Millions of money is spent on the sessions of the national and provincial legislatures. Carlyle said the parliament as a ‘Talking shop’. Italian dictator Mussolini could, therefore, correctly say that democracy is not suited to a poor country.

Question 3.
What is direct democracy and mention its devices?
Answer:
Devices Direct Democracy: There are four devices prescribed in direct democracies to enable the people to participate directly in the administrative activities of the State. Those are 1. Referendum 2. Initiative 3. Recall and 4. Plebiscite

These methods may be explained as follows.
1) Referendum :
It is one of the direct democratic devices. Literally it means, “must be referred to the people”. It is a device where by the electorate may veto a proposed legislation or a bill which the legislature has already passed. In other words, bills passed by the legislature are the voters for their approval or disapproval. If majority of the voters approve them, they become acts. But if they vote against them, they will be given up. Hence, referendum is known as “Popular Veto”. It is of two types – 1) Compulsory referendum : All the constitutional bills must be sent to the people. 2) Optional Referendum : An ordinary bill passed by the legislative may be or may not be sent to the people. However, even that ordinary bill must be sent to the people, if a definite number of people demand it. Ex: In Switzerland 30,000 people or eight cantons (States) can demand referendum on an ordinary bill.

2) Initiative :
It is another device of direct democracy. It is a method by means of which the people propose legislation i.e.; they can ask the legislature to pass a particular law. For instance, in Switzerland, if 50,000 voters request the legislature to pass a law, then the proposal is submitted to the consideration of the people. If majority of the people (30,000) approve it, then it becomes an act. Unlike referendum, initiative provides a chance to the people to start the making of law. It is of two types : (1) Formulative Initiative : People present a bill to the legislature (2) Unformulative Initiative : People present a demand to the legislature as king it to pass a bill.

3) Re Call :
It is another device of Direct Democracy. It means “Calling Back”. According to this method a specific number of voters may call back or dismiss an elected officer or a member of the legislature before the expiry of his term, if he is irresponsible. By means of this, the people can remove a representative or an officer from office when he fails to discharge his duties properly.

4) Plebiscite :
The term ‘Plebiscite” is derived from a French word “Plebiscitum”, which means “decree of the people”. It is used to obtain the opinion of the people on an important political issue or when there is a dispute regarding some territory. The question of accession or secession or territory is generally solved by means of plebiscite. It is not concerned with legislation. It is not apart of legal process. It is only a democratic method of ascertaining the opinion of the people on any political issue of public importance.

Question 4.
What is the role of public opinion in Democracy?
Answer:
The term public opinion was coined by philosopher John Locke in the 17^th century. In the middle ages, the saying Vox populi; Vox Dei which, means voice of the people is the voice of God gained prominence.

Definitions of Public Opinion :
1) Lord Bryce :
“Public opinion is commonly used to denote the aggregate of the views men hold regarding the community”.

2) R.G.Gettel :
“Public opinion is the opinion formed by a small group of leaders, which will be accepted by individuals as they have neither the knowledge nor the time nor the interest to enable them to form opinions of their own”.

Role of Public Opinion in Democracy :
The term ‘public opinion’ was coined by philosopher John Locke in the 17^th century. However, the concept itself predates Locke. Vox Populi or voice of the people’ is a similar Latin concept. Today, public opinion is defined in the following way : collective evaluations expressed by people on political issues, policies, institutions and individuals.

Public opinion changes policy through passive observations that accumulate amongst citizens. Public opinion is important in a democracy because the people are the ultimate source of political power.

In theory, a government official has to take public opinion into account whilst deciding on a future course of action. Political parties must maintain a certain level of positive public opinion which is subject to a certain measure of manipulation through mass media and other sources and used to maintain the status quo. That is, however, not to say that public opinion, itself should be considered a ‘positive social function’.

It is important to understand the factors that shape public opinion as a whole. These include social class, education, region, age, gender and ethnic group. Society is not a homogeneous whole. It is made up of components. Each component faces different challenges in its functioning, therefore, members of each component view the world differently.

A state is built upon the consent of the members of society. A constitution is drafted by the collective will of the people. Just as the state and the constitution are vital organic constructs, so is the primary method of informing them: public opinion. Many governments, in one way or the other, try to influence the public by promoting its policies or actions through the mass media.

Question 5.
Explain any four essential conditions for the success of Democracy.
Answer:
1) Sound system of Education :
The success of democracy requires adequate education for the citizens. Ignorance, innocence and under education prevent them from adopting right attitudes and large-scale reforms. Education sharpens the intellect of individuals. It develops a proper understanding of various things. It makes the citizens vigilant. Besides, this enables them to assess and criticise the policies of government.

2) Enlightened Citizenship :
Enlightened citizens are an asset to the democratic state. They can excise proper vigilance. They can actively participate in public affairs and help their fellow citizens in the exercise of their rights and discharge of their reponsibilities. They extend co-operation to the government in all its good work.

3) Independent Press :
An independent press is a prerequisite of democracy. It enables the people to receive accurate and unbiased information regarding the activities of the government: It not only keeps the people in touch with government activities but also ventilates their grievances. It strives to promote harmonious relationship between the people and the government.

4) Strong Opposition :
The success of parliamentary democracy depends to a great extent on the strong and effective opposition. Such an opposition will act as a check against the government by pointing out its lapses. In this regard, the role of opposition in some advanced states like Australia, Britan and United States is liable. In India to the opposition parties performed great role in many times.

7) Social Equality :
Social equality is another pre-requisite of democracy. Caste, class and racial differences will impede the healthy working of democracy. Such elements encourage of democratic polity. To be successful, democracy must open its doors to everybody on equal basis by providing equal social opportunities to all in social sphere. Social equality must not only be proclaimed but also be practiced.

8) Faith in democracy :
Certain democratic beliefs and values like individual’s worth, need for tolerance of differences, decisions through discussions etc., should be inculcated among the people.

10) Honesty and transparency :
Honest persons belonging to various walks life, when entrusted with major responsibilities of the government, will strive for the success of democracy. Similarly transparency in administration also acts- as a basic ingredient for the success of democracy.

11) Absence of militarism :
Democracy functions mostly in countries which are relatively free from militarism. In rules out the use of force and ” wes in the worth of individuals. It provides adequate opportunities to the people basing on worth, ablility and dedication militarism, on the other hand, demands concentration f authority and favours despotism.

Very Short Answer Questions

Question 1.
Define Democracy.
Answer:
Abraham Lincoln :
“Democracy is a government of the people, by the people and for the people”.

J.R. Seeley :
“Democracy is a government in which everyone has a share.”

Lord Bryce :
“Democracy is that form of government in which the ruling power of the state is vested not in a particular class but in the members of the community as a whole”.

Question 2.
What is indirect Democracy?
Answer:
Indirect Democracy :
Indirect democracy is also known as representative democracy. In this type of democracy a clear distinction is made between the immediate sovereign and the ultimate sovereign. The legislature which consists of the elected representatives of the people formulates and expresses the will of the state. Hence, the legislature is the immediate sovereign authority.

Question 3.
What is direct Democracy?
Answer:
Direct democracy is a system of government in which people directly participate in the activities of the State and the Government. The people directly express their views on the government policies. Direct democratic methods are four. They are Referendum, Plebiscite, Initiative and Recall.

Question 4.
What is recall?
Answer:
Recall means To call back. The representatives will be called back by the people in case they are inefficient. Hence, this method helps the representatives in discharging their responsibilities properly for fear of being called back on the grounds of inefficiency.

Question 5.
What is plebiscite?
Answer:
Plebiscite means ascertaining public opinion on certain important issues. This is not applicable to the laws and the Constitution. People’s verdict is sought on certain public problems and policies of the government. This method was first used in 1804 by Napoleon in France.

Question 6.
What are Referendum?
Answer:
Referendum means ‘Refer to’. This method is used to ascertain the public opinion on important legislation. In some regions, the public opinion is sought on the problems of constitutional law and ordinary law. This is called referendum. Referendum is of two types. They are i) Compulsory referendum ii) Optional referendum.

Question 7.
What is initiative?
Answer:
Initiative is a request made by the people to the legislature in framing a law on certain national problem or policy as such. After making the law, the same shall be presented for referendum. In this aspect, people in a specified number present a petition in written form to the legislature proposing a legislation. It is also of two kinds. They are i) Formulative initiative ii) Non-formulative initiative.

Question 8.
What is public opinion?
Answer:
Public opinion occupies an important place in democratic states. People express their opinion in times of elections or through the legislatures. They obey and follow those laws which are formulated in accordance with the public opinion. If the government acts against the wishes of people it has to face the consequences. Public opinion keeps the government responsible and responsive. It keeps the government alert and vigilant in its functioning.