Maharashtra State Board Class 12th Economics Question Paper 2022 with Solutions Answers Pdf Download.
Class 12 Economics Question Paper 2022 Maharashtra State Board with Solutions
Time : 3 Hrs.
Max. Marks: 80
Notes:
(1) All questions are compulsory.
(2) Draw neat tables/ diagrams wherever necessary.
(3) Figures to the right indicate full marks.
(4) Write answers to all main questions on new pages.
Question 1.
[A] Complete the correlations: (5) [20]
(i) Macro Economics: __________ :: Micro Economics : Price theory.
(ii) Direct demand: Food and Mobiles:: __________ : Land and Labour.
(iii) Perfectly elastic demand: Ed = ∞ :: __________ : Ed = 1.
(iv) Output method: Product method:: __________ : Factor cost method.
(v) Personal Income tax: __________ :: Goods and service tax (GST): Indirect tax.
Answer:
(i) Income theory
(ii) Indirect demand
(iii) Unitary elastic demand
(iv) Income method
(v) Direct tax
[B] Give economic terms: (5)
(i) Additional utility derived by a consumer from an additional unit consumed.
Answer:
Marginal utility
(ii) Price being constant, demand falls due to unfavourable change in other factors.
Answer:
Decrease in demand
(iii) Revenue per unit of output sold.
Answer:
Average Revenue.
(iv) Period in which all factors of production are variable.
Answer:
Long run period.
(v) The gross market value of all final goods and services produced within the domestic territory of a country during a period of a year.
Answer:
GDP (Gross Domestic Product)
[C] Complete the following statements: (5)
(i) Whole Economy is studied in __________ . (b)
(a) Micro Economics
(b) Macro Economics
(c) Econometrics
(d) Natural Sciences
Answer:
(b) Macro Economics
(ii) When percentage change in quantity demanded is less than percentage change in price the demand curve is __________ . (b)
(a) Flatter
(b) Steeper
(c) Rectangular hyperbola
(d) Horizontal
Answer:
(b) Steeper
(iii) The cost incurred by the firm to promote sales __________ . (d)
(a) Total cost
(b) Average cost
(c) Marginal cost
(d) Selling cost
Answer:
(d) Selling cost
(iv) Budget that consists of revenue receipts and revenue expenditure __________ . (c)
(a) Capital budget
(b) Government budget
(c) Revenue budget
(d) Family budget
Answer:
(c) Revenue budget
(v) Purchase of goods and services from one country and selling them to another country is __________ . (a)
(a) Entrepot trade
(b) Import trade
(c) Export trade
(d) National trade
Answer:
(a) Entrepof’trade
[D] Assertion and reasoning questions: (5)
(i) Assertion (A): Marginal utility (MU) goes on diminishing.
Reasoning (R): Total utility (TU) increases at diminishing rate.
Options:
(a) Assertion (A) is true but Reasoning (R) is false.
(b) Assertion (A) is false but Reasoning (R) is true.
(c) Both statements (A) and (R) are true and R is the correct explanation of (A).
(d) Both statements (A) and (R) are true and R is not the correct explanation of (A).
Answer:
(d) Both statements A and R are true and R is not the correct explanation of A.
(ii) Assertion (A): With rising price, supply of a commodity falls.
Reasoning(R): Seller earns more profit at higher price.
Options:
(a) Assertion (A) is true but Reasoning (R) is false.
(b) Assertion (A) is false but Reasoning (R) is true.
(c) Both statements (A) and (R) are true and R is the correct explanation of (A).
(d) Both statements (A) and (R) are true and (R) is not the correct explanation of (A).
Answer:
(b) Assertion (A) is false but Reasoning(R)is true.
(iii) Assertion (A): Index number considers all factors.
Reasoning (R): Index number is based on samples.
Options:
(a) Assertion (A) is true but Reasoning (R) is false.
(b) Assertion (A) is false but Reasoning (R) is true.
(c) Both statements (A) and (R )are true and (R) is the correct explanation of (A).
(d) Both statements (A) and (R) are true and (R) is not the correct explanation of (A).
Answer:
(b) Assertion (A) is false but Reasoning (R) is true.
(iv) Assertion (A): Money market economises use of cash.
Reasoning (R): Money market does not deal with financial instruments that are close substitutes of money.
Options:
(a) Assertion (A) is true but Reasoning (R) is false.
(b) Assertion (A) is false but Reasoning (R) is true.
(c) Both statements A and R are true and R is the correct explanation of A.
(d) Both statements A and R are true and R is not the correct explanation of A.
Answer:
(a) Assertion (A) is true but Reasoning (R) is false.
(v) Assertion (A): International trade leads to division of labour and specialisation.
Reasoning (R): India’s national trade is not increasing.
Options:
(a) Assertion (A) is true but Reasoning (R) is false.
(b) Assertion (A) is false but Reasoning (R) is true.
(c) Both statements A and R are true and R is the correct explanation of A.
(d) Both statements A and R are true and R is not the correct explanation of A.
Answer:
(a) Assertion (A) is true but Reasoning (R) is false.
Question 2.
[A] Identify and explain the following concepts (Any THREE): (6) [12]
(i) Asha collected the information about the income of a particular firm.
(ii) Ramesh’s demand for salt remained unchanged inspite of a 10% rise in its price.
(iii) Out of 4000 kgs of rice the farmer offered to sale 1000 kgs of rice in the market at ₹ 40 per kg.
(iv) Shobha collected data regarding the money value of all final goods and services produced in the country for the financial year 2019-20.
(v) Lucy deposited a lump sum amount of ₹ 1,00,000/- inthe Bank of India for the period of one year.
[B] Distinguish between (Any THREE): (6)
(i) Slicing method and lumping method.
(ii) Joint/complementary demand and competitive demand.
(iii) Total revenue and marginal revenue.
(iv) Price Index Number and Quantity Index Number
(v) Internal debt and External debt
Answer:
(A) (i) Concept: Micro Economics.
Explanation:
(i) Micro-economics studies the behaviour of individual economic units such as individual consumer, individual producer, individualfirm, the price of a particular commodity or a factor etc.
(ii) Hence, this illustration is relates to the concept of ‘Micro-Economics’ where Asha has collected the information about the income of a particular firm.
(iii) Ramesh’s demand for salt remained unchanged inspite of a 10% rise in its price.
(ii) Concept: Perfectly Inelastic’demand.
Explanation:
(i) When a percentage change in price has no effect on the quantity demanded of a commodity it is called as perfectly inelastic demand (Ed = 0).
(ii) Hence, 10% rise in price will have no effect on quantity demanded.
(iii) In practice, such a situation rarely occurs. For example, demand for salt, milk.
(iv) Out of 4000 kgs of rice the farmer offered to sale 1000 kgs of rice in the market at 40 per kg.
(iii) Concept: Supply.
Explanation: –
(i) Supply refers to the total amount of goods and services that a seller is willing and able to offer for sale at a given price, during a certain period of time.
(ii) For example, a farmer’s total output of rice is 4000 kgs. This is the total stock. If the price is ? 40 per kg, he offers 1000 kgs for sale. This is the actual supply.
(iii) Shobha collected data regarding the money value of all final goods and services produced in the country for the financial year 2019-20.
(iv) Concept: National Income.
Explanation:
(i) National Income refers to the money value of all final goods and services produced in a country during the given time period.
(ii) Hence, this illustration relates to the concept of ‘national income’ as Shobha collected the data regarding money value of all final goods and services produced in the country for F.Y. 2019-20.
(iii) Lucy deposited a lump sum amount of ₹ 1,00,000/- in the Bank of India for the period of one year.
(v) Concept: Fixed Deposit.
Explanation:
(i) Fixed deposits refer to a lumpsum amount deposited by a customer for a specified period of time.
(ii) Hence, this illustration relates to the concept of ‘Fixed Deposit’ as Lucy deposited lumpsum amount of ₹ 1,00,000 in the bank for a period of one year.
(B) (I) Slicing method and lumping method.
| Slicing Method | Lumping Method |
| 1. When the aggregate is divided into small units for the purpose of study of each individual, units in depth it is called as slicing method. | 1. Study of the whole economy rather than its partis called as lumping method. |
| 2. Micro-economics uses slicing method. | 2. Macro- economic uses lumping method. |
| 3. It gives a worm’s eye view of the economy. | 3. It gives a bird’s eye view of the economy. |
| 4. For Example, study of individual income out of national income, study of individual demand out of aggregate demand etc. | 4. It studies aggregate such as total employment national income, national output, total investment, total savings, total consumption, aggregate supply, aggregate demand, etc. |
(ii) Joint/complementary demand and competitive demand.
| Joint/ Complementary Demand | Competitive Demand |
| 1. When two or more goods are demanded jointly to satisfy one single want it is known as Joint or complementary demand. | 1. It is demand for those goods which are substitute for each. |
| 2. For Example: Car and Petrol Pen and Refill Mobile and Charger. | 2. For example: Tea or coffee, sugar or jaggery, etc. |
(iii) Price Index Number and Quantity Index Number
| Total Revenue | Marginal Revenue |
| 1. Total revenue is the totalsales proceeds of a firm by selling a commodity at a given price. | 1. Marginal revenue is the net addition made to total revenue by selling an extra unit of the commodity. |
| 2. Formula: TR = P x Q Total revenue = Price x Quantity |
2. Formula: MRn = TRn – TRn-1 |
(iv) Price Index Number and Quantity Index Number
| Price Index Number | Quality Index Number |
| 1. Price index measures the general changes in prices of goods. | 1. Quantity index measures changes in the level of output or physical volume of production in economy. |
| 2. It compares the level of prices between two different time periods. | 2. It compares the level of output between two different time periods. |
| 3. Price Index Number: P01 = \(\frac{\Sigma p_1}{\Sigma p_0}\) x 100 |
3. Quantity Index Number Q01 = \(\frac{\Sigma p_1}{\Sigma p_0}\) x 100 |
(v) Internal debt and External debt
| Internal Debt | External Debt |
| 1. When the government borrows from its citizens, banks, Central Bank, Financial institutions, business houses, etc. within the country. | 1. When the government borrows from foreign governments, foreign banks or institutions, international organisations, outside the country. |
| 2. It is voluntary or compulsory in nature. | 2. It is voluntary in nature. |
| 3. It involves use of domestic currency. | 3. It involves use of foreign currency. |
| 4. It is Less complex for management | 4. It is more complex for management. |
Question 3.
Answer the following (Any THREE): [12]
(i) Explain the scope of macro economics.
(ii) Explain any four features of monopoly.
(iii) Elaborate any four features of utility.
(iv) Write any four practical difficulties in national income estimation.
(v) Explain the Ratio method of measuring price elasticity of demand.
Answer:
(i) Explain the scope of macro economics.
(i) Theory of Income and Employment:
Macro economic analysis explains which factors determine the level of national income and employment and what causes fluctuations in the level of income, output and employment It helps to understand, how the level of employment is determined, by study the consumption function
and investment function. Theory of Business Cycles is also a part and parcel of the Theory of Income and Employment.
(ii) Theory of General Price Level and Inflation:
Macro economic analysis shows how the general price level is determined and explains the causes or fluctuations in it The study of general price level is significant on account of the problems created by inflation and deflation.
(iii) Theory of Growth and Development:
Macro economics consists of the theory of economic growth and development. It explains the causes of underdevelopment and poverty. It also suggests strategies for accelerating growth and development.
(iv) Macro Theory of Distribution:
Macro theory of distribution deals with the relative shares of rent, wages, interest and profit in the total national income.
(ii) The four features of monopoly are:
- Barriers to entry: Entry of the rivals is restricted due to legal natural technological barriers which do not allow the competitors to enter the market.
- Price maker: A monopolist can fix the price of his own product as he controls the whole market supply. Monopolist is a price maker.
- Single seller: In monopoly, there is no competition as there is only one single producer or seller of the product. But, the number of buyers is large.
- Complete control over the market supply: The monopolist has complete hold over the market. He is the sole producer or seller of the product.
- No close substitute: There are no close substitutes for the product of the monopolist Therefore, the buyers have no choice. They have to either buy the product from the monopolist or go without it. The cross elasticity of demand for his product is either zero or negative.
(iii) Utility analysis explains a consumer’s behaviour in relation to maximization of satisfaction.
The four features of utility are (any four):
1. Utility is multi-purpose:
A commodity can satisfy the wants of more than one person, it can also be put to several uses.
For example, electricity can be used to serve many purposes and for many people at some point of time. ‘
2. Relative concept:
Utility is related to time and place. It varies from time to time and place to place. .
For example: (i) Woollen clothes have a greater utility in the winter.
(ii) Sand has greater utility at the construction site than at the sea shore.
3. Subjective concept:
It is a psychological concept. Utility differs from person to person. This is due to differences in taste, preferences, likes, dislikes, nature, habits, profession, etc. For example, stethoscope has utility to a doctor but not to a layman
4. Utility is the basis of demand:
A person will demand a commodity only if it gives utility to him. For example, a sick person has utility in medicines hence, he demands medicines.
5. Measurement of utility is hypothetical:
Utility is an abstract concept Cardinal or numerical measurement of utility is not possible. For example, a thirsty person after drinking water, may derive higher or lower level of utility. Thus, utility can only be experienced and found either positive, zero or negative. Negative utility is called disutility.
6. Utility depends on the intensity of want:
Utility depends on the intensity of a want. More intense the want greater wilt be the utility. As and when the urgency of want declines, utility diminishes. For example, hungry person finds more utility in food, than a person who is not hungry.
7. Utility differs from usefulness:
Utility is the capacity of a commodity to satisfy human « wants, whereas usefulness indicates value in use of the commodity. For exampLe, milk has both utility as well as usefulness to a consumer, while liquor has utility only to an addict, but has no usefulness.
8. Utility differs from pleasure:
A commodity may possess utility but it may not give any pleasure to the consumer. For example, injection for a patient has utility because it cures the ailment but it hardly gives any enjoyment or pleasure to him.
9. Utility differs from satisfaction:
Utility is a cause of consumption, satisfaction is the end result of consumption. They are interrelated but still different concepts. For example, a thirsty person drinks a glass of water since water has the capacity to satisfy thirst Utility of water is the cause of consumption and the satisfaction derived is the end result of consumption.
10. Ethically neutral concept:
The concept of utility has no ethical consideration. The commodity should satisfy any want of a person without consideration of what is good or bad, desirable or undesirable. For example, a knife has utility to cut fruits and vegetables as well as it can be used to harm someone. Both wants are of different nature but are satisfied by the same commodity. Thus, utility is ethically neutral.
(iv) There are number of difficulties arise in the collection of statistical data required far estimation of national income.
Some of the practical difficulties are as follows: (any four)
(1) Valuation of inventories:
Raw materials, intermediate goods, semi-finished and finished products in the stock of the producers are known as inventories. Any mistake in measuring the value of inventory, willdistort the value ofthefinal production of the producer. Therefore, valuation of inventories requires careful assessment.
(2) Illiteracy and ignorance:
Due to ignorance and illiteracy, small producers do not keep an account of their production. So, they cannot give information about the quantity or value of their output.
(3) Problem of double counting:
The greatest difficulty in calculating national income is of double counting. It arises from the failure to distinguish properly, between a final and an intermediate product For example, flour used by a bakery is an intermediate product and that by a household is final product.
(4) Capital gains or losses:
Capital gains or capital losses, which accrue to the property owners by increase or decrease in the market value of their capital assets or changes in demand, are not included in the national income because these changes do not result from current economic activities.
(5) Inadequate and unreliable data: Adequate and correct data on production and cost data relating to crops, fisheries, animal husbandry, forestry, construction workers, small enterprises etc., are not available in a developing country. Besides this, data on unearned incomes, consumption and investment expenditure of rural and urban population are also not available. This does not reveal the actual size of national income.
(6) Depreciation:
Depreciation refers to wear and tear of capital assets, due to their use in the process of production. There are no uniform, common or accepted standard rates of depreciation applicable to the various capital assets. Thus, it is difficult to make correct deductions for depreciation.
(7) Difficulties in the classification of working population:
In India, working population is not clearly defined. For instance, farmers in India are not engaged in agriculture a round the year. Obviously, in the off season, they engage themselves in alternative occupations. In such a case, it is very difficult to identify their incomes from a particular occupation.
(8) Existence of non-monetized sector:
In India, especially in rural areas, there exists the non-monetized sector. Agriculture, still being in the nature of subsistence farming, a major part of production is partly exchanged for other goods and services. It is excluded while counting national income.
(v) Ratio method is developed by Prof MarshalL According to this method, elasticity of demand is measured by dividing the percentage change in demand by the percentage change in price. Ratio method is also known as Percentage method. Price elasticity is measured as:
Question 4.
State with reasons whether you agree or disagree with the following statements (Any THREE): [12]
(i) There are no exceptions tg the law of diminishing marginal utility.
(ii) Supply curve of labour is backward bending.
(iii) Price under perfect competition is decided by the interaction between demand and supply.
(iv) Capital market plays an important role in India.
(v) Balance of Payment is same as Balance of Trade.
Answer:
(i) I disagree with the given statement
Reason: Following are the exception to the law of * diminishing marginal utility:
a. Hobbies: If a person is having hobby of collecting old coins then in this case the law does not hold true because every additional increase in the stock of coins give more pleasure. This increases marginal utility. This violates the assumption of homogeneity and Continuity.
b. Miser: In case of miser, every additional rupee gives him more and more satisfaction.
c. Addiction: MU of money tends to increases with increases in his stock of money.
d. Power: This is an exception to the law because when a person acquire power, his lust for power increases. Fie desires to have more and more of it. However, this violates the rationality assumption.
e. Money: The MU of money never becomes zero.
It increases when stock of money increases. MU of money is more to a poor person than to a rich person.
(ii) I Agree with the given statement
Reason:
Labour supply is the total number of hours that workers works at a given wage rate. It is represented graphically by a supply curve. In case of labour, as the wage rate rises the supply of labour (hours of work) would increase. So supply curve slopes upward. Supply of labour (hours of work) falls with a further rise in wage rate and supply curve of labour bends backward. This is because the worker would prefer leisure to work after receiving higher amount of wages. Thus, after a certain point when wage rate rises the supply of labour tends to falL.
(iii) I Agree with the given statement.
Reason:
The interaction of demand and supply determine price of the commodity in perfect competition. This is known as ‘equilibrium price.’ Both the forces of demand and supply are essential to determine the equilibrium price in the market.
(iv) I Agree with the given statement.
Reason: Following are the roles of Capital Market:
(1) Mobilizes long term savings:
There is an increasing demand for investment funds by industrial organizations and the government But the availability of financial resources is insufficient to meet this growing demand. Capital market helps to mobilize long term savings from various section of the population through the sale of securities.
(2) Provides equity capital:
Capital market provides equity capital or share capital to entrepreneurs which could be used to purchase assets as well as fund business operations.
(3) Operational efficiency:
Capital market helps to achieve operational efficiency by lowering the transaction costs, simplifying transaction procedures/ lowering settlement timings in purchase and sale of stocks.
(4) Quick valuation:
Capital market helps to determine a fair and quick value of both equity (shares) and debt (bonds, debentures) instruments.
(5) Integration :
Capital market leads to integration among real and financial sectors, equity and debt instruments, government and private sector, domestic and external funds, etc.
(v) I disagree with the given statement
Reason:
Balance of payments is a systematic record of all international economic transactions of a country during given period, usually a year. On the other hand, balance of trade refers to the difference between the value of a country’s exports and imports for given period.
Balance of payment is broader concept than balance of trade. Balance of payments includes the value of exchange of goods and services among citizens, businessmen, firms, government etc. While balance of trade includes the value of imports and exports of visible goods and invisible goods.
Therefore, balance of payment and balance of trade are two different concepts.
Question 5.
Study the following table, figure, passage and answer the questions given below it (Any TWO): [8]
(i)
| Components | ₹ Crores |
| Consumption (C) | 800/- |
| Investment (1) | 700/- |
| Government Expenditure (G) | 400/- |
| Net Export (X-M) | 150/- |
| Depreciation (D) | 100/- |
(1) Calculate GDP (Gross Domestic Product) on the basis of above table. (2)
(2) Calculate NDP (Net Domestic Product) on the basis of above table. (2)
(ii) Identify the price elasticity of demand from the following diagrams:
(iii) Commercial banks act as intermediaries in the country’s financial system to bring the savers and investors together. They are profit seeking financial institutions. Due to bank nationalisation in 1969, there was increase in loan disbursement in urban and rural areas. Agriculture and retail traders started getting more loans. Those sectors which were not getting loans before 1969, started getting loans in post nationalisation period. After nationalisation of bank branch expansion took place. There has been diversification in the functions of banks. Commercial Banks are providing different types of services like safe deposit lockers, “D-mat facility, internet banking, mobile banking etc.
(1) Write any two benefits of Bank nationalisation. (1)
(2) Write various services provided by banks. (1)
(3) Write your opinion about the above passage. (2)
Answer:
(i) 1. GDP = C + I + G + (X-M)
= 800 + 700 + 400 + (-150)
= ₹ 1750 Crores.
2. NDP= GDP-Depreciation
= 1750-100
= ₹ 1650 Crores
(ii) 1. Perfectly inelastic demand
2. Perfectly elastic demand
3. Relatively inelastic demand
4. Relatively elastic demand / unitary elastic
(iii) 1. (a) Increase in loan disbursement in urban and rural areas.
(b) Agriculture and retail traders started getting more loans.
2. The various services provided by the banks are. Safe deposit lockers, D-mat facility, internet banking, mobile banking, etc.
3. This passage is about how commercial banks act as intermediaries in the country’s financial system to bring the depositors and investors together. Those sectors which were not getting loans before 1969, started getting loans in post nationalisation period. Commercial Banks started providing different types of services like safe deposit lockers, D-mat facility, internet banking, mobile banking, etc.
Question 6.
Answer the following questions in detail (Any TWO): [16]
(i) Explain the concepts of variation and changes in demand with the help of diagrams.
(ii) Explain the meaning of index number. Explain various steps involved in the construction of index number.
(iii) Explain various sources of public revenue.
Answer:
(i) A. Variations in Demand: When the demand for a commodity falls or rises due to a change in price alone and other factors remain constant, it is , called variations in demand. It is of two types:
(1) Expansion of demand: Expansion of demand refers to rise in quantity demanded due to fall in price alone while other factors like tastes, income of the consumer, size of population etc. remain unchanged. Demand moves in downward direction on the same demand curve. This is explained with the help of following figure:
As shown in figure, DD is demand curve. A downward movement on the same demand curve from point a to point b indicates an expansion of demand.
(2) Contraction of Demand: Contraction of demand refers to a fall in demand due to rise in price alone. Other factors like tastes, income of the consumer, size of population etc. remain unchanged. Demand curve moves in the upward direction on the same demand curve. This can be explained with the help of following figure.
As shown in figure, DD is a demand curve. An upward movement on the same demand curve from point b to point a shows contraction of demand.
B. Changes in Demand: When demand for a commodity increases or decreases due to changes in other factors and price remains constant, it is known as changes in demand. It is of two types:
(1) Increase in demand: It refers to increase in quantity demanded due to favourable changes in other factors like tastes, income of the consumer, climatic conditions etc. and price remains constant. Demand curve shifts to the right hand side of the original demand curve. This can be explained with the help of given below figure:
As shown in figure, DD is the original demand curve. Demand curve shifts outward to the right from DD to D1D1 which indicates increase in demand.
(2) Decrease in demand: It refers to decrease in quantity demanded due to unfavourable changes in other factors like tastes, income of the consumer, climatic conditions etc. and price remains constant. Demand curve shifts to left hand side of the original demand curve. This can be explained with the help of figure given below:
As show in figure, DD is the original demand curve. It shifts inward to the left from DD to D2D2 which indicates decrease in demand.
(ii) “An index number is a statistical measure designed to show changes in a variable or a group of related variables with reference to time, geographical location and other characteristics such as income, profession etc.”
Following steps are involved in the construction of index numbers:
(1) Purpose of index number:
The purpose for constructing the index number, its scope as well as which variable is intended to be measured should be clearly decided to achieve fruitful results.
(2) Selection of the base year:
Base year is also called the reference year. It is the year against which comparisons are made. The base year should be normal i.e. it should be free from natural calamities. It should not be too distant in the past.
(3) Selection of items:
It is necessary to select a sample of the number of items to be included in the construction of a particular index number. For example, in the construction of price index numbers it is impossible to include each and every commodity. The commodities to be selected should represent the tastes, habits and customs of the people. Besides this, only standardized or graded items should be included to give better‘ results.
(4) Selection of price quotations:
Prices of the selected commodities may vary from place to place and shop to shop in the same market. Therefore, it is desirable that price quotations should be obtained from an unbiased price reporting agency. To achieve accuracy, proper selection of representative places and persons is required.
(5) Choice of a suitable average:
Construction of index numbers requires choice of a suitable average. Generally, Arithmetic mean is used in the construction of index numbers because it is simple to compute compared to other averages.
(6) Assigning proper weights:
Weight refers to the relative importance of the different items in the construction of an index number. Weights are of two types i.e. quantity weights (q) and value weights (p x q). Since all items are not of equal importance, by assigning specific weights, better results can be achieved.
(7) Selection of an appropriate formula:
Various formula are devised for the construction of index numbers. Choice of a suitable formula depends upon the purpose of index number and availability of data.
(iii) Public revenue means the aggregate collection of income with the government through various sources. Public revenue holds the permanent position in the study of public finance which is part of study of economics.
Thus, the necessity of public revenue arises due to public expenditure.
The main sources of public revenue are as follows:
Sources of Public Revenue:
(A) Taxes
(B) Non-tax Revenue:
(A) Taxes:
There are two main types of taxes. They are:
(1) Direct Tax
(2) Indirect Tax.
(1) Direct Tax:
It is paid by the taxpayer on his income and property. The burden of tax is borne by the person on whom it is levied. As he cannot transfer the burden of the tax to others, impact and incidence of direct tax falls on the same person. For example-personal income tax, wealth tax, etc.
(2) Indirect Tax:
It is levied on goods or services. It is paid at the time of production or sale and purchase of a commodity or a service. The burden of an indirect tax can be shifted by the taxpayer (producers) to other persons. Hence, impact and incidence of tax are on different heads. For example, newly implemented Goods and Services Tax (GST) in India has replaced almost all indirect taxes, custom duty.
(B) Non-Tax Revenue Sources:
Public revenue received by the government administration, public enterprises, gifts and grants etc. are called as non-tax revenue. These sources are different than the taxes.
A brief information about these sources are as follows:
(1) Borrowings:
The government can borrow from the people in the form of deposits, bonds etc. It also gets loans from foreign governments and organizations such as IMF, World Bank etc. Loans are becoming more and more popular source of revenue for the governments in the modern times.
(2) Fees:
A tax is paid compulsorily without any return service whereas, fee is paid in return for certain specific services rendered by the government.
For Example: Education fee, registration fee, etc.
(3) Gifts, Grants and Donations:
The government may also earn §ome income in the form of gifts by the citizens and others. The government may also receive grants from the foreign governments and institutions for general and specific purposes. Foreign aid has become an important source of development finance for a developing country like India. However, this source of revenue is uncertain in nature.
(4) Fines and Penalties:
The government imposes fines and penalties on those who violate the laws of the country. The objective of the imposition of fines and penalties is not to earn income, but to discourage the citizens from violating the laws framed by the Government For example, fines for violating traffic rules. However, the income from this source is small.
(5) Prices of public goods and services:
Modern governments sell various types of commodities and services to the citizens. A price is a payment made by the citizens to the government for the goods and services sold to them. For example- Railway fares, postal charges etc.
(6) Special levies:
This is levied on those commodities, the consumption of which is harmful to the health and well-being of the citizens. Like fines and penalties, the objective is not to earn income, but to discourage the consumption of harmful commodities by the citizens.
For example: Duties levied on wine, opium and other intoxicants.
(7) Special Assessment:
The payment made by the citizens of a particular locality in exchange for certain special facilities given to them by the authorities is known as ‘special assessment.’ For example Local bodies can levy a special tax on the residents of a particular area where extra/special facilities of roads, energy, water supply, etc. are provided.