Maharashtra HSC Board : Economics (49) : (Q.P. 2022 with Solution)

 

Maharashtra HSC Board 2022

Economics (49) 

 Time: 3 Hrs.                Sub: Economics           Max. Marks: 80

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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 page.

 

Q. 1. (A) Complete the correlations:                                       (5) [20]

i) Macro Economics: _________:: Micro Economics: Price theory

Ans: Income Theory

ii) Direct demand: Food and Mobiles:: _________ :Land and Labour.

Ans: Indirect Demand

(iii) Perfectly elastic demand: Ed = oo:: _________ : Ed = 1.

Ans: Unitary elastic demand

(iv) Output method: Product method: ___________ :Factor cost method.

Ans: Income Method

(v) Personal income tax:________ : Goods and service tax (GST): Indirect tax.

Ans: Direct Tax

 (B) Give economics terms:                                                       (5)

(i) Additional utility derived by a consumer from an additional unit consumed.

Ans: Marginal Utility

(ii) Price being constant, demand falls due to unfavourable change in other factors.

Ans: Decrease in Demand

(iii) Revenue per unit of output sold.

Ans: Average Revenue

(iv) Period in which all factors of production are variable.

Ans: 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.

Ans: GDP

(C) Complete the following statements:

(i) Whole Economy is studied in.

(a) Micro Economics                (b) Macro Economics

(c) Econometrics                      (d) Natural Sciences

ii) When percentage change in quantity demanded is less than percentage change in price, the demand curve is

(a) Flatter                                 (b) Steeper

(c) Rectangular hyperbola         (d) Horizontal

(iii) The cost incurred by the fîrm to promote sales

(a) Total cost                             (b) Average cost

(c) Marginal cost                      (d) Selling cost

iv) Budget that consists of revenue receipts and revenue expenditure

(a) Capital budget                     (b) Government budget

(c) Revenue budget                    (d) Family budget

(iv) Purchase of goods and services from one country and selling them to another country is_

(a) Entrepot trade                      (b) Import trade

(c) Export trade                        (d) National 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:

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.

(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.

(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.

(iv) Assertion (A): Money market economies 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.

(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 the statements A and R are true and R is the correct explanation of A

(d) Both the statements A and R are true and R is not the correct explanation of A.

Q.2. (A) identify and explain the following concepts (Any THREE): (6) [12]

(i) Asha collected the information about the income of a particular firm.

Ans: Micro Economics

(ii)Ramesh's demand for salt remained unchanged in spite of a 10% rise in its price.

Ans: Perfectly inelastic Demand (ED = 0)

(iii) Out of 4000 kgs of rice the farmer offered to sale 1000 kgs of rice in the market at 40 per kg.

Ans: Supply

iv) Shobha collected data regarding the money value of all final goods and services produced in the country for the financial year 2019-20.

Ans: National Income

(v) Lucy deposited a lumpsum amount of 1,00,000/ in the Bank of India for the period of one year.

Ans: Fixed Deposit

(B) Distinguish between (Any THREE):                                    (6)  

(i) Slicing method and lumping method.

Slicing method	Lumping method
In slicing method, the entire economy is divided into small individual units for analysis.	In lumping method, the entire economy as a whole is taken into account for analysis.
Micro economic uses slicing method.	Macro economics uses lumping method.
It focuses on the study of individual economic units like individual demand.	It focuses on the study of aggregate units of the economy like aggregate demand.

(ii) Joint/complementary demand and competitive demand.

Complementary/Joint demand	Competitive demand
When two or more goods are demanded jointly to satisfy a single want, it is known as joint or complementary demand	It is demand for those goods which are substitute for each other
For example, car and fuel etc.	For example, tea or coffee, sugar or jaggery etc

(iii) Total revenue and marginal revenue.

Total Revenue (TR)	Marginal Revenue
Total revenue is the total sales proceeds of a firm by selling a commodity at a given price. It is the total income of a firm.	Marginal revenue is the net addition made to total revenue by selling an extra unit of the commodity.
Total revenue is calculated as follows : Total revenue = Price × Quantity For example, if a firm sells 15 units of a commodity at ` 200 per unit TR is calculated as : TR = P × Q = ` 200 × 15 = ` 3000	For example, if the previous total revenue from the sale of 20 tables is ` 4000 and that from the sale of 21 tables is ` 4200, marginal revenue is calculated as : MRn = TRn – TRn-1 = 4200 – 4000 = ` 200 per table

(iv) Price Index Number and Quantity Index Number

Price index number	Quantity index number
It estimates the relative changes in the prices of goods and services in any two different time periods.	It estimates the relative changes in the quantities or volume of goods sold, consume or produce over a period of time.
It is obtained by taking the ratio of price level in the current year to the base year.	It is obtained by taking the ratio of quantity in the current year to the base year.
Formula	Formula

(v) Internal debt and External debt.

Internal trade	External trade
Buying and selling of goods and services within the boundaries of a nation is called internal trade.	Buying and selling goods and services outside the boundaries of a nation is called external trade.
It is also known as Home Trade or Domestic trade.	It is also known as Foreign Trade and International Trade.
Wholesale Trade and Retail trade are the types of internal trade.	Import Trade, Export Trade and Entrepot Trade are the types of international trade.

Q. 3. Answer the following (Any THREE):                                      [12]

(i) Explain the scope of macro-economics.

Ans: 

Meaning of Macro Economics :

 Macro-economics is the branch of economics which analyses the entire economy. It deals with the total employment, national income, national output, total investment, total consumption, total savings, general price level interest rates, inflation, trade cycles, business fluctuations etc. Thus, macro economics is the study of aggregates.

Definitions of Macro Economics :

Prof Carl Shapiro - “Macro economics deals with the functioning of the economy as a whole.”  

The following chart gives an idea about 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. To understand, how the level of employment is determined, we have to 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 further explains what causes 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) Explain any four features of monopoly.

Ans: 

Meaning and Definition : 

The term monopoly is derived from the Greek word ‘Mono’ which means single and ‘poly’ which means seller. Monopoly is a market in which there is only one  seller who controls the entire market supply for a product which has no close substitute.

 According to E. H. Chamberlin, “Monopoly refers to a single firm which has control over the supply of a product which has no close substitute.” 

Following are the main features of monopoly market :

 1) 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.

 2) No close substitute : There are no close substitutes for the product of the monopolist. Therefore, the buyers have no choice. They have to either buy the product from the monopolist or go without it. The cross elasticity of demand for his product is either zero or negative.

 3) Barriers to entry : Entry of the rivals is restricted due to legal, natural, technological barriers which do not allow the competitors to enter the market.

 4) Complete control over the market supply:   The monopolist has complete hold over the market. He is the sole producer or seller of the product.

 5) Price maker : A monopolist can fix the price of his own product as he controls the whole market supply. Monopolist is a price maker.

 6) Price discrimination : Monopolist being a price maker, he can charge different prices to different consumers for the same product, on the basis of time, place etc. Thus, price discrimination is an important feature of monopoly market. For example, students and senior citizens are provided railway tickets at concessional rates.

 7) No distinction between firm and industry: A monopolist is the sole seller and producer of the product. A monopoly firm itself is an industry. 

(iii) Elaborate any four features of utility.

Ans:

In practice, every individual tries to satisfy his wants with available resources. It is true that all human wants cannot be satisfied fully at a specific time. Utility analysis explains a consumer’s behaviour in relation to maximization of satisfaction.

Following are the features of utility :

 1) 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.

 2) 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.

 3) Ethically neutral concept : The concept of utility has no ethical consideration. It is a morally colourless concept. 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.

 4) 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.

 5) 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.

 6) 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.

 7) 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.

 8) Utility is multi-purpose : A commodity can satisfy the want 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.

 9) Utility depends on the intensity of want : Utility depends on the intensity of a want. More intense the want, greater will be the utility. As and when the urgency of want declines, utility diminishes. For example, a hungry person finds more utility in food, than a person who is not hungry.

 10) 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.

(iv) Write any four practical difficulties in national income estimation.

Ans: Practical Difficulties or Statistical Difficulties:

In practice, a number of difficulties arise in the collection of statistical data required for estimation of national income. Some of the practical difficulties are as follows:

1) 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.

2) 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.

3) 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.

4) 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.

5) 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.

6) 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.

(v) Explain the Ratio method of measuring price elasticity of demand.

Ans: 

 Ratio or Percentage method :

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. 

Percentage method is also known as Arithmetic method Price elasticity is measured as : Ed = Percentage change in Quantity demanded / Percentage change in Price 

Ed = % U Q / % U P 

Mathematically, the above formula can be presented as under. 

Ed = U Q / Q ÷ U P /P  Therefore Ed = U Q / Q × P /U P 

Q = Original quantity demanded 

UQ = Difference between the new quantity and original quantity demanded. 

P= Original price 

UP= Difference between new price and original price 

Numerical example : 

Price (`) Qty.     Demanded (in Kg)     Formula 

    20                     10                         Ed = U Q /Q × P/ U P 

    25                    09

Original Price, P = 20, New price P = 25 UP = 5 

(Difference between new and original price) Original Quantity Demanded, Q = 10, 

New demand = 9 UQ = 1 (Difference between new and original quantity demanded) 

Ed = U Q /Q × P /U P 

Ed = 1 10 × 20 5 

Ed = 0.4 Ed < 1 It means elasticity of demand is relatively inelastic.

Q.4.State with reasons whether you agree or disagree with the following statements (Any THREE):                                          [12]

(i)There are no exceptions to the law of diminishing marginal utility.

Ans: Disagree

This law was first proposed by Prof. Gossen but was discussed in detail by Prof. Alfred Marshall in his book ‘Principles of Economics’ published in 1890. The law of diminishing marginal utility is universal in character. It is based on the common consumer behaviour that utility derived diminishes with the reduction in the intensity of a want.

(ii) Supply curve of labour is backward bending.

Ans: Agree

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) Price under perfect competition is decided by the interaction between demand and supply.

Ans: Agree

(iv) Capital market plays an important role in India.

Ans: Agree

Capital market is a market for long term funds both equity and debt raised within and outside the country. It is also an important constituent of the financial system. Development of an effective capital market is necessary for promoting more investments as well as achieving economic growth. The demand for long term funds comes from agriculture, trade and industry. Individual savers, corporate savings, banks, insurance companies, specialized financial institutions are the suppliers of long term funds

(v)Balance of Payment is same as Balance of Trade.

Ans: Disagree

Balance of payments : The Balance of payments of a country is a systematic record of all international economic transactions of that country during a given period, usually a year.

balance of Trade : Balance of trade is the difference between the value of a country’s exports and imports for a given period. Balance of trade is also referred to as the international trade balance

Q.5 Study the following table, figure, passage and answer the questions given below it (Any TWO):                                                         [8]

Components	Crores
Consumption (C)	800
Investment (I)	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)

Ans: Consumption (C) + Investment (I) + Government Expenditure (G) + Net Export (X-M)     = 800 + 700 + 400 - 150 =  RS.1750

(2) Calculate NDP (Net Domestic Product) on the basis of above table. (2)

Ans: GDP - Depreciation = 1750 - 100 =  RS. 1650

(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)

Ans: (a) Increase in loan disbursement in urban and rural areas. 

(b) Agriculture and retail traders started getting more loans. 

(2) Write various services provided by banks.                  (1)

Ans:  Commercial Banks are providing different types of services like safe deposit lockers, D-mat facility, internet banking, mobile banking etc.

(3) Write your opinion about the above passage.               (2)

Ans: 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.

Commercial Banks are providing different types of services like safe deposit lockers, D-mat facility, internet banking, mobile banking etc.

Q. 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.

Ans: 

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 fig. 3.7 Expansion of Demand

As shown in fig. 3.7, 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 fig. 3.8 Contraction of Demand

As shown in fig. 3.8, DD is a demand curve. An upward movement on the same demand curve from point a to point b shows contraction of demand.

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 fig. 3.9

 

As shown in fig. 3.9, DD is the original demand curve. Demand curve shifts outward to the right from DD to D1 D1 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 fig. 3.10 Decrease in Demand

As show in fig. 3.10, DD is the original demand curve. It shifts inward to the left from DD to D2 D2 which indicates decrease in demand.

(ii) Explain the meaning of index number. Explain various steps involved in the construction of index number.

Ans: 

1) Spiegel : “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.” 2) Croxton and Cowden : “Index Numbers are devices for measuring differences in the magnitude of a group of related variables.”

Construction of Index Numbers :

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 formulae 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) Explain various sources of public revenue.

Ans: 

Public Revenue :

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 :

1) According to Prof. Taussig : “The essence of a tax as distinguished from other charges by government is the absence of a direct quid pro quo between the tax payer and the public authority.”

2) According to Prof. Seligman, “A tax is a compulsory contribution from the person to the government without reference to special benefits conferred.”

A tax possesses following essential characteristics :

1) It is a compulsory contribution to the government and every citizen of the country is legally bound to pay the tax imposed upon him. It is a major source of revenue to the government. If any person does not pay a tax, he can be punished by the government.

2) Tax is paid by a taxpayer to enable government to incur expenses in the common interests of the society.

3) The payment of a tax by a person does not entitle him to receive any direct and proportionate benefits or services from the government in return for the tax.

4) Tax is imposed on income, property or commodities and services.

Types of Taxes :  There are two main types of taxes. They are :

1) Direct Tax and 2) Indirect Tax. Let us study in details :

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[1]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 person/s. 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) 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.

2) 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.

3) 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.

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) Gifts, Grants and Donations : The government may also earn some 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.

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) 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.

 

 

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