10.

1 Competency Based Questions

Q.1 "National highway is a private good because it is funded by taxes." Defend or refute
the given statement with valid arguments.

Ans. The given statement is refuted. A national highway is a public good.

Even though money is collected from taxes, highways are non-rivalrous, one person
consuming the service does not exclude another person from availing of its benefits.

Highways are also non-excludable. Even if there are citizens who do not pay, it is
difficult to stop them from using them.

Q.2 In the 2024-25 budget in India, a lot of importance has been given to reforming the
education system and all-inclusive welfare. Analyse the value of such an allocation.

Ans Investment in human resources with regard to better education and health comes
under promotion of social welfare/social justice for all which creates more productive
resources.

Redistribution of income and wealth towards better causes.

Q.3 Two friends, Deepak and Krish were discussing the impact of an increase in GST
rates on luxury items, as recently undertaken by the Government. Krish was of the view
that most of the luxury items (like foreign travel, imported cigarettes, etc.) should be
taxed exorbitantly, while the items related to daily consumption of the poor and middle
class should be tax-free.

Identify and explain the objective of the Government budget Krish is suggesting. Ans.
Krish is suggesting the objective of 'Redistribution of income' to reduce income
inequalities in the economy.

To ensure equitable distribution of income, the government may impose higher taxes on
luxury items. This will reduce the purchasing power in the hands of rich.

On the other hand, lower/no taxes may be imposed on commodities purchased by the
poorer section of society. They may also be provided with subsidies on the essential
commodities. This may increase their disposable income.

These steps may promote economic welfare through re-distribution of income in the
economy.

Q.4 Government raises its expenditure on producing public goods. Which economic
value does it reflect! Explain with an example.

Ant. Increased expenditure by government on public goods like defence, maintaining

law and order ets, increases their availability to the people of the country. For example,
more expenditure on maintaining law and under raises the sense of security among the
people

Q5 Tax rates on higher income group have been increased. Which economic value does
it reflect? Explain.

Ans. This will reduce the inequalities of income as the difference between disposable
incomes of higher income and lower income groups will fall. This will also provide more
resource to the government for spending on welfare of the poor, eg. free services like
education and health to the poor people.

Q6 Government has started spending more on providing free services like education
and health to the poor. Explain the economic value it reflects.

Ans. Spending on free services to the poor raises their standard of living and at the same
time helps in reduction in income inequalities. It also helps in raising production
potential of the country by raising the efficiency level of the working class among the
poor.

Q.7 "Government has started spending more on providing free services like education
and health to the poor."

In the light of above statement, explain how the government can use the budgetary
policy in reducing 'inequalities of income.

Ans. Government's budgetary policy has two aspects taxation and public expenditure.
To reduce inequalities in income and wealth, the government may adopt an expenditure
policy which is in favour of lower income groups. Government expenditure on providing
free services like education and health to the poor may positively affect their disposable
income.

Consequently, budgetary policy of the government can be used to reduce inequalities of

income.

Q.8 Name any one step that the government can take through its budget to check
inflation that is causing hardships to the people..

Ans. Government can reduce its own expenditure to leave less disposable income in the
hands of people.

0.9 "Government provides essential items like food grains almost free to the families
below the poverty line." Identify an explain the objective of the government budget
indicated.

Ans. The government budget objective of 'Redistribution of Income' is indicated in the

given statement. (Explain)
Q.10 The government decides to give budgetary incentives to investors for making
investments in backward regions. Explain the possible incentives and the reasons for
the same.

Ans. Possible Budgetary Incentives: Budgetary incentives refer to concession in taxation

and granting subsidies to those production a which set up their units in economically
backward areas.

Tax concessions aim at reducing cost and thus raising profits.

Subsidies aim at reducing prices of products to encourage sales and earning more
profits.

Clearly, tax concessions and subsidies both aim at raising profits.

Reasons for giving tax concession and subsidies by the government: (1) Economic
Growth (ii) Allocation of resources (Explain)

Q.11 The Government, under Ujjwala Yojana, is providing free LPG kitchen gas
connections to the families "below the pa line'. What objective is the government trying
to fulfill through the government budget and how? Explain.

Ans. By providing free LPG kitchen gas connections to the families 'below the poverty
line', the objective which the government is

to fulfill is 'Reduction in inequalities of income and wealth. (Explain)

Q.12 State any two examples of private goods.

Ans. Examples of private goods are Mobile phone purchased by an individual Water
bottle purchased by an individual

Q.13 Distinguish between 'Public Provision' and 'Public Production'.

Ans. Public Provision = Government pays, but production can be private or public.

Public Production = Government owns, controls, and operates everything.

Public provision refers to those goods that are financed through the government budget
and can be used without any direct payment by public. Whereas Public production
relates to those goods which are directly produced by the government.

Public Provision Example:

Ayushman Bharat (India) – The government funds healthcare for low-income groups, but
private hospitals also provide treatment under this scheme.

Mid-Day Meal Scheme – The government provides funds for school meals, but the
cooking and distribution may be outsourced to NGOs or private contractors.
Public Distribution System (PDS) – The government provides subsidized food grains, but
private shops (Fair Price Shops) distribute them.

Public Production Example:

Indian Railways – The government owns and operates the entire railway system, from
trains to ticketing.

Kendriya Vidyalayas & Government Schools – These schools are directly run by the
government, including hiring teachers and managing infrastructure.

AIIMS (All India Institute of Medical Sciences) – A fully government-owned and managed
hospital providing free or subsidized healthcare.

Q.14 "The Union Budget 2023-24 had proposed an allocation of 22,138 crore to the
Micro, Small and Medium E (MSME) Ministry." Identify and explain the objective that the
government is trying to achieve with the proposed exp

Ans. The highlighted government budget objective is the 'allocation function'. The
government with the proposed allocation o crore to the Micro, Small and Medium
Enterprise (MSME) Ministry may seek to enhance national output and en opportunities.
In a country like India, such steps are fruitful for achieving socio-economic goals and
overall growth of th

Q.15 'Government Budget can be a useful instrument in reducing inequalities in the

distribution of income and we economy. Do you agree with the given statement?
Present valid arguments in favour of your answer.

Ans. Yes. The government budget objective of 'Redistribution of Income' aims to bring
about equality in the distribution of income.

Government can reduce inequalities of income through taxes and public expenditure. It
may impose high taxes on the rich to reduce their disposable income. Furthermore,
government may incur more public expenditure for the welfare of the poor, like providing
free services etc. By adopting these measures, the government tries to bridge the gap
between the rich and the poor

Q.16 Responding tot he Prime Minister's Give it up campaign' a large number of Indian
families have voluntarily surrendered their cooking gas subsidy. Identify and explain the
objective behind this action taken by the Government of India.

Ans. The highlighted government budget objective is the 'allocation function'. The
surrender of cooking gas subsidies by the large number of households will directly
reduce the financial burden borne by the government. This will provide a significant
amount of funds at the disposal of the Government. These funds can be used to
produce public goods.
Q.17 "Under the Production Linked Incentive' scheme, the Government of India offers
various benefits like reduced import export duties, incentives to investors, tax-rebates
etc." In the light of above statement, identify and explain the Budget objective and its
likely consequences.

Ans. The highlighted government budget objective is the 'allocation function'. The
government may influence the allocation of resources by granting subsidies/tax rebates
on the production of products that are socially beneficial. Consequently, with the
'Production Linked Incentive Scheme, the government seeks to fulfill socio-economic
goals and enhance national output and employment opportunities.

Q.18 "Under 'Zero Defect, Zero Effect' (ZED) scheme, the government of India provides
up to 80% subsidy to Mini, Small and Medium Enterprises (MSMEs)." Identify and
explain the objective of government budget, highlighted in the above text.

Ans. The highlighted government budget objective is the 'allocation function'. With the
subsidies to Mini, Small and Medium Enterprises (MSMEs), the government may seek to
enhance national outpur and employment opportunities and achieve socioeconomic
goals, In a country like India, such steps are fruitful for the overall growth of the nation.

Q.19.Why public goods need to be provided by the government?

Or

Differentiate between public goods and private goods

Ans.Public goods (e.g. public parks, street lighting, maintaining law and order, national
defence, etc.) cannot be provided by the market mechanism, Le. by exchange between
individual consumers and producers.

To understand why public goods need to be provided by the government, we must

understand the difference between private goods such as clothes, cars, food items etc.
and public goods.

1. The benefits of private goods are restricted to only one particular consumer. For
example, if a person eats a chocolate or wears a shirt, these will not be available to
others. This person's consumption stands in rival relationship to the consumption of
others.

On the other hand, public goods are non-rivalrous; ie. one person's consumption of a
product does not reduce the amount available for consumption for others, and so
several people can enjoy the benefits. For example, if we consider a public park or
measures to reduce air pollution, the benefits will be available to all
2. In case of private goods, anyone who does not pay for the goods can be excluded
from enjoying its benefits. For example, if I don't buy a ticket, I'll not be allowed to watch
a movie at a local cinema hall. On the other hand, public goods are non-excludable.
There is no feasible way of excluding anyone from enjoying the benefits of the product.

Even if some users do not pay, it is difficult and sometimes impossible to collect fees for
the public goods. These non-paying users are known as 'free-riders'.

Consumers will not voluntarily pay for what they can get for free and for which there is
no exclusive title to the property being enjoyed. Thus, the link between the producer and
consumer which occurs through the payment process is broken and the government
must step in to provide for such goods.