Q.1. What are the difference between pure and perfect competition?
Ans : Economists draw a line of distinction between Pure and Perfect Competition. The difference between the two is only of degree and not of kind. The concept of pure competition was put forth by Prof. Chamberlin, “According to him, if the following conditions exist in a market then it is a case of pure competition : (i) Large umber of buyers and sellers; (ii) Homogeneous product; (iii) Free entry or exit of the firms, (iv) Free from restrictions. Baumol, has defined pure competition in these terms : An industry is said to be operating under conditions of pure competition when there are many firms, homogeneity of products,freedom of entry and exist, independent decision making”. Thus in comparison with perfect competition, pure competition is a more realistic concept. The latter has only 4 conditions whereas the former has 7 conditions as noted above.
Q.2. When Increasing Returns to Scale occur ? What are the causes of increasing return to a scale ?
Ans : Increasing returns to scale occurs when a given percentage increase in all factor inputs (in some constant ratio) causes proportionately greater increase in output. If 10% increase in all factor inputs causes, say, 15% increase in output, it is case of increasing returns to scale. Figure shows that 10% increase in output cause 15% increase in output. Likewise, 15% increase in factor inputs cause 25% increase in output. Thus, any percentage increase in inputs is causing a greater percentage increase in output. Increasing returns to scale are thus operative.
Cause of Increasing Returns to Scale
Occurrence of increasing returns is explained in terms of the economies of scale. Economies of scale refer to the situation in which increasing the scale of production reduces the unit cost of production or raises output per unit of the factor inputs.
Broadly, economies of scale are classified as :
(a) Internal Economies of Scale
(b) External Economies of Scale
(a) Internal Economies of Scale : These are the economies which are firm-specific. These are available to that particular firm in the industry which seeks to increase its level of output by way of increasing its scale of production. These are called internal because these are not shared by other firms in the industry which are not expanding their scale of production.
Internal economies are available to a firm in various forms :
(i) Technical Economies : When a firm increases its scale of production, then it becomes possible for it to make use of modern machine and superior technique of production. As a result, cost of production goes down.
(ii) Labour Economies : It becomes possible for the firm to do complex division of labour which culminates in greater efficiency of labour and so fall in cost of production.
(iii) Managerial Economies : A firm producing on large scale can afford to engage competent and efficient managers. It also results in more efficiency and hence less cost of production.
(iv) Financial Economies : A large-sized firm has high credit rating. It is in a position to secure huge loans at low rate of interest.
(v) Economies of Purchase and Sale : On account of its large size, a firm can purchase large quantity of a material at low price. It succeeds in selling goods by paying low rate of commission.
(vi) Economies of Risk : With enlarged size the capacity of the firm to bear greater risks is also enlarged. It enables the firm to undertake such activities that assure high profit.
Q.3. Why wages differ across different occupaions ?
Ans : This is, supply of labour is relatively more scarce for certain occupations than others. This is because of the following reasons :
(1) Barriers to Entry in Certain Professions : There may be barriers to entry in certain professions. For example, in defence services, female warriors are generally not preferred. Because of this supply remains scarce and accordingly wages are relatively high.
(2) Specialised Skill : ‘Specialised’ skills (like software engineers) are relatively more scarce than ‘generalised’ skill like primary school teachers. Accordingly high wages are offered in occupations of specialised skills.
(3) Limited Mobility of Labour : Mobility of labour depends not only on monetary considerations, but family and social considerations as well. Accordingly wages differ across different regions and occupations.
(4) Non-monetary Benefits : High non-monetary benefits as free accommodation, free medical facilities may attract greater flow of labour in certain occupations. Eventually money wages may fall in these occupations.
(5) Cost and Period of Initial Training : Because of high cost of initial training certain occupations. Eventually attract only a limited supply of labour. Accordingly wages are high.
(6) Risk Factor : Also, jobs with high risk factor (such as of pilots) attract only a limited supply of labour. Hence wages are high.
Q.4. What is the difference between Deficient Demand and Excess Demand ?
Ans : Following points may be noted in this regard :
(1) Deficient demand refers to that level of demand which is short of what is required to maintain full employment equilibrium in the economy. Excess demand, on the other hand, is the surplus of demand over and above what is required to maintain full employment equilibrium in the economy.
(2) In a state of deficient demand, aggregate demand is less than aggregate supply corresponding to full employment in the economy. Excess demand on the other hand, is a situation in which aggregate demand is reater than aggregate supply corresponding to full employment.
(3) While deficient demand generates deflationary gap, excess demand generates inflationary gap in the economy.
(4) Generally, in a state of deficient demand, output, employment and the level of prices tend to reduce. In a state of excess demand, on the other hadn, only prices tend to increase. There is no increase in output and employment because the system is already in a state of full employment and technology remains constant.
Q.5. Define the role and function of Finance Commission.
Ans : The Finance Commission (FC) is a quasijudicial body provided for under the provision of Article 280 of the Constitution. The President of India is required to appoint the Commission every five years or earlier for the specific purpose of devolution of non-plan revenue resources.
The functions of the FC are to make recommendations to the President in regard to the following :
(i) The distribution of net proceeds of taxes to be shared between the Union and the States and the allocation of shares of such proceeds among the States;
(ii) The principles which should govern the payment of the union grants-in-aid to the revenues of the States;
(iii) The continuance or modification of any agreement entered into between the Centre and any of the States; and
(iv) Any other matter concerning financial relations referred to it.
The Finance Commissions have so far been appointed by the government since the inauguration of the Constitution in 1951. The recommendations of the Finance Commissions can be grouped under three heads– division and distribution of income tax and other taxes, grants-in-aid and Centre's loans to States.
The appointment of a Finance Commission at intervals of five years or less has great significance for the financial relations between the Union and the States. Periodical examination of the division of resources and suitable modifications in it imparts a degree of flexibility to the finance of both the Centre and the units. The flexibility is of great value in these days of changing needs and resources. The planned development of the country involves growing expenditure and therefore, larger revenues, and an elastic system of finance is a great necessity.
Q.6. What were the distinguished features of the eighth plan?
Q.7. How fiscal policy can be effectively used for checking inflation?
Ans : Fiscal policy, which can be effectively used for checking inflation, has been employed by the government in this country.
To this end government claims it has : (i) always attempted to keep its non-development expenditure low, the development expenditure has, however, been allowed to increase rapidly as it helps in growth of economy; (ii) it has provided various tax incentives to producers in the private sector as these measures are expected to improve supply position in course of time; and (iii) it is making efforts to avoid deficit financing as far as possible.
However, with the steadily growing public expenditure and increasing reliance on deficit financing, it is hard to believe that government has effectively used all these fiscal tools for checking inflation.
Public Distribution System
This is an essential element of anti-inflationary strategy being pursued by our government. Over the years supplies of essential consumer goods have often fallen short of their demand resulting in rapid increase in general price level. To deal with this situation government has launched public distribution system (PDS) for efficient management of supplies of essential consumer goods of mass consumption so that they reach to people at reasonable prices. The government has launched the Targeted PDS in June 1997 for the families who fall below the poverty-line.
Measures on Supply Side
To improve supply position of essential commodities government frequently allowed their imports. Import of edible oils (except coconut oil), pamolin, sugar and pulses were allowed during 1995-96. The Food Corporation of India undertakes open market sale of rice and wheat to check market prices. And lastly reductions in excise duties on a number of items in recent years have speeded up industrial revival which would raise industrial growth and thus improve the supply of goods.
Q.8. Write a note on the following : (1) Privilege Motion (2) Point of Order (3) Vote on Account (4) Quorum (5) Censure Motion.
Ans : (1) Privilege Motion. A motion moved by a member if he feels that a Minister has committed a breach of privilege of the House or of any one or more of its members by withholding facts of a case or by giving a distorted version of facts.
(2) Point of Order. A member may raise a point of order if the proceedings of the House do not follow the normal rules. The presiding officer decides whether the point of order raised by the member should be allowed.
(3) Vote on Account. As there is usually a gap between the presentation of the budget and it approval, the vote on account enables the government to draw some amount from the Consolidated Fund of India to meet the expenses in the intervening period.
(4) Quorum. It is the minimum number of members whose presence is essential to transact the business of the House. Article 100 provides that the quorum of either House shall be one-tenth of the total number of members of the House.
Censure Motion. A motion which seeks to censure the government for its ‘lapses’. If the motion is passed in the popular house the Cabinet resigns.
Q.9. Write brief history of the Indian Constitution.
Ans : The source of the Preamble is the historic objective resolution of Pandit Nehru adopted by the Constituent Assembly on January 22, 1947. That resolution was '.....a declaration, a firm resolve, a pledge, an undertaking and for all of us a dedication'. The objectives of the resolution were:
(i) India shall be an independent sovereign republic;
(ii) The territories that now comprise British India, the territories that now form the Indian States, and such other parts of India as are outside British India and the States as well as such other territories as are willing to be constituted into the Independent Sovereign India, shall be a Union of them all;
(iii) The said territories, shall possess and retain the status of autonomous units together with residuary powers, and exercise all powers and functions of government and administration, save and except such powers and functions as are vested in or assigned to the Union, or resulting therefrom;
(iv) Power and authority of the Sovereign Independent India, its constituent parts and organs of governments are derived from the people;
(v) All the people of India shall be guaranteed and secured justice, social, economic and political; equality of status, of opportunity, and before the law; freedom of thought, expression, belief, faith, worship, vocation, association and action, subject to law and public morality;
(vi) Adequate safeguards shall be provided for minorities, backward and tribal areas, and depressed and other backward classes;
(vii) The integrity of the territory of the Republic and its sovereign rights on land, sea, and air shall be maintained according to justice and the law of civilised nations; and
(viii) The ancient land attain its rightful and honoured place and honoured place in the world and makes its full and willing contribution to the promotion of world peace and the welfare of mankind.
Q.10. How the preamble of the constitution stands after 42nd amendment?
And : The ideals embodied in the resolution are faithfully reflected in the Preamble, which after the 42nd amendment in 1976, stands as:
"We the people of India, having solemnly resolved to constitute India into a SOVEREIGN, SOCIALIST, SECULAR, DEMOCRATIC, REPUBLIC and to secure to all its citizens:
JUSTICE, social, economic and political;
LIBERTY of thought, expression, belief, faith and worship;
EQUALITY of status and of opportunity; And to promote among them all;
FRATERNITY, assuring the dignity of the individual and the unity and integrity of the nation.
In our Constituent Assembly, this twenty-sixth day of November, 1949, do hereby adopt, enact and give to ourselves this Constitution."
The Preamble came into force only on January 26, 1950. In this connection it may be noticed that a proposal was made in the Constituent Assembly by Santhanam that Preamble should come into force on November 26, 1949, but the said proposal was rejected.
Q.11. India is still a member of commonwealth of Nations. How does it affect the sovereignty of India?
Ans : Sovereignty means the independent authority of a state. It means that it has the power to legislate on any subject; and that it is not subject to control of any other state or external power.
Preamble begins with the words- "We the people of India.... adopt, enact and give to ourselves this Constitution," thus declaring the ultimate. The source of all authority under the Constitution is the people of India and that there is no subordination to any external authority.
However, India is still a member of the Commonwealth of Nations. This peculiar position is the result of an agreement reached in April 1949 in which India made a declaration to the effect that notwithstanding her becoming a Sovereign Independent Republic, she should continue "her full membership of the Commonwealth of Nations and her acceptance of the King (or England) as the symbol of the free association of the Commonwealth." But this declaration was extralegal. There is no mention of it in the Constitution of India. It is a voluntary declaration which indicates a free association with no legal obligation. Its acceptance of the King (or Queen) of England as a symbolic head of the Commonwealth does not create any allegiance of the citizens of India to the Kings of England. Hence, this voluntary association of India with the Commonwealth does not affect her sovereignty in any manner and India could cut off that association as easily as it had been declared.
Q12. Define the world 'Democratic'.
Ans : The term 'Democratic' is comprehensive term. In a narrow political sense it refers only to the form of government, a representative and responsible system under which those who administer the affairs of the state are chosen by the electorate and accountable to them. But in its broadest sense, it embraces, in addition to political democracy also social and economic democracy. The term 'democratic' is used in this sense in the Preamble. For the social standpoint, it envisages a democratic society, infused with the spirit of justice, liberty, equality and fraternity.
Q.13. The word 'Socialist' in the preamble is undefined.' Discuss.
Ans : The term 'Socialist' inserted by the 42nd Amendment Act, 1976, is intended to bring out that ours is a socialist state which aims to secure to its people justice-social, economic and political. Its inclusion in the Preamble was objected on the ground that it is a vague expression and means different things to different persons. The Janata Party after coming into power, defined the term 'Socialism' in the 45th Constitution Amendment Bill. According to it "Socialist Republic is a republic in which there is freedom from all forms of exploitation, social, political or economic." But because of the opposition of the Council of States, this definition had to be deleted. The expression 'Socialist' thus remains undefined.
Q.14. Define 'Secular Republic'.
Ans : The term 'Secular', also inserted by the 42nd Constitution Amendment Act, 1976, highlights that the state shall have no religion of its own and all persons shall be equally entitled to freedom of conscience and right to freely profess, practise and propagate religion. It was not used by the framers of the Constitution and its omission was rather deliberate because. Dr. B.R. Ambedkar perhaps thought that the principles of secularism are already enshrined in the chapter on Fundamental Rights. The provisions of right to freedom of religion ensuring freedom of conscience and free profession, practice and propagation of religion, freedom to manage religious affairs and right to equality clearly implied that India is a 'Secular Republic'.
The 45th Constitution Amendment Bill defined 'Secular Republic' as a "Republic in which there is equal respect for all religions". This definition of 'secularism' was rejected by the Council of States and as a result it could not be added in the Constitution.
Q.15. What does the term justice in the preamble means?
Ans : Justice in the Preamble means common good. It is stretched to the social, economic and political arena.
Social justice aims at abolishing the artificial social barriers like caste, untouchability etc. In a backward county like ours, such ideals are preconditions to a healthy and genuine democracy.
Economic justice means attainment of equality in economic status and promotion of the equitable distribution of material resources. Economic justice is an important guideline in shaping the economic policy of the government.
Political justice implies fair and free participation of the people in the political process of the country. It involves free and fair election, participation of the masses in universal franchise, non-discrimination on ground of sex, religion, etc.
Q.16. Write a note on equality?
Ans : Guaranteeing of rights is meaningless unless all inequality is banished from the social structure and each individual is assured equality of status and opportunity.
The equality of status is provided by prohibition of artificial restrictions on the grounds of religion, race, sex, colour, place of residence and the like. It is supplemented by the prohibition of untouchability and by the abolition of titles. At the same time, equality of opportunity is provided by the guarantee of rule of law signifying equality before law and non-discrimination in matters of public employment. In addition to this civil equality the Constitution seeks to achieve political equality by providing for universal adult franchise.
Q.17. Write a note on the objective of fraternity .
Ans : Finally, the Preamble emphasises the objective of fraternity in order to ensure both the dignity of the individual and the unity of the nation. Fraternity means a spirit of brotherhood, the promotion of which is absolutely essential in our country which is composed of people of many races and religions. Dignity is a word of moral and spiritual import and imposes a moral obligation on the part of the Union to respect personality of the citizen and to create conditions of work which will ensure self-respect. The phrase 'dignity of the individual' signifies that the Constitution, as K.M. Munshi said, "is an instrument not only for ensuring material betterment and maintaining a democratic set up, but which recognises that personality of every individual is sacred." The unity of the nation stands on the basis of the dignity of the individual. The use of words 'Unity, and Integrity' has been made to prevent tendencies of regionalism, provincialism, linguism, communalism and more so that the dream of national integration on the lines of enlightened secularism is achieved.
Q.18. What is the significance of the preamble.
Ans : (i) The preamble declares the authority of the people of India, which is also the source of our Constitution;
(ii) It states the objects—justice, liberty, equality and fraternity— which the constitution seeks to establish and promote;
(iii) It aids the legal interpretation of the Constitution where the language may be ambiguous;
(iv) It describes the type of government assured to the people by the Constitution—Sovereign, Secular, Democratic Republic; and
(v) It states the date of adoption and enactment of the Preamble.
Q.19. What is the legal position of the preamble.
Ans : The preamble includes only the aims and ideals to be attained. It is not enforceable by a court of law and upheld by the Supreme Court in the care of the Gopalan vs. States of Madras (1950). In the Berubai Enclave case (1969) the Supreme Court again upheld the non-enforceability of the preamble and further maintained that the Preamble is not a part of the Constitution and that it utility lies in according clear meaning to the twilight legal terms.
But in the Keshavanand Bharti Case (1973) the Supreme court rejected the above views and held that the Preamble is a part of the Constitution and that it is subject to amendment vide Art. 368. However, the 'basic features' of the Preamble are beyond the amending power of parliament.
Q.20. Write a note on the following : (1) Vote of Credit & Exception Grants (2) Token Cut (3) Whip (4) No Confidence Motion.
Ans : (1) Vote of Credit & Exception Grants: During national emergency, the House might grant lump-sum money without details through a vote of credit. Exception grants are meant for special purpose.
(2) Quorum: The minimum number of members of the legislature must be present to make the proceedings valid. The minimum number of required members for the fulfillment of quorum is equal to the one tenth of the total number of members of the legislature including the speaker or the person acting as such.
(3) Token cut: The amount of demand for grant to be reduced by Rs 100. Most widely used objective is to voice a particular grievance for which the Government of India is responsible. (Cut motion is a device to initiate discussion on demands for grants moved generally by opposition, it has a symbolic value).
(4) Whip: Organizing Secretary of a Parliamentary party, with authority over its members to maintain discipline and secure attendance at Parliamentary debates and voting. Whip also means an order given by such secretary to members of the party of attend a debate and vote.
(5)No Confidence Motion: A resolution introduced by the opposition claiming that the House has lost its confidence in the government.