Class 10 Economics Chapter 3 Question Answers - Understanding Economic Development

Q1: Describe any four characteristics of WTO.
Ans: The four characteristics of WTO are:
(i) World Trade Organization (WTO) is a powerful international organization.
(ii) It aims at liberalizing international trade.
(iii) It establishes rules regarding international trade and sees that these rules are obeyed.
(iv) The WTO is supposed to allow free trade for all countries. But in practice, it is seen that the developed countries have unfairly retained trade barriers.

Q2: How is stability in jobs for the workers affected due to globalization?
Ans: The stability in jobs for the workers affected due to globalization in the following ways:

• There is no permanent employment, but workers are employed only when needed, i.e. they are ‘flexible workers’. In the slack season, they are out of work with no compensation.
• Due to globalization, the MNC’s main objective is to lower costs. To do this, they provide temporary employment only and are given lower wages or they may have to work on a per day basis.
• Workers may have to work for longer hours and be laid off from work without any compensation during the slack season.

Q3: “The impact of globalization has not  been uniform.” Explain this statement.
Ans: The impact of global isalion has not been uniform as:

• Globalization has increased the sale of consumer goods which are demanded by only a small section of people in developing countries like cell phones, automobiles, and soft drinks. Large section is still deprived of basic necessities.
• Globalization increases the concentration of economic power and leads to inequalities, It is mainly beneficial to large capitalists, industries and large companies like  google. The small scale producers and workers have suffered as a result of rising competition.
• Globalization has changed the nature of employment as now workers are hired on a temporary basis and their jobs  are no longer secure.

Q4: How has liberalization of trade and investment policies helped the globalization process?
Ans: Liberalization of trade and investment policies has helped in Globalization in the following ways:

• This has helped in the import and export of goods. This means that goods can be exported and imported easily and also foreign companies could set up factories and offices here.
• Larger foreign investment and larger foreign trade have led to greater integration of production and markets across countries. As a result, more and more companies are coming closer to each other due to MNCs.
• Latest technology such as ICT is spread throughout the  world due to liberalization.

Q5: “Fair globalization would create opportunities for all  and also ensure that benefits of globalization are shared better.” Support the statement.
Ans: As fair globalization would create opportunities for all and also ensure that benefits of globalization are shared better, the government can play a major role in making globalization a fair medium in the following ways

• By framing policies that protect the interests of not only the rich and powerful but also the weaker sections of the society.
• By supporting small producers so that they can compete with large manufacturers. 
• By ensuring that labor laws are properly implemented and workers get their rights.
• By using trade and investment barriers and negotiating for fairer rules at the WTO.
•  It can also align with other developing countries with similar interests to fight the donnination of’ developed countries’ in the WTO.

Q6: “Information and Communication Technology (ICT) has played a role in spreading out products and services across countries.” Support this statement.
Ans: Information And Communication Technology (ICT) has played a role in spreading out products and services across countries in the following ways:

• Telecommunication facilities (Telegraph, telephone including mobile phones, fax) are used to contact one another around the world to access information instantly and to communicate from remote areas. This has been facilitated by satellite communication devices.
• Computers have started the amazing world of the Internet, where one can obtain and share information on almost anything. It also allows us to send instant electronic mail and (voice-mail) across the world at negligible costs which boosts trade and commerce.

Q7: How does the Government attract foreign investment? Explain different ways.  
Ans: Government attracts foreign investment in the following ways:

• Special Economic Zones have been set up to have world-class facilities such as cheap electricity, roads, transport, storage, etc.
• The companies setting their units in SEZs are exempted from paying tax for an initial period of five years which increases their profit.
• Labor laws are made flexible in SEZs. This has attracted foreign investment.

Q8: Why had the Indian government put barriers to foreign trade and foreign investments after independence? Analyze the reason.
Ans: Indian government put barriers to foreign trade and foreign investments after independence because

• To protect the domestic producers within the country from foreign competition in the form of imports.
• To encourage more production of goods so that more industries can be started.
• During the 1950s and 1960s, Indian industries were just coming up, they were not prepared to face challenges from foreign countries.

Q9: Explain the facilities available in SEZ that are developed by Central and State governments to attract foreign Investment.
Ans: SEZs are industrial zones set up by the government to promote the establishment of MNCs.
The facilities available in SEZ are:

• SEZ are provided with world class facilities: electricity, water, roads, transport, storage, recreational and educational facilities.  
• Companies operating in SEZ do not have to pay taxes for five years.
• Government has allowed flexibility in the labor laws to attract MNCs.

Q10: “Globalization has been advantageous to eonsunners as well to producers”, Support the statement with suitable examples.
Ans: Globalization has benefited the producers and the consumers in the following ways: 

• Globalization has led to an intense increase in industrial competition as a result producers are competing over each other to provide better and cheaper services to the consumers this has also resulted in reduction in the prices.
• With the initiation of globalization, producers now have relåilively free access to international markets. Also, they can now avail more easily of the credit facilities fomarcled in terms of capital and technology. 

This is illustrated by the example of the electronics goods and garments industry.

• Consumers have more choice of goods and services, as compared to earlier times specially in modern digital technological equipments like cell phones, cameras etc.

Q11: What is investment? Name the companies which  make foreign investments. Write any two benefits which a local company expects from joint production with a Multinational company.
Ans: The money that is spent to buy assets such as land, building, machines and other equipment is called investment.
The companies which make foreign investment in India are Ford Motors, Nike, Coca-Cola, Pepsi, Honda, Nokia, Tata Motors, Infosys, Ranbæxy, Asian Paints, etc.
The benefits that a local company expects from joint  production with a multinational company are:
(a) To provide money for additional investments, like  buying new machines for faster production.
(b) To bring with them the latest technology for production.    

Q12: How are local companies benefited by collaborating  with multinational companies? Explain with examples.
Ans: The local companies are benefited by collaborating with multinational companies in the following ways:
(a) MNC’s can finance the additional investments for the local companies like buying new machinery for faster production.
(b) MNC’s may provide the companies with the latest technology for efficient production as MNCs have an international outreach.
(c) Local companies will benefit financially through a partnership with an MNC because the production and its efficiency would naturally increase.
Hence, an MNC works at an international level, while local companies have a very small outreach. Therefore, a partnership with such a large company is beneficial for both.

Q13. What are the various ways in which MNCs set up or control production in other countries?
Ans: The way in which MNCs control or spread their production:

• By Buying Local Companies Large MNCs buy companies that are operating locally. By doing this, they  get a good customer base and the local company gets the latest technology. For example, Cargill Foods (MNC) merged with Parakh Foods (local).
• By Joint Ventures MNCs set-up production units jointly with any company that may    be operating in a country. By doing this, MNCs not only increase their production but also get a vast market. For example, Ford Motors set up an automobile plant in collaboration with Mahindra and Mahindra. 
• By Placing Orders with Small Producers MNCs place orders for their products with small producers in developing countries where the resources are cheap. Then the MNCs sell those products under  their own brand. Ex: Garments, footwear, jeans,  footballs, etc.

Q14: List the factors that encourage the MNCs to set up their production units at a place.
Ans: The factors that promote the setting up of MNCs or the reason for setting up MNCs at a certain place are:

• Availability of skilled and unskilled labor, e.g. India  has highly skilled engineers who can understand the  technical aspects of production.
• Availability of raw materials at cheap prices e.g. China provides the advantage of being a cheap manufacturing location.
• Well developed infrastructure like roads and railways 
• Liberalized governmental policies.
• Closeness to markets e.g. Mexico and Eastern Europe are useful for their closeness to the markets in the US and Europe.
• Safe environment

Q15: ‘Barriers on foreign trade and foreign investment were removed to a large extent in India since 1991. Justify the statement.  
Ans: It is true that barriers on foreign trade and foreign  investment have been removed to a large extent in India  since 1991 because     

• In 1991, the Government of India liberalized its policy  and felt that Indian producers must compete with   producers around the world.
• The Government had an opinion that trade competition would improve the performance of the  local producers within the country since they will be  forced to improve their quality.
• Another reason was the economic crises in India in 1990-91 and support of WCO and IMF lcd thc government to remove trade barriers.