Worksheet Solutions: Market Equilibrium - 2 | Economics Class 11 - Commerce PDF Download

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Q1: Market refers to an entire area where buyers and sellers of a commodity are in contact with each other, and sale/purchase takes place. It doesn’t refer to any particular area or place, and face-to-face contact is not necessary as transactions can be effected through ___________, letter, internet, or TV-shop.
Ans: telephone
Market transactions can occur via various means, including telephone, letter, internet, or even TV shopping channels, without the need for face-to-face contact.

Q2: Perfect competition is characterized by a large number of buyers and sellers selling __________ goods at a single uniform price.
Ans: homogeneous
Perfect competition involves identical or homogeneous goods, meaning all products are indistinguishable in quality, size, and other characteristics, and they are sold at a uniform price.

Q3: In perfect competition, a firm is a price-taker because each seller has an insignificant share of market supply and cannot affect market supply by increasing or decreasing the quantity supplied. This results in a __________ price.
Ans: constant
Perfect competition results in a constant or unchanging price because individual firms have no influence over the market supply or price. They must accept the prevailing market price.

Q4: Homogeneous products are perfect substitutes or perfect standardized products that buyers do not distinguish from one firm to another, leading to infinite __________.
Ans: elasticity
Homogeneous products lead to infinite price elasticity because buyers can easily switch between sellers since the products are identical, making demand highly responsive to price changes.

Q5: Perfect competition has __________ barriers to entry and exit, allowing firms to freely enter or exit the market.
Ans: low
Perfect competition is characterized by low or minimal barriers to entry and exit, meaning new firms can easily enter the market, and existing firms can exit without significant obstacles.

Q6: In a perfect competition market, both buyers and sellers have __________ knowledge about the price and other market conditions.
Ans: perfect
In perfect competition, both buyers and sellers have perfect knowledge, which means they have complete and accurate information about prices, products, and market conditions.

Q7: Perfect mobility of factors in a market means that resources like energy, labor, and raw materials can move easily in and out of an industry without __________ barriers.
Ans: significant
Perfect mobility of factors means that resources can move in and out of an industry without significant barriers or obstacles, allowing for efficient allocation of resources.

Q8: Perfect competition assumes that there are no extra __________ costs in transporting goods between firms.
Ans: transportation
Perfect competition assumes that there are no extra transportation costs associated with moving goods between firms. Transportation is typically considered a part of the cost of production.

Q9: In perfect competition, the demand curve is __________ to the x-axis, indicating that the firm can sell any quantity at the prevailing price.
Ans: parallel
In perfect competition, the demand curve is parallel to the x-axis, indicating that the firm can sell any quantity at the prevailing market price. The price remains constant regardless of the quantity sold.

Q10: In monopolistic competition, firms compete through both price and non-price competition, such as offering free gifts, services, and other attractive schemes to attract customers, without changing the __________ of their products.
Ans: quality
In monopolistic competition, firms often engage in non-price competition, like offering additional services, improving product quality, or providing attractive schemes, without changing the fundamental quality of their products.

Assertion and Reason Based

Q1: Assertion: In perfect competition, a firm is a price-taker.
Reason: Each seller has a significant share of market supply.
(a) Both assertion and reason are true, and the reason is the correct explanation of the assertion.
(b) Both assertion and reason are true, but the reason is not the correct explanation of the assertion.
(c) The assertion is true, but the reason is false.
(d) The assertion is false, but the reason is true.
Ans: (b)
This is an incorrect assertion-reason pair. The assertion is true; firms in perfect competition are indeed price-takers, meaning they cannot influence prices and must accept the market price. The reason provided is not correct; in perfect competition, prices are determined solely by market forces, and individual firms have no control over prices.

Q2: Assertion: In a monopoly, there is a single seller and no close substitute for the product.
Reason: The monopolist can control the market price and earn supernormal profits.
(a) Both assertion and reason are true, and the reason is the correct explanation of the assertion.
(b) Both assertion and reason are true, but the reason is not the correct explanation of the assertion.
(c) The assertion is true, but the reason is false.
(d) The assertion is false, but the reason is true.
Ans: (a)
This assertion-reason pair is accurate. Monopoly does indeed involve a single seller dominating the market. The reason is also valid, as a monopoly may arise when the single seller can produce goods more efficiently, possibly due to economies of scale.

Q3: Assertion: Oligopoly is characterized by a few large firms in the market.
Reason: In oligopoly, firms compete independently without considering the actions of other firms.
(a) Both assertion and reason are true, and the reason is the correct explanation of the assertion.
(b) Both assertion and reason are true, but the reason is not the correct explanation of the assertion.
(c) The assertion is true, but the reason is false.
(d) The assertion is false, but the reason is true.
Ans: (b)
This is an incorrect assertion-reason pair. The assertion is true; mutual interdependence is a defining characteristic of oligopoly. The reason provided is not correct; firms in oligopoly are highly influenced by each other's actions, especially in terms of pricing and market strategies.

Q4: Assertion: Monopsony refers to a market situation where there is a single buyer.
Reason: Monopsony typically arises in industries that require advanced technology.
(a) Both assertion and reason are true, and the reason is the correct explanation of the assertion.
(b) Both assertion and reason are true, but the reason is not the correct explanation of the assertion.
(c) The assertion is true, but the reason is false.
(d) The assertion is false, but the reason is true.
Ans: (d)
This assertion-reason pair is incorrect. Monopsonies don't necessarily require advanced technology. A monopsony simply means there's a single dominant buyer in the market. The reason is not a correct explanation for this assertion.

Q5: Assertion: A natural monopoly occurs due to significant economies of scale.
Reason: In natural monopolies, barriers to entry are low, allowing many firms to compete.
(a) Both assertion and reason are true, and the reason is the correct explanation of the assertion.
(b) Both assertion and reason are true, but the reason is not the correct explanation of the assertion.
(c) The assertion is true, but the reason is false.
(d) The assertion is false, but the reason is true.
Ans: (b)
This assertion-reason pair is inaccurate. Natural monopolies often have high barriers to entry due to the significant initial capital investments required and the presence of economies of scale. The reason provided is not a correct explanation for the assertion.

Very Short Answer Type Questions

Q1: Explain the term "homogeneous goods" in the context of perfect competition.
Ans: Homogeneous goods in perfect competition are identical products that buyers do not distinguish from one firm to another.

Q2: What is the primary implication of perfect mobility of factors of production in a market?
Ans: The primary implication of perfect mobility of factors of production is that resources like labor and raw materials can move freely in and out of an industry without artificial barriers, ensuring an equal supply of factors in all market parts.

Q3: Define "price discrimination" in the context of monopoly and provide an example of it.
Ans: Price discrimination in monopoly refers to the practice of charging different prices to different customers or markets for the same product. An example is charging different prices for electricity based on residential and industrial use.

Q4: Why is the demand curve in a monopoly downward-sloping?
Ans: The demand curve in a monopoly is downward-sloping because, to sell more, the firm must reduce the price of the product due to the availability of close substitutes.

Q5: Give an example of a differentiated product in the context of monopolistic competition.
Ans: An example of a differentiated product in monopolistic competition is toothpaste with different brands and features, such as whitening, sensitivity protection, or natural ingredients.

Q6: What is the primary factor that leads to mutual interdependence among firms in oligopoly?
Ans: Mutual interdependence among firms in oligopoly results from the fact that each firm's sales depend on its price and the prices charged by other firms. Firms must consider the actions of rival firms in their decision-making.

Q7: Describe an industry where a natural monopoly is likely to occur.
Ans: An industry where a natural monopoly is likely to occur is the utility service industry, such as water supply, where high initial costs and economies of scale lead to a single provider in a region.

Q8: What are some barriers to entry in an oligopolistic market?
Ans: Some barriers to entry in an oligopolistic market include economies of scale, patents, control over essential inputs, and price rigidity.

Q9: Explain the concept of "indeterminate demand curve" in oligopoly.
Ans: The concept of an "indeterminate demand curve" in oligopoly means that it's challenging to estimate how a change in price will affect a firm's sales due to the interdependence of firms and their reactions to price changes.

Q10: How does a cartel operate in the context of oligopoly?
Ans: A cartel operates in oligopoly by allowing firms to jointly set output and prices to exert monopoly power. An example is the Organization of the Petroleum Exporting Countries (OPEC) in the oil industry.

Short Answer Type Questions

Q1: Describe the features of perfect competition. Explain how these features lead to the determination of a uniform price in the market.
Ans: Perfect competition is characterized by a large number of buyers and sellers, homogeneous products, free entry and exit, perfect knowledge, perfect mobility of factors, no extra transportation costs, and a demand curve parallel to the x-axis. These features ensure a uniform price as individual firms have no pricing power.

Q2: Compare and contrast monopolistic competition and perfect competition, highlighting their similarities and differences.
Ans: Monopolistic competition and perfect competition both involve a large number of buyers and sellers. However, in monopolistic competition, products are differentiated, and firms can influence their prices. In perfect competition, products are homogeneous, and prices are determined by the market.

Q3: Discuss the characteristics of a monopoly market. Explain how a monopoly firm has full control over the price of its product.
Ans: A monopoly market is characterized by a single seller, no close substitutes, barriers to entry, full control over price, the possibility of price discrimination, and a downward-sloping demand curve. A monopoly firm can earn supernormal profits.

Q4: What are the key features of an oligopoly market? Explain the concept of mutual interdependence among firms in an oligopoly.
Ans: Oligopoly features a few large firms, mutual interdependence, advertising expenses, price rigidity, barriers to entry, non-price competition, and an indeterminate demand curve. Firms in oligopoly compete closely with each other.

Q5: Explain the factors that lead to the emergence of a natural monopoly. Provide an example of a natural monopoly.
Ans: A natural monopoly emerges due to significant economies of scale, making it costly for new firms to enter. An example is the electricity distribution industry, where one provider can serve the entire market more efficiently.

Q6: Discuss the concept of price rigidity in oligopoly. Why do oligopolistic firms tend to avoid changing their prices?
Ans: Price rigidity in oligopoly refers to firms' reluctance to change prices because competitors are likely to react in a way that nullifies any price change's advantage.

Q7: Differentiate between monopsony and oligopsony. Provide examples of industries where these market structures are commonly found.
Ans: Monopsony is a market situation with a single buyer, while oligopsony involves a few large buyers dominating the market. Monopsony often occurs in labor markets, while oligopsony can be found in industries with a limited number of buyers.

Q8: Explain the concept of a cartel in oligopoly. Discuss the motives and implications of firms forming a cartel in the market.
Ans: A cartel in oligopoly is an agreement among firms to coordinate their actions, typically by setting output levels and prices collectively. Firms form cartels to maximize profits, but these agreements can lead to antitrust concerns and unstable cooperation.

Long Answer Type Questions

Q1: Discuss the concept of monopsony, including its characteristics and implications for the market. Provide real-world examples of monopsonistic markets.
Ans: Monopsony is a market structure where there is a single buyer or a dominant buyer. Characteristics include the buyer's market power, the ability to influence prices or dictate terms to suppliers, and barriers to entry for other buyers. Examples include labor markets in small towns where a single company is the primary employer and can set wages, and agricultural markets where a large processor controls the purchases of a specific crop. Monopsonies can lead to lower prices for suppliers, potentially affecting their income.

Q2: Analyze the factors that lead to the emergence of monopoly or oligopoly in markets. Highlight the role of innovations, control of essential resources, and successful differentiation in shaping these market structures.
Ans: The emergence of monopoly or oligopoly is influenced by various factors. Innovations can create monopolies when a firm controls a unique and essential technology. Control of essential resources, like access to raw materials, can lead to a monopoly. Successful product differentiation in oligopoly can result in market concentration. In essence, the key factors shaping these market structures are technological innovation, resource control, and product differentiation.

Q3: Examine the role of government policy, patents, and anti-trust legislation in shaping market structures. Discuss how these factors can influence the degree of competition in an industry.
Ans: Government policies, patents, and antitrust legislation play significant roles in shaping market structures. For example, antitrust laws aim to prevent monopolistic practices and promote competition, while patents protect innovation. Government policies can encourage or discourage competition through regulation. For instance, deregulation may lead to more competition, while stringent regulation may protect existing monopolies. These factors directly influence the level of competition in an industry.

Q4: Compare and contrast the various forms of market structures, including perfect competition, monopolistic competition, monopoly, oligopoly, monopsony, and oligopsony. Highlight their key characteristics, implications, and real-world examples.
Ans: Comparing market structures:

• Perfect competition: Many small firms, homogeneous products, price-taker, free entry and exit.
• Monopolistic competition: Many small firms, differentiated products, some pricing power, free entry and exit.
• Monopoly: One firm, no close substitutes, significant pricing power, barriers to entry.
• Oligopoly: A few large firms, interdependence, pricing power, potential for non-price competition, barriers to entry.
• Monopsony: One buyer, market power, influences prices, barriers to entry.
• Oligopsony: A few large buyers, market power, influences prices, barriers to entry.

Examples:

• Perfect competition: Small roadside vegetable vendors.
• Monopolistic competition: Restaurants with unique cuisine.
• Monopoly: Local cable company with no competitors.
• Oligopoly: Automobile manufacturing with a few major players.
• Monopsony: A town with only one major employer.
• Oligopsony: The diamond industry with a limited number of buyers.

Each structure has distinct characteristics and implications for pricing, competition, and market dynamics.