Worksheet Solutions: Non-Competitive Markets - 2 | Economics Class 11 - Commerce PDF Download

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Q1: Equilibrium price is the price where market demand is equal to market supply, and it represents the position of no price ________________.
Ans: change
Equilibrium price is the price at which market demand equals market supply, creating a state of balance in the market, with no pressure for prices to change.

Q2: The free interplay of demand and supply is called the ________________ mechanism.
Ans: price
The price mechanism, also known as the market mechanism, is the free interplay of demand and supply in determining prices.

Q3: Excess demand occurs when the quantity demanded is more than the quantity supplied at the prevailing market ________________.
Ans: price
Excess demand occurs when the quantity demanded exceeds the quantity supplied at the prevailing market price.

Q4: If an increase in demand is greater than the increase in supply, the equilibrium price ________________.
Ans: increases
If an increase in demand is greater than the increase in supply, it will cause an increase in the equilibrium price.

Q5: According to Marshall, both ________________ and ________________ are equally important in the determination of price.
Ans: demand and supply
Alfred Marshall emphasizes that both demand and supply are equally important in determining prices.

Q6: In case of a very short period, the demand has more influence on the determination of price for ________________ goods.
Ans: perishable
In the short term, supply for perishable goods is fixed or inelastic. Thus, demand has a greater influence on price in these situations.

Q7: In case of a long period, the supply has more influence in the determination of price for ________________ goods.
Ans: desirable
In the long term, desirable goods can be stored, making supply more elastic. Sellers also have a reserve price, giving supply more influence on price determination.

Q8: An industry is said to be viable when there is demand in the market at a minimum price that sellers can ________________.
Ans: afford
An industry is considered viable when there is demand in the market at a minimum price that sellers can afford to produce.

Q9: Price controls with distribution controls often involve ________________ to ensure fair distribution of controlled goods.
Ans: rationing
To ensure the fair distribution of controlled goods under price controls, governments often implement rationing systems. Consumers receive coupons limiting the quantity they can purchase.

Q10: Price ceilings lead to ________________, while price floors lead to ________________.
Ans: shortage, surplus
Price ceilings set maximum prices below the equilibrium market price, which leads to shortages. Price floors set minimum prices above the equilibrium, resulting in surpluses.

Assertion and Reason Based

Q1: Assertion: Equilibrium price represents a state of balance in the market.
Reason: At equilibrium, the quantity demanded is equal to the quantity supplied.
(a) Assertion and Reason both are true, and Reason is the correct explanation of the Assertion.
(b) Assertion and Reason both are true, but Reason is not the correct explanation of the Assertion.
(c) Assertion is true, but Reason is false.
(d) Both Assertion and Reason are false.
Ans: (a)
The assertion is correct because equilibrium price represents a state of balance. The reason is also correct because at equilibrium, the quantity demanded matches the quantity supplied, explaining why it's a state of balance.

Q2: Assertion: Price controls, like price ceilings, lead to shortages in the market.
Reason: Price ceilings set a maximum price below the equilibrium market price.
(a) Assertion and Reason both are true, and Reason is the correct explanation of the Assertion.
(b) Assertion and Reason both are true, but Reason is not the correct explanation of the Assertion.
(c) Assertion is true, but Reason is false.
(d) Both Assertion and Reason are false.
Ans: (a)
The assertion is accurate as price ceilings set a maximum price below equilibrium. The reason is valid as it provides an explanation for the shortage created by price ceilings.

Q3: Assertion: In the case of simultaneous increases in demand and supply, the equilibrium price will always rise.
Reason: When demand increases more than supply, prices tend to increase.
(a) Assertion and Reason both are true, and Reason is the correct explanation of the Assertion.
(b) Assertion and Reason both are true, but Reason is not the correct explanation of the Assertion.
(c) Assertion is true, but Reason is false.
(d) Both Assertion and Reason are false.
Ans: (b)
The assertion is correct because simultaneous increases in demand and supply create excess supply, leading to a decrease in equilibrium price. The reason supports this by explaining the price change.

Q4: Assertion: Excess supply leads to stock accumulation or stockpiling.
Reason: When the quantity supplied is more than the quantity demanded, sellers accumulate excess stock.
(a) Assertion and Reason both are true, and Reason is the correct explanation of the Assertion.
(b) Assertion and Reason both are true, but Reason is not the correct explanation of the Assertion.
(c) Assertion is true, but Reason is false.
(d) Both Assertion and Reason are false.
Ans: (a)
Excess supply leads to a decrease in price. The reason provides a clear explanation of why there is an excess supply and a decrease in price.

Q5: Assertion: Minimum wage legislation benefits laborers.
Reason: Minimum wage legislation sets a higher wage limit that employers must pay.
(a) Assertion and Reason both are true, and Reason is the correct explanation of the Assertion.
(b) Assertion and Reason both are true, but Reason is not the correct explanation of the Assertion.
(c) Assertion is true, but Reason is false.
(d) Both Assertion and Reason are false.
Ans: (a)
Minimum wage legislation aims to ensure that laborers are paid a minimum wage. The reason explains that minimum wage legislation sets a higher limit for wages, supporting the assertion.

Very Short Answer Type Questions

Q1: What is the term for a price where market demand is equal to market supply?
Ans: Equilibrium price is where supply meets demand, ensuring market balance.

Q2: Define the price mechanism or market mechanism.
Ans: The price mechanism is the interaction of supply and demand that determines prices in a free market.

Q3: What is excess demand, and what causes it?
Ans: Excess demand occurs when demand exceeds supply at the current market price.

Q4: In Case A, when there is a situation of excess demand, what happens to the market price, and why?
Ans: In Case A (excess demand), competition among buyers drives the price up, reducing the excess demand until it equals supply.

Q5: In Case B, when there is a situation of excess supply, what happens to the market price, and why?
Ans: In Case B (excess supply), competition among sellers pushes prices down, reducing the excess supply until it matches demand.

Q6: In the numerical solution provided, what is the equilibrium price and quantity when Qd = Qs?
Ans: When quantity demanded equals quantity supplied (Qd = Qs), the equilibrium price is Rs 40, and 160 units are bought and sold.

Q7: Explain why both demand and supply are equally important in price determination according to Marshall.
Ans: According to Marshall, both demand and supply are equally critical in determining prices.

Q8: In which situations does demand have more influence on price determination, according to Marshall?
Ans: In the short term, supply for perishable goods is fixed, so demand has a greater impact.

Q9: In which situations does supply have more influence on price determination, according to Marshall?
Ans: Desirable goods can be stored, and sellers have reserve prices, making supply more influential in the long term.

Q10: What is the impact of buffer stocks in maintaining support prices in agriculture?
Ans: Price ceilings set maximum prices, causing shortages, while price floors set minimum prices, leading to surpluses.

Short Answer Type Questions

Q1: Explain the adjustment mechanism in Case A, where there is excess demand. Provide a step-by-step explanation of how the price changes.
Ans: When there is excess demand, buyers compete for the limited supply, driving the price up. This reduction in excess demand continues until the quantity demanded matches the quantity supplied, achieving equilibrium. This upward price adjustment is the price mechanism at work.

Q2: Describe the adjustment mechanism in Case B, where there is excess supply. Explain the process of price change.
Ans: In the case of excess supply, sellers compete to offload their excess goods, which puts downward pressure on prices. The price decreases until it reaches a point where the quantity demanded equals the quantity supplied, resulting in equilibrium. This downward price adjustment illustrates the price mechanism.

Q3: In the exceptional cases provided, how does the demand change when supply is perfectly elastic? Provide an example.
Ans: In cases where supply is perfectly elastic, it means that suppliers can provide any quantity at a given price. Demand becomes the primary driver of price, particularly for essential goods with inelastic supply, like life-saving medicines during a crisis.

Q4: In the exceptional cases provided, how does the demand change when supply is perfectly inelastic? Provide an example.
Ans: In the case of perfectly inelastic supply, supply is fixed and cannot be increased. Here, demand plays a significant role in price determination, such as with a limited number of tickets for a specific event.

Q5: Describe the outcomes when there is a simultaneous increase in demand and supply. Provide details on the price and quantity changes.
Ans: When demand and supply both increase simultaneously, the equilibrium quantity always increases. However, the change in equilibrium price depends on whether demand increases more than, equal to, or less than supply. If demand increases more than supply, prices rise, and quantity rises. If demand increases less than supply, prices fall, and quantity rises. If they increase equally, the price remains unchanged, and quantity rises.

Q6: Explain the outcomes when there is a simultaneous decrease in demand and supply. Discuss the effects on price and quantity.
Ans: In cases of simultaneous decreases in demand and supply, the equilibrium quantity decreases. The change in equilibrium price again depends on whether demand decreases more than, equal to, or less than supply. If demand decreases more than supply, prices fall, and quantity falls. If demand decreases less than supply, prices rise, and quantity falls. When they decrease equally, the price remains unchanged, but the quantity decreases.

Q7: What happens when demand increases, but supply decreases? How does this affect the equilibrium price?
Ans: When demand increases but supply decreases, the equilibrium price increases. This is because the increase in demand is more significant than the decrease in supply, leading to higher prices and quantity.

Q8: What happens when demand decreases, but supply increases? How does this affect the equilibrium price?
Ans: When demand decreases but supply increases, the equilibrium price decreases. The decrease in demand is more significant than the increase in supply, resulting in lower prices and quantity.

Long Answer Type Questions

Q1: Discuss the concept of price control with a focus on price ceilings and their impact on the market. Explain the consequences of price ceilings, including shortage, rationing, and black marketing.
Ans: Price control is a government intervention in markets that aims to regulate prices, primarily through the implementation of price ceilings and price floors. In this answer, we will focus on price ceilings and their impact on the market.
Price ceilings are government-imposed maximum prices that are set below the equilibrium market price. The intention behind price ceilings is often to protect consumers, particularly those with lower incomes, by preventing prices from rising to unaffordable levels. However, price ceilings can have significant consequences on the market.

Consequences of Price Ceilings:

• Shortage: Price ceilings create a situation where the maximum price is set below the equilibrium price. As a result, the quantity demanded exceeds the quantity supplied at the ceiling price. This imbalance between demand and supply leads to a shortage of the product in the market. Consumers are willing to buy more at the lower price, but producers are not motivated to supply enough.
• Rationing: To ensure that the available goods are distributed fairly among consumers, governments often implement rationing systems. Rationing implies that a maximum amount is imposed on the quantity that consumers can buy and consume. This is achieved by issuing ration coupons or quotas. Each consumer is restricted in the quantity they can purchase, aiming to prevent individuals from buying excessive amounts, even at the lower price.
• Black Marketing: Black marketing is a direct consequence of price ceilings. It occurs when the controlled commodity is sold unlawfully at a price higher than the legally enforced ceiling price. This situation arises because the number of potential consumers of the commodity often exceeds the available supplies. Some consumers are willing to pay more than the ceiling price, which creates an opportunity for black market sellers to charge a premium for the product.

In summary, while price ceilings may seem like a way to protect consumers from high prices, they often result in unintended consequences. Shortages, rationing, and black marketing are common issues associated with price ceilings. These consequences can disrupt market dynamics and lead to unfair distribution of goods.

Q2: Explain the concept of price support with a focus on price floors and their impact on the market. Describe the consequences of price support, including surpluses, buffer stocks, and subsidies.
Ans: Price support involves government interventions in markets with the goal of stabilizing prices, especially in agricultural sectors. Price floors are a crucial aspect of price support, where the government sets minimum prices above the equilibrium market price. In this answer, we will delve into the concept of price support and its consequences.
Consequences of Price Support:

• Surpluses: Price floors prevent prices from falling to the level where supply equals demand. This creates a surplus in the market, as the quantity supplied exceeds the quantity demanded at the minimum price. Producers are guaranteed a certain income, but this can lead to overproduction and excess supply.
• Buffer Stocks: To maintain the support price and absorb excess supply, the government may need to establish buffer stocks. Buffer stocks are inventories of the product that the government purchases when there is a surplus and releases when there is a shortage. This mechanism helps in stabilizing prices and ensuring a steady income for producers.
• Subsidies: To offset the losses incurred due to maintaining price floors and buffer stocks, the government often provides subsidies. Subsidies involve the government purchasing the product at the support price and selling it to consumers at a lower price. The difference between the cost of procurement and the selling price is borne by the government. Subsidies aim to make the product more affordable to consumers while supporting producers.

In summary, price support through price floors can lead to surpluses, requiring the creation of buffer stocks to manage excess supply. Subsidies are used to ensure that consumers do not face higher prices due to government intervention. Price support mechanisms protect producers but can also have indirect impacts on taxpayers and consumers.

Q3: Provide examples of cases where there was an imbalance between demand and supply, leading to market disruptions. Discuss the 'onion crisis' and the issues faced by sugarcane farmers in 1978.
Ans: Market imbalances between demand and supply can lead to disruptions and economic challenges. Two notable examples are the 'onion crisis' in 1998 and the issues faced by sugarcane farmers in 1978.

The Onion Crisis (1998): In 1998, the Indian economy experienced the 'onion crisis.' The price of onions skyrocketed from Rs 5 per kilogram to Rs 60 per kilogram in the retail market. This dramatic increase in price was attributed to a severe shortage of onions in the market. Several factors contributed to this crisis:

• Shortage in Supply: A significant decrease in the supply of onions due to unfavorable weather conditions and crop failure led to a shortage in the market.
• Increased Demand: Onions are a staple in Indian cuisine, and their demand is relatively inelastic. As a result, even a minor shortage can lead to a significant increase in prices.
• Market Dynamics: The market dynamics of the onion industry exacerbated the crisis. Onions cannot be stored for extended periods, which limited the ability to build up stockpiles.

This crisis had a profound impact on consumers, who had to bear the burden of drastically higher onion prices, affecting their household budgets.

Sugarcane Farmers' Issues (1978): In 1978, sugarcane farmers in India faced a different type of market disruption. It was a year of bumper crop production for sugarcane. The increased supply of sugarcane resulted in a significant crash in prices, with farmers receiving only Rs. 5 per quintal for their produce. The following factors contributed to this situation:

• Excess Supply: The bumper crop led to a situation of excess supply, as the quantity of sugarcane available in the market far exceeded the demand.
• Limited Storage Capacity: Sugarcane is perishable, and farmers had limited storage facilities. As a result, they were unable to hold onto their produce until prices improved.
• Producer Losses: The crash in prices caused significant financial losses for sugarcane farmers, who could not recover their production costs.

These examples highlight how imbalances between supply and demand can have significant economic consequences, impacting both consumers and producers.

Q4: Explore the role of government intervention in markets and its necessity when market forces fail to restore equilibrium. Discuss how government agencies and authorities play a part in resolving market imbalances.
Ans: Government intervention in markets becomes necessary when market forces fail to restore equilibrium, leading to imbalances between supply and demand. Government agencies and authorities play a crucial role in addressing these imbalances and ensuring fairness in the market. Let's explore the necessity and mechanisms of government intervention in markets.

Necessity of Government Intervention:

• Market Failures: Market failures occur when markets do not allocate resources efficiently. These failures can take the form of monopolies, externalities, or information asymmetry. Government intervention is needed to correct these market failures and ensure fair competition.
• Imbalances: Imbalances between supply and demand can lead to price fluctuations that affect both consumers and producers. In such cases, government intervention aims to stabilize prices and ensure that essential goods are available and affordable.
• Consumer Protection: Governments intervene to protect consumers from unfair practices, such as price gouging or the sale of substandard or unsafe products. Regulatory agencies enforce safety standards and fair business practices.

Government Intervention Mechanisms:

• Price Controls: Governments use price controls, such as price ceilings and floors, to regulate prices. Price ceilings set maximum prices, protecting consumers from high prices but potentially leading to shortages. Price floors set minimum prices, ensuring producers receive a fair income but potentially resulting in surpluses.
• Regulatory Agencies: Independent regulatory agencies oversee specific sectors, such as utilities or financial markets. They establish and enforce rules to ensure fair competition, consumer protection, and market stability.
• Antitrust Laws: Governments enact antitrust laws to prevent monopolies and promote competition. These laws aim to prevent market concentration that could lead to unfair pricing or reduced consumer choice.
• Consumer Protection Agencies: Agencies like the Consumer Financial Protection Bureau (CFPB) or the Food and Drug Administration (FDA) protect consumers by regulating financial products and ensuring the safety and quality of food and drugs.
• Trade Policies: Governments use trade policies to regulate international trade, including tariffs and trade agreements. These policies protect domestic industries and address trade imbalances.

In summary, government intervention in markets is essential to correct market failures, address supply and demand imbalances, and protect consumers. Regulatory agencies, price controls, and other mechanisms play a crucial role in maintaining market stability and fairness.