Important Questions: Market Equilibrium | Economics Class 11 - Commerce PDF Download

Very Short Answer Type Questions

Q1: What is a price-taker firm?
Ans: A firm that accepts the industry pricing because of its smaller transaction sizes is referred to as a price taker. It must consent to the price set by market forces.

Q2: What does “normal profit” mean?
Ans: The absolute minimal profit needed to sustain an entrepreneur’s business over the long term is called normal profit. The profit exceeds the potential cost that the company incurs by efficiently using its resources.

Q3: Describe the cooperative oligopoly.
Ans: A cooperative oligopoly develops when businesses in an oligopoly market work together to determine pricing and output.

Q4: What is a price maker firm?
Ans: An organization that has the power to affect prices independently is referred to as a price maker. A company with market dominance can raise prices without losing customers.

Q5: If a single business cannot affect the market price in a situation of perfect competition, who can alter the market price?
Ans: In a market with perfect competition, the industry has the power to influence market pricing by altering its output.

Q6: Explain advertising costs.
Ans: Advertising expenses are what a business spends to boost sales through channels like TV, radio, newspapers, magazines, and more.

Short Answer Type Questions

Q7: Describe two characteristics of a monopoly market.
Ans: The two most important traits of a monopoly market are as follows:

• Sole Seller: Since there is only one seller in the market, the seller has independent control over the market price. A company with market control can raise prices without losing customers or competitors.
• High Entry Barrier: Since there are barriers to entry for new businesses, sellers can generate anomalous profits that are significantly greater than typical earnings.

Q8: Briefly describe why a company operating in perfect competition is a price taker rather than a price maker.
Ans: A company in perfect competition is a price taker rather than a price maker since the price is determined by the forces of supply and demand on the market. The price at which  demand and supply for a particularly good meet are called the equilibrium price. All businesses in the industry must sell their products at the equilibrium price. This is due to the large number of businesses that are in perfect competition. Therefore, the supply of any firm has no bearing on the price. The same kind of product is produced by all businesses.

Q9: Why is there a small number of businesses in an oligopoly? Explain.
Ans: The main reason an oligopoly has a small number of enterprises is that there are obstacles to new businesses entering the market. Patents, high start-up costs, and ownership of essential raw materials are just a few of the barriers that prevent new businesses from entering the market. Only those who are able to solve these challenges will enter and survive in the market. Due to this, an oligopoly has a small number of enterprises.

Q10: Describe the effects of the following:

• Oligopolistic firm interdependence
• A perfect competition with many sellers. 

Ans: The consequences of the aforementioned characteristics are as follows:
A small number of enormous firms frequently make up oligopolies. Each company is so large that its actions have an effect on the market environment. Competing businesses will consequently be informed of a firm’s market activities and will react appropriately. When one company’s actions have a major effect on the other businesses in the industry, mutual interdependence arises. A market with perfect competition is characterised by a large number of buyers and sellers of a given good, which suggests that neither the buyers nor sellers in the market make purchases or sales that are substantial enough to have a significant impact on the market’s overall sales or purchases. Only a small amount of the market’s demand and supply is owned by each buyer and seller.

Long Answer Type Questions

Q11: How would an increase in the consumers’ income influence the equilibrium price and equilibrium quantity of a common good or service?
Ans: The demand curve for common goods shows a rightward shift as consumers’ income grows. The supply curve remains the same. It is assumed that consumers are willing to spend more for the same amount when their income increases. This increases the cost of the goods. Therefore, it motivates the production of the same good, which increases supply. Accordingly, a rise in demand and its ensuing shift to the right has an impact on producer choices since it causes the supply to increase in reaction to a rise in price. As a result, an increase in demand and the resulting shift to the right have an effect on producer choices because it causes supply to increase in response to a price increase.

Q12: An equilibrium exists in the market for a commodity. Both the supply of commodities and their demand are rising at the same time. Describe how it affects the market price.
Ans: Equilibrium occurs when there is no desire for a circumstance to change. The number of commodities that consumers expect to purchase and the number of things that producers intend to sell are equal when equilibrium is attained. The laws of supply and demand cause the market to reach equilibrium. In three distinct instances, the impact of rising demand and supply on equilibrium price and quantity is examined:

• When demand growth equals supply growth: The rightward shift in the demand curve from D1D1 to D2D2 is equivalent to the rightward shift in the supply curve from S1S1 to S2S2. The new equilibrium is established by E2. The equilibrium price stays constant at OP1 because both supply and demand are increasing in the same ratio, while the equilibrium quantity is rising from Oq1 to Oq2.
• When demand growth surpasses supply growth: The demand curve’s rightward shift from D1D1 to D2D2 is proportionally bigger than the supply curve’s rightward shift from S1S1 to S2S2. The new equilibrium is located at E2, where the equilibrium quantity rises from Oq1 to Oq2, and the price from OP1 to OP2. 
• When supply growth surpasses demand growth: The rightward shift in the demand curve from D1D1 to D2D2 is proportionately smaller than the rightward movement in the supply curve from S1S1 to S2S2. The new equilibrium is found at E2. While the equilibrium quantity grows from Oq1 to Oq2, the equilibrium price lowers from OP1 to OP2.