Worksheet Solutions: The Theory of the Firm under Perfect Competition - 2 | Economics Class 11 - Commerce PDF Download

Fill in the Blanks

Q1: Market is a situation in which _______ and _______ come into contact for the purchase and sale of goods and services.
Ans: buyers and sellers
The market is where the exchange of goods and services takes place between buyers (consumers) and sellers (producers or suppliers).

Q2: Monopoly market is dominated by a _______ seller who has full control over the price.
Ans: single
In a monopoly, there is only one seller or producer of a particular product, and they have a complete monopoly over that product, allowing them to set the price.

Q3: In perfect competition, firms sell _______ products at a uniform price.
Ans: homogeneous
In perfect competition, all firms sell identical or homogeneous products, and they cannot differentiate their products from one another.

Q4: Equilibrium price is the price at which market demand is equal to _______.
Ans: market supply
Market equilibrium occurs when the quantity demanded equals the quantity supplied, and the price at which this happens is the equilibrium price.

Q5: Price ceiling is imposed on necessary commodities like _______ and _______.
Ans: wheat, rice,
Price ceilings are typically applied to essential or necessary goods to ensure affordability for consumers.

Q6: Price floor is set above the _______ price to prevent it from falling.
Ans: equilibrium
A price floor is a minimum price set by the government, which is typically higher than the equilibrium price, to support producers and prevent prices from dropping too low.

Q7: Mutual interdependence is a characteristic of the _______ market.
Ans: oligopoly
Oligopolistic firms are interdependent because their actions and decisions have a significant impact on each other's profits and market conditions.

Q8: The presence of close substitutes is absent in the _______ market.
Ans: monopoly
In a monopoly, there are no close substitutes for the monopolist's product, as they have exclusive control over its production.

Q9: Market equilibrium signifies equality between _______ and _______ of a commodity.
Ans: quantity demanded and quantity supplied
Market equilibrium is the point where the quantity demanded by consumers matches the quantity supplied by producers.

Q10: Food Availability Decline theory is related to the concept of _______ and _______ analysis.
Ans: demand and supply
The Food Availability Decline theory relates to how a significant reduction in food supply affects the dynamics of supply and demand in a market.

Assertion and Reason Based 

Q1: Assertion: In a perfect competition market, firms are price takers.
Reason: There is no competition in the market.
(a) Both Assertion and Reason are true, and Reason is the correct explanation of the Assertion.
(b) Both Assertion and Reason 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)
In perfect competition, firms are indeed price takers because they have no influence on the market price. However, the reason provided is incorrect. Perfect competition involves intense competition.

Q2: Assertion: Price ceiling results in excess demand.
Reason: It is imposed on luxury goods.
(a) Both Assertion and Reason are true, and Reason is the correct explanation of the Assertion.
(b) Both Assertion and Reason 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: (c)
Price ceilings lead to excess demand, but they are typically imposed on essential goods, not luxury goods.

Q3: Assertion: Price floor is set above the equilibrium price.
Reason: It creates excess supply in the market.
(a) Both Assertion and Reason are true, and Reason is the correct explanation of the Assertion.
(b) Both Assertion and Reason 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)
Price floors are indeed set above equilibrium prices and lead to excess supply, making this assertion and reason accurate.

Q4: Assertion: Monopolistic competition has perfect knowledge.
Reason: Firms sell closely related but differentiated products.
(a) Both Assertion and Reason are true, and Reason is the correct explanation of the Assertion.
(b) Both Assertion and Reason 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: (c)
Monopolistic competition involves product differentiation, but it does not necessarily imply perfect knowledge. Firms have some knowledge about market conditions but not perfect knowledge.

Q5: Assertion: Oligopoly has few dominant firms.
Reason: It has a perfectly elastic demand curve.
(a) Both Assertion and Reason are true, and Reason is the correct explanation of the Assertion.
(b) Both Assertion and Reason 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)
Oligopoly often has a few dominant firms, but it does not have a perfectly elastic demand curve. Oligopolists' actions affect each other's prices, making the demand curve less elastic.

Very Short Answer Type Questions

Q1: Define market equilibrium.
Ans: Market equilibrium is the state where the quantity demanded equals the quantity supplied, determining the market price.

Q2: What is the characteristic of a monopoly market?
Ans: A monopoly market is characterized by a single seller with full control over the price and no close substitutes for the product.

Q3: Explain price discrimination.
Ans: Price discrimination is a strategy where a seller charges different prices to different customers for the same product.

Q4: How does a price ceiling affect the market?
Ans: A price ceiling is a government-imposed maximum price for certain essential goods, often leading to excess demand and shortages.

Q5: Define price floor.
Ans: A price floor is a government-imposed minimum price for goods, set above the equilibrium price to support producers.

Q6: What is the role of market equilibrium in perfect competition?
Ans: In perfect competition, firms are price takers, and market equilibrium ensures stability in prices and quantities.

Q7: Describe a characteristic of monopolistic competition.
Ans: Monopolistic competition features product differentiation, meaning firms offer similar but not identical products.

Q8: What is mutual interdependence in oligopoly?
Ans: Mutual interdependence in an oligopoly means that firms' decisions and actions influence each other's profits and strategies.

Q9: Explain the concept of perfect knowledge.
Ans: Perfect knowledge in economics refers to complete awareness of market conditions, prices, and other relevant information.

Q10: How does a drastic fall in food supply impact prices?
Ans: A drastic fall in food supply, as in the Food Availability Decline theory, drives up prices, making food less affordable for many.

Short Answer Type Questions

Q1: Explain the characteristics of a perfect competition market.
Ans: Characteristics of Perfect Competition Market:

• Large number of buyers and sellers.
• Homogeneous products.
• Free entry and exit of firms.
• Perfect knowledge.
• Firms are price takers.
• Perfect mobility of factors of production.

Q2: Discuss the features of a monopoly market and its implications.
Ans: Monopoly Market Features and Implications:

• Single seller with full price control.
• Lack of close substitutes.
• Barrier to entry.
• Price discrimination.
• Existence of abnormal profit.

Q3: Describe the impact of price ceiling on the market and the measures taken to address the shortage.
Ans: Impact of Price Ceiling on the Market:

• Price ceilings set maximum prices.
• Lead to excess demand and shortages.
• May result in black markets and rationing.

Q4: What is the concept of price floor, and when is it imposed? Provide an example.
Ans: Understanding Price Floor and Its Application:

• Price floors set minimum prices.
• Ensures prices don't fall too low.
• Government support for producers.
• Example: Minimum support price for agricultural commodities.

Q5: Explain the role of market equilibrium in a perfectly competitive market and how it affects prices.
Ans: Role of Market Equilibrium in Perfect Competition:

• Market equilibrium equals demand and supply.
• Ensures stable prices and quantities.
• Firms can't influence prices.
• Helps allocate resources efficiently.

Q6: Compare and contrast monopolistic competition with perfect competition, highlighting their differences.
Ans: Comparison of Monopolistic Competition and Perfect Competition:

• Monopolistic competition features product differentiation.
• Some control over price.
• Perfect competition involves identical products and price-taking firms.

Q7: Discuss the concept of mutual interdependence in an oligopoly market and its implications.
Ans: Mutual Interdependence in Oligopoly:

• Few dominant firms.
• Decisions affect competitors.
• Creates uncertainty in pricing and strategy.

Q8: Explain the Food Availability Decline theory in terms of demand-supply analysis and its consequences.
Ans: Food Availability Decline Theory and Its Consequences:

• A decline in food supply raises market prices.
• Impacts affordability and can lead to famine.
• Highlights the demand-supply relationship in food markets.

Long Answer Type Questions

Q1: Describe the various types of markets and their respective features, with a focus on perfect competition and monopoly markets.
Ans: Types of Markets and Their Features:

• Perfect Competition: Numerous buyers and sellers, homogeneous products, free entry, perfect knowledge.
• Monopoly: Single seller, no close substitutes, barriers to entry, price discrimination, abnormal profit.
• Monopolistic Competition: Many sellers, product differentiation, some price control.
• Oligopoly: Few dominant firms, mutual interdependence, barriers to entry, homogeneous or differentiated products.

Q2: Analyze the impact of government intervention through price ceilings and price floors on the market, providing examples.
Ans: Government Intervention through Price Ceilings and Price Floors:

• Price Ceilings: Government-imposed maximum prices on essential goods.
• Result in excess demand and shortages.
• Examples: Rent control, fuel price ceilings.
• Measures to address shortages: Rationing, black markets.

Q3: Explain the concept of market equilibrium in detail and its significance in ensuring stable prices and quantities in a perfect competition market.
Ans: Market Equilibrium in Perfect Competition:

• Market equilibrium is when demand equals supply.
• In perfect competition, it ensures stable prices and quantities.
• Firms are price takers, leading to efficient resource allocation.
• Impacts on supply or demand can disturb the equilibrium.

Q4: Discuss the potential consequences of a drastic fall in food supply, using the Food Availability Decline theory as a framework.
Ans: Understanding Food Availability Decline Theory:

• A decline in food supply can cause market prices to rise significantly.
• This price increase may lead to many poor people being unable to afford the minimum required for survival.
• As prices rise, demand may outstrip supply, resulting in food scarcity.
• The theory emphasizes the relationship between food supply and market prices, highlighting the critical role of supply shocks in food availability.