Class 11 Economics Long Answer Questions - Forms of Market and Price Determination

LONG ANSWER QUESTIONS (6 MARKS)

Q. Equilibrium price may or may not change with shifts in both demand and supply curve. Comment.

Ans:- There can be 3 situations of a simultaneous right wards shift of supply curves and demand curves.

When demand increases more than supply price and quantity both will increase

When supply increases more than demand price falls from OP to OP1 and quantity demand increases from OM to OM1. Decrease in price is less than increase in quantity. i) When demand and supply increases equally then equilibrium price remain same.

When increase in demand is equal to increase in supply price remains unchanged at OP. Quantity exchanged increases from OQ to OQ₁.

Q. Distinguish between collusive and non-collusive oligopoly. Explain the following features of oligopoly.

a) Few firms.

b) Non-price competition.

Ans:- Collusive oligopoly is one in which the firm cooperate with each other in deciding price and output.

Non collusive oligopoly is one in which firms compete with each other.

Few firms: There are few sellers of the commodity and each seller sells a substantial portion of the output of the industry. The number of firm is so small that each seller knows that he can influence the price by his own action and that he can provoke rival firms to react.

Non price competition: The firms are afraid of competition through lowering the price because it may start price war. Therefore they complete through the non price factors like advertising, after sales service etc.

Q. With the help of demand and supply schedule explain the meaning of excess demand and its effects on price of a commodity.

Ans:- 

The above schedule shows market demand and market supply of the commodity at different prices. At the price of 7 and 6 the market demand is greater than market supply. This is the situation of excess demand. There will be competition among the buyers resulting in a rise in price. Rise in price will result in fall in market demand and rise in market supply. This reduces the excess demand. These changes continue till the price rises to Rs. 8 at which excess demand is zero. The excess demand results in a rise in price of the commodity.

Q. Market for a good is in equilibrium. There is increase in demand for the goods. Explain the chain effect of this change.

Ans. 

• Increase in demand shift the demand curve from D to D₁ to right leading to excess demand E E₁ at the given price OP.
• There will be competition among buyers leading to rise in price.
• As price rise supply starts rising (along S) demand starts falling.
• These changes continues till D=S at a new equilibrium at E₁
• The quantity rises to OM to OM₁ and price rises OP to OP₁

Q. Distinguish between monopoly and monopolistic competition.

Ans:- i) Under monopoly there is single seller / producer of the commodity. Whereas under monopolistic competition there are large numbers of sellers, so the firm under monopoly has greater influence over price than under monopolistic competition.

ii) There is freedom of entry of new firms under monopolistic competition where as there is no such freedom under monopoly. As a result a monopolist can earn abnormal profit in the long run.

iii) Under monopolistic competition the product is heterogeneous while under monopoly there is no close substitute of the product.

iv) Demand curve in a monopoly market is less elastic than the demand curve under monopolistic competition because under monopoly there is no close substitute of the product.