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Frequently Asked Questions - Forms of Market and Price Determination
FREQUENTLY ASKED QUESTIONS - CBSE BOARD EXAMINATION
One Mark Questions (1M)
- In which market form can a firm not influence the price of the product?
- What is equilibrium price?
- Under which market form is a firm a price taker?
- Define market equilibrium.
- Define Monopoly.
- State one feature of Oligopoly.
Three Marks Questions (3M)
- Why is the number of firms small in an Oligopoly Market? Explain.
- Explain three features of Monopoly.
- How is the equilibrium price of a commodity affected by a decrease in demand?
- Why is the demand curve more elastic under monopolistic competition than under monopoly? Explain.
- Explain the feature 'differentiated product' of a market with monopolistic competition.
- Explain the effect of the 'large number of buyers and sellers' in a perfectly competitive firm.
Four Marks Questions (4 M)
- Distinguish between Monopoly and Perfect Competition.
- Draw the Average Revenue Curve of a firm under a) Monopoly and b) Perfect Competition. Explain the difference in these curves, if any.
- Show with the help of a diagram the effects of an increase in demand for a commodity on its equilibrium price and quantity.
- Explain with the help of a diagram the determination of the price of a commodity under perfect competition.
- Explain the concept of equilibrium price with the help of market demand and supply schedules.
Six Marks Questions (6 M)
- Given the market equilibrium of a good, what are the effects of simultaneous increases in both demand and supply of that good on its equilibrium price and quantity?
- Distinguish between perfect competition and monopoly. Why is the demand curve facing a firm under perfect competition perfectly elastic?
- Explain briefly the three features of perfect competition.
- Explain the chain of effects on demand, supply and price of a commodity caused by a leftward shift of the demand curve. Use a diagram.
- Explain three features of Monopolistic Competition.
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FAQs on Frequently Asked Questions - Forms of Market and Price Determination
| 1. What's the difference between perfect competition and monopoly in price determination? |  |
Ans. Perfect competition has many sellers with no control over price (price-takers), while monopoly involves one seller who sets prices (price-maker). In perfect competition, market forces determine equilibrium price; monopolies use market power to maximise profits by restricting output and raising prices above marginal cost.
| 2. How do I know if a market is in equilibrium and why does it matter for my exam? | |
Ans. Market equilibrium occurs when quantity demanded equals quantity supplied, setting the market-clearing price with no tendency to change. Understanding equilibrium is crucial because exam questions frequently test how shifts in supply and demand curves alter equilibrium price and quantity, and how different market structures maintain or disrupt this balance.
| 3. Why do prices stay different in oligopoly even when firms produce similar products? | |
Ans. Oligopolies feature product differentiation and barriers to entry that allow firms to sustain price variations despite market interdependence. Firms use branding, quality differences, and strategic pricing tactics to avoid direct price competition, unlike perfect competition where homogeneous products force uniform pricing at equilibrium levels.
| 4. What exactly is meant by price mechanism and how does it control markets? | |
Ans. The price mechanism is the system where prices rise or fall based on supply and demand changes, signalling resource allocation without central planning. Higher prices encourage supply increases and demand decreases; lower prices trigger opposite responses, automatically balancing markets and solving the economic problem of scarcity across different market structures.
| 5. Can monopolistic competition really have both profits and competition at the same time? | |
Ans. Yes-monopolistic competition combines low entry barriers (enabling competition) with product differentiation (allowing temporary above-normal profits). Firms earn short-run economic profits through brand loyalty and unique product features, but long-run entry by competitors eliminates excess profits, forcing firms to normal profit equilibrium unlike pure monopoly pricing outcomes.
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