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Market Equilibrium
A shift in demand curve has a larger effect on price and smaller effec...

A shift in demand curve has a larger eff | Class 12 Micro Economics Chapter Market Equilibrium, Market Equilibrium NCERT Solutions

Welcome to the NCERT Solutions for Class 12 Micro Economics - Chapter Market Equilibrium. This page offers a step-by-step solution to the specific question from Exercise 1, Question 21: . With detailed answers and explanations for each chapter, students can strengthen their understanding and prepare confidently for exams. Ideal for CBSE and other board students, this resource will simplify your study experience.

Question 21:

A shift in demand curve has a larger effect on price and smaller effect on quantity when the number of firms is fixed compared to the situation when free entry and exits is permitted. Explain.

Answer:

The above figure depicts both the cases when the number of firms is fixed (in short run) and when the number of firms is not fixed (in long run). P = min AC represents the long run price line; D1D1 and D2D2 represents the demand in the short run and the long run respectively. The point E1 represents the initial equilibrium, where the demand and the supply intersect each other. Let us suppose that the demand curve shifts, assuming that the number of firms is fixed. Now, the new equilibrium will be at Es (as it is short run equilibrium), where the supply curve and the demand curve D2D2 intersect each other. The equilibrium price is Ps and equilibrium quantity is On the other hand,
under the assumption of free entry and exit, an increase in demand will shift the demand curve rightwards to D2D2 . The new equilibrium will be at E2 (as it is a long run equilibrium) with the equilibrium price P = min AC and equilibrium quantity qL Therefore, on comparing both the cases,b we find that when the firms are given the freedom of entry and exit, the equilibrium price remains the same. The price is lower than that of the short run equilibrium price (Ps ); whereas, the long run equilibrium quantity (qL ) is more than that of the short run equilibrium quantity (qs). Similarly, for the leftward demand shift, it can be found that the short run equilibrium price (Ps ) is lower than the long run equilibrium
price and the short run equilibrium quantity (qs ) in less than the long run equilibrium quantity (Lq)

Other Questions of Chapter Market Equilibrium

When do we say that there is an excess supply for a commodity in the market?

Using supply and demand curves show how an increase in the price of shoes affects the price of a pair of socks and the number of pairs of socks bought and sold.

Explain market equilibrium.

In what respect do the supply and demand curves in the labor market differ from those in the goods market?

Explain through a diagram the effect of a rightward shift of both the demand and supply curves on equilibrium price and quantity.

Can you think of any commodity on which the price ceiling is imposed in India? What may be the consequence of price-ceiling?

At what level of price do the firms in a perfectly competitive market supply when free entry and exit is allowed in the market? How is the equilibrium quantity determined in such a market?

Compare the effect of shift in the demand curve on the equilibrium when the number of firms in the market is fixed with the situation when entry-exit is permitted.

Suppose the demand and supply curve of commodity XX in a perfectly competitive market are given by:

qD =700 - p

qs = 500 + 3p for p ≥ 15

= 0 or 0 ≤ p <15

Assume that the market consists of identical firms. Identify the reason behind the market supply of commodity X being zero at any price less than Rs 15. What will be the equilibrium price for this commodity? At equilibrium, what quantity of X will be produced?

Suppose the demand and supply curves of salt are given by:

(a) Find the equilibrium price and quantity.

(b) Now, suppose that the price of an input that used to produce salt has increased so, that the new supply curve is qs = 400 + 3p

How does the equilibrium price and quantity change? Does the change conform to your expectation?

(a) Suppose the government has imposed at ax of Rs 3 per unit of sale on salt. How does it affect the equilibrium rice quantity?

Popular questions of class 12 Micro Economics

The market price of a good changes from Rs 5 to Rs 20. As a result, the quantity supplied by a firm increases by 15 units. The price elasticity of the firm’s supply curve is 0.5. Find the initial and final output levels of the firm.

A firm earns a revenue of Rs 50 when the market price of a good is Rs 10. The market price increases to Rs 15 and the firm now earns a revenue of Rs 150. What is the price elasticity of the firm’s supply curve?

How does the imposition of a unit tax affect the supply curve of a firm?

What is the supply curve of a firm in the long run?

Distinguish between a centrally planned economy and a market economy.

A consumer wants to consume two goods. The prices of the two goods are Rs 4
and Rs 5 respectively. The consumer’s income is Rs 20.
(i) Write down the equation of the budget line.
(ii) How much of good 1 can the consumer consume if she spends her entire
income on that good?
(iii) How much of good 2 can she consume if she spends her entire income on
that good?
(iv) What is the slope of the budget line?
Questions 5, 6 and 7 are related to question 4.

Suppose your friend is indifferent to the bundles (5, 6) and (6, 6). Are the preferences of your friend monotonic?

What is the total product of input?

What is budget line?

Suppose there are 20 consumers for a good and they have identical demand functions:

d(p)=10–3pd(p)=10–3p for any price less than or equal to 103103 and d1(p)=0d1(p)=0 at any price greater than 103.

Recently Viewed Questions of Class 12 Micro Economics

What are the total fixed cost, total variable cost and total cost of a firm? How are they related?

What is the ‘price line’?

What does the price elasticity of supply mean? How do we measure it?

What is a production possibility frontier?

Distinguish between microeconomics and macroeconomics.

What do you understand by normative economic analysis?

What do you understand by positive economic analysis?

What do you mean by the production possibilities of an economy?

What do the short-run marginal cost, average variable cost and short-run average cost curves look like?

How does the budget line change if the price of good 2 decreases by a rupee
but the price of good 1 and the consumer’s income remain unchanged?

Study Tips for Answering NCERT Questions:

NCERT questions are designed to test your understanding of the concepts and theories discussed in the chapter. Here are some tips to help you answer NCERT questions effectively:

Read the question carefully and focus on the core concept being asked.
Reference examples and data from the chapter when answering questions about Market Equilibrium.
Review previous year question papers to get an idea of how such questions may be framed in exams.
Practice answering questions within the time limit to improve your speed and accuracy.
Discuss your answers with your teachers or peers to get feedback and improve your understanding.

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