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.
The above figure depicts the cases when the number of firms is fixed (in the short run) and when the number of firms is not fixed (in the long run). P = min AC represents the long run price line D1D1 and D2D2 represent the demands in the short run and the long run. The point E1 represents the initial equilibrium where the demand curve and the supply curve intersect each other. Now let us suppose that the demand curve shifts under the assumption that the number of firms are fixed thus the new equilibrium will be at Es (in the short run) where the supply curve S1S1 and the new demand curve D2D2 intersect each other. The equilibrium quantity is Ps and
equilibrium quantity is qs. Now let us analyse the situation under the assumption of free entry and exit. The increase in demand will shift the demand curve rightwards to D2D2. The new equilibrium will be at E2. It is the long run equilibrium with equilibrium price (P) = min AC and equilibrium quantity qL. Therefore on comparing both the cases we find that when the firms are given the freedom of entry and exit the equilibrium price remains same and the price (Ps) wheares the long run equilibrium price (Ps) is less than the long run equilibrium price and the short run equilibrium quantity (qs) is less than the long run equilibrium quantity qL.
How will a change in the price of coffee affect the equilibrium price of tea? Explain the effect on equilibrium quantity also through a diagram.
When do we say that there is an excess demand for a commodity in the market?
When do we say that there is an excess supply for a commodity in the market?
Suppose the price at which the equilibrium is attained in exercise 5 is above the minimum average cost of the firms constituting the market. Now if we allow for free entry and exit of firms, how will the market price adjust to it?
Explain through a diagram the effect of a rightward shift of both the demand and supply curves on equilibrium price and quantity.
Suppose the market determined rent for apartments is too high for common people to afford. If the government comes forward to help those seeking apartments on rent by imposing control on rent, what impact will it have on the market for apartments?
Explain how price is determined in a perfectly competitive market with a fixed number of firms.
Explain market equilibrium.
In what respect do the supply and demand curves in the labor market differ from those in the goods market?
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?
Explain the concept of a production function
What would be the shape of the demand curve so that the total revenue curve is?
(a) A positively sloped straight line passing through the origin?
(b) A horizontal line?
Discuss the central problems of an economy.
What are the characteristics of a perfectly competitive market?
What do you mean by the budget set of a consumer?
What is the total product of input?
From the schedule provided below calculate the total revenue, demand curve and the price elasticity of demand:
Quantity |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
Marginal Revenue |
10 |
6 |
2 |
2 |
2 |
0 |
0 |
0 |
- |
What do you mean by the production possibilities of an economy?
How are the total revenue of a firm, market price, and the quantity sold by the firm related to each other?
What is budget line?
What is the total product of input?
Will a profit-maximising firm in a competitive market ever produce a positive level of output in the range where the marginal cost is falling? Give an explanation.
What conditions must hold if a profit-maximising firm produces positive output in a competitive market?
What is the supply curve of a firm in the short run?
Suppose a consumer can afford to buy 6 units of good 1 and 8 units of good 2
if she spends her entire income. The prices of the two goods are Rs 6 and Rs 8
respectively. How much is the consumer’s income?
At which point does the SMC curve intersect the SAC curve? Give a reason in support of your answer.
Will a profit-maximising firm in a competitive market produce a positive level of output in the long run if the market price is less than the minimum of AC? Give an explanation.
What are the total fixed cost, total variable cost and total cost of a firm? How are they related?
List the three different ways in which oligopoly firms may have.
How does an increase in the price of an input affect the supply curve of a firm?