NCERT Class 12 Economics Chapter 5 Market Equilibrium Extra Questions and Answers
Class 12 Economics Chapter 5 Extra Inside Questions and Answers – Market Equilibrium. Here in this Page Class XII Students can Learn Extra Questions & Answer 5th Chapter Economics fully Inside.
We Provided Here Market Equilibrium Economics Chapter 5 Long Answer Type Question, MCQ Questions & Answer, Short Answer Type Questions (2 or 3 marks), and Very Short answer Type Question (1 marks) Solution.
Class 12 Economics Chapter 5 Inside based Question
Economics Chapter 5 Market Equilibrium Class 12 Inside 5 Marks, 3 marks, 2 Marks & And 1 Marks Important Questions and Answers.
1.) what is mean by Equilibrium , Excess demand and Excess supply ?
Ans -An equilibrium is defined as a situation where the plans of allconsumersand firms in the market match and the market clears.In equilibrium, the aggregate quantity that all firms wish to sellequals the quantity that all theconsumers in the market wish tobuy in other words, market supply equals market demand. Theprice at which equilibrium is reached is called equilibrium priceand the quantity bought and sold at this price is called equilibriumquantity. If at a price, market supply is greater than market demand, we say thatthere is an excess supply in the market at that price and if market demand exceeds market supply at a price, it is said that excess demand exists in themarket at that price.
2.) what is mean by wage rate , marginal product , marginal revenue and Marginal.
Revenue Product in labour market ? And – The firm being a profit maximiser will always employ labour uptothe point where the extra cost they incurs for employing the last unit oflabour is equal to the additional benefit they earns from that unit. Theextra cost of hiring one more unit of labour is the wage rate (w). Theextra output produced by one more unit of labour is its marginal product(MPL) and by selling each extra unit of output, the additional earning ofthe firm is the marginal revenue (MR) they gets from that unit. . Therefore,for each extra unit of labour, they gets an additional benefit equal tomarginal revenue times marginal product which is called MarginalRevenue Product of Labour (MRPL).
3.) What is the implication of the free entry and exit assumption?
Ans – This assumptionimplies that in equilibrium no firm earns supernormal profit or incurs loss byremaining in production; in other words, the equilibrium price will be equal tothe minimum average cost of the firms.
4.) With free entry andexit, each firm will always earn normal profit atthe prevailing market price Explain.
Ans – suppose, at the prevailing market price, each firm is earning supernormal profit. The possibility of earning supernormal profit will attract some new firms. As new firms enter the market supply curves hifts rightward. However, demand remains unchanged. This causes market price to fall. As prices fall, supernormal profits are eventually wiped out. At this point, with all firms in themarket earning normal profit, no more firms will have incentive to enter. Similarly, if the firms are earning less than normal profit at the prevailing price, some firms will exit which will lead to anincrease in price, and with sufficient number offirms, the profits of each firm will increase tothe level of normal profit. At this point, no morefirm will want to leave since they will be earningnormal profit here. Thus, with free entry andexit, each firm will always earn normal profit atthe prevailing market price
5.) why market price is equal to to minimum average cost with free entry andexit of the firm’s ?
Ans – The firms will earn supernormal profit so long as the price is greater than the minimum average cost and at prices less than minimum average cost, they will earn less than normal profit. Therefore, at prices greater than the minimum average cost, new firms will enter, and at prices below minimum average cost, existing firms will start exiting. At the price level equal to the minimum average cost of the firms, each firm will earn normal profit so that no new firm will be attracted to enter the market. Also the existing firms will not leave the market since they are not incurring any loss by producing at this point. So, this price will prevail in the market. Therefore, free entry and exit of the firms imply that the market price will always be equal to the minimum average cost.
6.) what is mean by price ceiling and price floor ?
Ans – It is not very uncommon to come across instances where government fixes a maximum allowable price for certain goods. The government-imposed upper limit on the price of a good or service is called price ceiling. For certain goods and services, fall in price below a particular level is not desirable and hence the government sets floors or minimum prices for these good and services. The government imposed lower limit on the price that may be charged for a particular good or service is called price floor.
7.) what are the adverse consequences on the consumers due to price ceiling ?
Ans -In general, price ceiling accompanied by rationing of the goods may have the following adverse consequences on the consumers:
(i) Each consumer has to stand in long queues to buy the good from ration shops.
(ii) Since all consumers will not be satisfied by the quantity of the goods that they get from the fair price shop, some of them will be willing to pay higher price for it. This may result in the creation of black market.
For more ⇓
- Theory of consumer behavior Extra Questions
- Production and Costs Extra Questions
- The Theory of the firm under Perfect Competition Extra Questions
For more updates, follow our page ⇒ Net Explanations