NCERT Solution Economics Class 12 Chapter 5 Market Equilibrium
NCERT Solution Economics Class 12 Chapter 5 Market Equilibrium all questions and answers. Economics Class 12 5th Chapter Market Equilibrium exercise solution and experts answer. As one of online learning platforms, we (netex.) are excited to offer the NCERT Solution Economics Class 12 Chapter 5. This solution is designed to help students who are looking to brush up on their physics concepts on Chapter 5 Market Equilibrium.
1.) Explain market equilibrium
Ans – An equilibrium is defined as a situation where the plans of allconsumersand firms in the market match and the market clears.In equilibrium, theaggregate quantity that all firms wish to sellequals the quantity that all theconsumers in the market wish tobuy; in other words, market supply equalsmarket demand.
2.) When do we say there is excess demand for a commodity in the market?
Ans -If at a price market demand is greater than market supply , it is said thatexcess demand exists in themarket at that price.
3.) When do we say there is excess supply for a commodity in the market?
Ans -If at a price, market supply is greater than market demand, we say that there is an excess supply in the market at that price.
4.) What will happen if the price prevailing in the market is (i) above the equilibrium price? (ii) below the equilibrium price?
Ans – Graphically, an equilibrium is a point where the market supplycurve intersects the market demand curve because this is where the market demand equals market supply. Equilibrium denoted by point p*.
i)If the price prevailing in market above the the equilibrium price- If the prevailing price is p2, the market supply (q2) will exceed themarket demand at that price giving rise to excess supply equal to q’2 q2. Some firms will not be then able to sell quantity they want to sell; so, they will lower their price. All other things remaining the same as price falls, quantity demanded rises, quantity supplied falls, and at p*, the firms are able to sell their desired output since market demand equals market supply at that price. Therefore, p* is the equilibrium price and the corresponding quantity q* is theequilibrium quantity.
ii) If the price prevailing below the equilibrium price- if the prevailing price is p1, the market demand is q1 where as the market supply is 1q’. Therefore, there is excess demand in the market equal to 1q’q1. Some consumers who are either unable to obtain the commodity at all or obtain it in insufficient quantity will be willing to pay more than p1. The market price would tend to increase. All other things remaining the same as pricerises, quantity demanded falls and quantity supplied increases. The market moves towards the point where the quantity that the firms want to sell is equal to the quantity that the consumers want to buy. This happens when price is p* , the supply decisions of the firms only match with the demand decisions of the consumers.
5.)) Explain how price is determined in a perfectly competitive market with fixed number of firms.
Ans – For a perfectly competitive market with a fixed number of firms. Here SS denotes the market supply curve and DD denotes the market demand curve for a commodity. The market supply curve SS shows how much of the commodity, firms would wish to supply at different prices, and the demand curve DD tells us how much of the commodity, the consumers would be willing to purchase at different prices. Graphically, an equilibrium is a point where the market supply curve intersects the market demand curve because this is where the market demand equals market supply. This equilibrium point is price for commodity.
8.) How is the equilibrium number of firms determined in a market where entryand exit is permitted ?
Ans – At theprevailing market price, each firm isearning supernormal profit. Thepossibility of earning supernormal profitwill attract some new firms. Asnewfirms enter the market supply curveshifts rightward. However, demandremainsunchanged. This causes market price to fall. Asprices fall, supernormalprofits are eventuallywiped out. At this point, with all firms in themarketearning normal profit, no more firms willhave incentive to enter. Similarly, ifthe firms areearning less than normal profit at the prevailingprice, some firmswill 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 thispoint, no morefirm will want to leave since they will be earningnormal profit here. Thus with free entry and exit each firm will always earn normal profit at the prevailing market price. At this point no any firm entry or exit the market . This is equilibrium number of firms.
9.) How are equilibrium price and quantity affected when income of the consumers
(a) increase?
(b) decrease?
Ans – an increase in income, consumers are ableto spend more money on some goods. The consumerswill spend less on an inferior good with increase inincome whereas for a normalgood, with prices of all commodities and tastesand preferences of the consumersheld constant, we would expect the demandfor the good to increase at each priceas a result of which the market demandcurve will shift rightward. As results the equilibrium price and quantity alsoincrease .If the income of consumer decease consumer not spend more money and therefore the market demand curve will shift leftward and equilibrium price and quantity also decrease.
12.) How do the equilibrium price and quantity of a commodity change when price of input used in its production changes?
Ans – If an increase in the price of an input used in the production of acommodity.This will increase the marginal cost of production of the firmsusing this input.Therefore, at each price, the market supply will be less thanbefore. Hence, thesupply curve shifts leftward. But this increase in input pricehas no impact onthe demand of the consumers since it does not depend onthe input pricesdirectly. Therefore, the demand curve remains unchanged. Asa result,compared to the old equilibrium, now the market price rises andquantityproduced decreases.market equilibrium under the assumption that tastes and preferences of the consumers, prices of the related commodities, incomes of the consumers, technology, size of the market, prices of the inputs used in production, etc remain constant. However, with changes in one or more of these factors either the supply or the demand curve or both may shift, thereby affecting the equilibrium price and quantity.With rightward shift, the equilibrium quantity increases and price decreases whereas with leftward shift,equilibrium quantity decreases and price increases. With increase in input price, the supply curve shifts to the left. Accordingly, equilibrium price increases and equilibrium quantity reduces in the product market. Conversely, when there is decrease in input price, the supply curve shifts to the right, causing decrease in equilibrium price and increase in equilibrium quantity.
13.) If the price of a substitute(Y) of good X increases, what impact does it have onthe equilibrium price and quantity of good X?
Ans – If X and Y both are substitute good. This both good having similar quality. If the price of the Y will be increase consumer not afford to buy and therefore the demand of good X will be increase. Due to the pressure of increase in demand firm will increase there price. Therefore if the increase in price if Y affected the equilibrium price and quantity demand of X and it will be increase.
In case you are missed :- NCERT Solution for Production and Costs
16.) How are the equilibrium price and quantity affected when(a) both demand and supply curves shift in the same direction?(b) demand and supply curves shift in opposite directions?
Ans – The effects of the equilibrium price and quantity as follows.
SHIFT IN DEMAND | SHIFT IN SUPPLY | QUANTITY | PRICE |
LEFTWARD | LEFTWARD | DECREASES | MAY INCREASE , DECREASE OR REMAIN UNCHANGED |
RIGHTWARD | RIGHTWARD | INCREASES | MAY INCREASE , DECREEASE OR REMAIN UNCHANGED |
LEFTWARD | RIGHTWARD | MAY INCREASE , DECREASE OR REMAIN UNCHANGED | DECREASES |
RIGHTWARD | LEFTWARD | MAY INCREASE OR DECREASE OR REMAIN UNCHANGED | INCREASES |
17.) In what respect do the supply and demand curves in the labour market differfrom those in the goods market?
Ans -In case of increase in income the demand and supply curve in the good market is upward sloping but at the time of increase in income the demand and supply curve for labour market is download sloping .
20.) Can you think of any commodity on which price ceiling is imposed in India? What may be the consequence of price-ceiling?
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.
22.) Suppose the demand and supply curve of commodity X in a perfectly competitive market are given by: qD = 700 – p qS = 500 + 3p for p ≥ 15 = 0 for 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?
ANS.
qD = 700 – p qS = 500 + 3p for p ≥ 15 = 0
0 ≤ p < 15 Assume
700-P=500+3P
-P-3P=500-700
-4P=-200
P=200/4
P=50
PRICE =50
Qs=500+3P
=500+3(5)
=500+150
=650
QUANTITY IS 650 UNITS.
23.) Considering the same demand curve as in exercise 22, now let us allow for free entry and exit of the firms producing commodity X. Also assume the market consists of identical firms producing commodity X. Let the supply curve of a single firm be explained as qS f = 8 + 3p for p ≥ 20 = 0 for 0 ≤ p < 20 (a) What is the significance of p = 20? (b) At what price will the market for X be in equilibrium? State the reason for your answer. (c) Calculate the equilibrium quantity and number of firms.
Ans.
qsf=8+3p for p≥200
=0 for 0 ≤ p < 20
qd=700-p
for price between 0 to 20 ,
price 20 the price line is equal to the minimum of LAC
at equilibrium price 20
quantity supplied = qs
= 8+3p
Qs = 68units
Quantity demand qs=8+3p
= 8+3(20)
= 68 units
Quantity demanded= qd =700-p
= 700-20
= 680
Numbers of firm= qd/qsf
N=680/68
N=10 firms
Therefore , the firms in the market 10 and equilibrium quantity in 680 units.
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