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Suppose the price at which the equilibrium is attained in exercise 5 i...

Suppose the price at which the equilibri | 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 6: . 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 6:

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?

Answer:

In the equilibrium price (Rs 8) in the above figure (of Q-5) is above the minimum of average cost, then it implies that the firm is earing supernormal profits. This situation will attract new firms in the market. As the new firms entre, the industry supply of output will also increases. New firms will continue to enter the industry that will leads the price to fall until it becomes equal to the minimum of the average cost. Thus, the supernormal profits are wiped out and all the firms earn normal profits. When the free entry and exit of firms is allowed, the equilibrium is determined by the intersection of demand curve and the ‘P = min AC’ line.

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.

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.

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?

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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