Class 12 Micro Economics - Chapter Market Equilibrium NCERT Solutions | A shift in demand curve has a larger eff
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.
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)
More Questions From Class 12 Micro Economics - Chapter Market Equilibrium
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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.
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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?
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When do we say that there is an excess demand for a commodity in the market?
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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?
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Explain through a diagram the effect of a rightward shift of both the demand and supply curves on equilibrium price and quantity.
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How are equilibrium price and quantity affected when income of the consumers
a) Increase
b) Decrease
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Explain market equilibrium.
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When do we say that there is an excess supply for a commodity in the market?
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In what respect do the supply and demand curves in the labor market differ from those in the goods market?
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Explain how price is determined in a perfectly competitive market with a fixed number of firms.
Popular Questions of Class 12 Micro Economics
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(b) A horizontal line?
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What do you mean by the budget set of a consumer?
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What is the total product of input?
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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
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What do you mean by the production possibilities of an economy?
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How are the total revenue of a firm, market price, and the quantity sold by the firm related to each other?
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What is budget line?
Recently Viewed Questions of Class 12 Micro Economics
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Suppose a consumer can afford to buy 6 units of good 1 and 8 units of good 2
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respectively. How much is the consumer’s income? - Q:-
What does the average fixed cost curve look like? Why does it look so?
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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.
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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. - Q:-
At the market price of Rs 10, a firm supplies 4 units of output. The market price increases to Rs 30. The price elasticity of the firm’s supply is 1.25. What quantity will the firm supply at the new price?
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