Economics · Class 12 Commerce
Ch 11Market Equilibrium — Class 12 Economics, concept-first.
This chapter draws together the two threads built up in Chapters 2 and 4 -- consumer behaviour and firm behaviour -- for the case where both consumers and firms are price takers.
Key concepts
Hover a concept to preview it and jump to its most relevant Q&A.
Market Demand Aggregation
Imagine you run a small stall selling samosas near a school. You don't care about what one particular student wants — you care about what all the students together want.
Most relevant Q&A
Chapter contents
The NCERT structure, section by section. Open a section to see its questions, then read the concept-first solution.
Introduction
This chapter draws together the two threads built up in Chapters 2 and 4 -- consumer behaviour and firm behaviour -- for the case where both consumers and firms are price takers.
Equilibrium, Excess Demand, Excess Supply
A perfectly competitive market brings together buyers and sellers, each pursuing their own self-interest.
Market Equilibrium: Fixed Number of Firms
In a perfectly competitive market, the number of firms is assumed to be fixed in the short run. This means no new firms can enter the industry, and no existing firms can leave.
Market Equilibrium: Free Entry and Exit
In the previous section, we assumed the number of firms in the market was fixed. That assumption is now dropped.
Applications
Having built the supply–demand framework, we can now put it to work. A useful application is to study government intervention in the form of price control.
Price Ceiling
A price ceiling is a legal maximum price that the government allows sellers to charge for a particular good or service.
Price Floor
Governments sometimes decide that the market price for a particular good or service is too low — that allowing it to fall below a certain level would be harmful to producers or workers.
Key Concepts
The key terms introduced in this chapter, gathered in one place for quick revision — a compact glossary for this CBSE Class 12 Economics chapter.
Summary
- Market equilibrium in a perfectly competitive market occurs at the price where market demand equals market supply, so that the plans of all buyers and sellers match and the market clears.
Worked Examples
Solved examples, worked out step by step.
+−Show 2 questionsHide questions2 questions
- Example 1Consider a market consisting of identical farms producing the same quality of wheat. Suppose the market demand curve and the market supply c…Free
- Example 2Consider a market for wheat in which the demand curve is given by $q_D = 200 - p$ for $0 \le p \le 200$ and $q_D = 0$ for $p > 200$. Assume…Preview
Exercises
+−Show 25 questionsHide questions25 questions
- Q1Explain market equilibrium.Free
- Q2When do we say there is excess demand for a commodity in the market?Free
- Q3When do we say there is excess supply for a commodity in the market?Free
- Q4What will happen if the price prevailing in the market is (i) above the equilibrium price? (ii) below the equilibrium price?Preview
- Q5Explain how price is determined in a perfectly competitive market with fixed number of firms.Preview
- Q6Suppose the price at which equilibrium is attained in exercise 5 is above the minimum average cost of the firms constituting the market. Now…Preview
- Q7At 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 equil…Preview
- Q8How is the equilibrium number of firms determined in a market where entry and exit is permitted?Preview
- Q9How are equilibrium price and quantity affected when income of the consumers (a) increase? (b) decrease?Preview
- Q10Using 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 s…Preview
- Q11How will a change in price of coffee affect the equilibrium price of tea? Explain the effect on equilibrium quantity also through a diagram.Preview
- Q12How do the equilibrium price and quantity of a commodity change when price of input used in its production changes?Preview
- Q13If the price of a substitute(Y) of good X increases, what impact does it have on the equilibrium price and quantity of good X?Preview
- Q14Compare the effect of shift in demand curve on the equilibrium when the number of firms in the market is fixed with the situation when entry…Preview
- Q15Explain through a diagram the effect of a rightward shift of both the demand and supply curves on equilibrium price and quantity.Preview
- Q16How are the equilibrium price and quantity affected when (a) both demand and supply curves shift in the same direction? (b) demand and suppl…Preview
- Q17In what respect do the supply and demand curves in the labour market differ from those in the goods market?Preview
- Q18How is the optimal amount of labour determined in a perfectly competitive market?Preview
- Q19How is the wage rate determined in a perfectly competitive labour market?Preview
- Q20Can you think of any commodity on which price ceiling is imposed in India? What may be the consequence of price-ceiling?Preview
- Q21A 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 situat…Preview
- Q22Suppose the demand and supply curve of commodity X in a perfectly competitive market are given by: $q_D = 700 - p$; $q_S = 500 + 3p$ for $p…Preview
- Q23Considering the same demand curve as in exercise 22, now let us allow for free entry and exit of the firms producing commodity X. Also assum…Preview
- Q24Suppose the demand and supply curves of salt are given by: $q_D = 1{,}000 - p$; $q_S = 700 + 2p$. (a) Find the equilibrium price and quantit…Preview
- Q25Suppose the market determined rent for apartments is too high for common people to afford. If the government comes forward to help those see…Preview
CBSE Sample Papers
Questions from official CBSE sample papers.