Important Questions with Solutions of Class 12 Economics Chapter 5 – Market Equilibrium

1) What are the consequences of specific market structures?
i) Explain the interdependence of firms regarding oligopoly.
ii) Massive seller quantity in a perfect competitive market.

Ans – The outcomes of the above specifications can be defined as,

a) Interaction of Firms in Oligopoly: An oligopoly is a market dimension where budding firms manage the entire marketplace. Wherever oligopolies are present, creators can either directly or indirectly influence the outcome by restricting the desired output or price of the product to attain maximum returns. Oligopoly is distinct when a certain industry is dominated and owned by a handful of large firms, which in turn means a unity of decision for consumers in that industry and the competing firms with varying degrees of competition. In this case, firms watch the actions of their rivals and bring mutual dependence. Whenever one firm shifts the focus of its marketing, pricing, output level, or any other strategy, other competing firms adjust to defend their competitive stature.

b) Number of Competitors in Perfect Competition: Similarly in perfect competition, the number of sellers and buyers can prove that no single institution can impact the market price. This situation leads to every seller and every buyer possessing a fraction of the market demand or supply large enough to grant each buyer or seller a chance to change the prevailing conditions in the industry. Hence, the level of overall supply and demand that determines the price.

2) The market for goods remains in equilibrium. But there is a substantial rise in demand & supply of goods. Define its influence on the overall market price!

Ans – Whenever there is no need to modify the condition, the equilibrium will be present. Upon reaching the desired equilibrium constant, the total number of goods that the customers plan to purchase will be equivalent to the total number of goods that the manufacturer intends to sell.

Then the market will shift to an equilibrium state since the demand and supply rule will be implied. The subsequent change of increased demand and supply over the equilibrium cost and quantity is defined in 3 different instances. It includes,

i. Proportional Increase in Demand and Supply: With a proportionate increase in demand and supply, the curves of demand and supply shift rightward to the same extent. The results are an increase in equilibrium quantity while the equilibrium price remains the same.

ii. More Increase in Demand than Supply: If demand rises more sharply than supply, the demand curve shifts more rightward than the supply curve. This results in a higher equilibrium price and greater equilibrium quantity because the higher demand pushes prices upward.

iii. Greater Increase in Supply than Demand: Here, the supply has risen more than demand; thus, the supply curve shifted rightward more than the demand curve leading to a fall in the equilibrium price but a rise in quantity. This happens because of a higher supply meeting relatively lower demand.

3) Explain how the increased purchase income of the consumers of normal commodities gets disrupted based on equilibrium price and quantity (Explain the statement using a graphical analysis)

Ans: When there is a significant rise in consumer income, the demand curve for normal products will have a massive shift towards the right. Meanwhile, the supply curve remains unchanged. Once the consumers are ready to pay more for the same quantity when there is a rise in their income, then the product cost will be increased as a result forcing producers to increase their overall supply.

Hence, there is an unexpected increase in demand and a sudden fluctuation in the demand curve over the right influencing manufacturing decisions by adding up the supply due to the cost surge. Ultimately you land at a precarious position where the equilibrium price and equilibrium quantity might increase due to the significant rise in market demand as a direct impact of a higher income rate in the normal commodity.

NCERT Questions for Class 12 Economics Chapter 5 – Market Equilibrium

Production and costs are essential concepts in economics that play a significant role in determining the success of businesses. Understanding how production processes work and how costs are incurred is crucial for making informed business decisions. In NCERT Class 12, you will delve deeper into these concepts and learn about the various factors that influence production and costs.