TABLA 4. EVALUACIÓN DEL RIESGO DE SESGO DE LOS ESTUDIOS
12. ANÁLISIS Y DISCUSIÓN
QUESTION SET-I
1. A firm is said to be operating under conditions of pure competition when there are many firms,
producing a homogeneous commodity with freedom of entry and exit, independent decision-making. Perfect competition is said to exist, when besides conditions of pure competition, two more conditions are satisfied, viz (i) there is perfect knowledge of the market conditions among buyers and sellers, and (ii) there is perfect mobility of factors of production.
2. Monopoly is a market form with a single seller and many buyers of a commodity.
Monopolistic competition is a form of the market with many buyers and sellers, where differentiated product is sold with a partial control over price.
3. Oligopoly is a form of the market in which there is a large number of buyers, but only a few big sellers of
a commodity.
Duopoly is a form of market in which there are two sellers of a commodity with many buyers.
4. Equilibrium price is the price which corresponds to the equality between market demand and market
supply of a commodity.
Equilibrium quantity is the quantity which corresponds to the equilibrium price in the market.
5. Market refers to the mechanism of sale and purchase of goods and services.
Market equilibrium is a situation of zero excess demand and zero excess supply. Or, it is a situation where: market demand = market supply.
6. Homogeneous product refers to a product of which all units are identical in all respects.
Product differentiation is a situation when different producers in the market try to differentiate their product (with respect to size, weight, packaging, etc.) with a view to attracting the buyers and exercising partial control over price.
7. Profits are said to be normal when: TR = TC or AR = AC.
Profits are said to be extra-normal or abnormal when: TR > TC or AR > AC. Extra-normal or abnormal losses occur when: TR < TC or AR < AC.
8. Price which is equal to average cost is known as break-even price.
Market price is the price that exists in the market at a particular point of time. Normal price is the price that prevails in the long period.
9. Patent rights is the official recognition of the originators of a new product or technology. No one else
can use their technology without obtaining a license.
A cartel is a formal collusive agreement among rival firms in the market under oligopoly. Firms collude to avoid competition.
10. When market demand exceeds market supply of a commodity at a given price it is known as excess
demand.
Excess supply means market supply of a commodity is more than market demand for a commodity at the given price.
11. Economic viability of an industry refers to the situation when demand and supply curves of the industry
meet at some positive level of output.
Non-viability of an industry refers to a situation when demand curve and supply curve do not intersect each other at any positive quantity. In such a situation, supply curve lies above the demand curve.
12. Control price means price of the good is fixed below its equilibrium price with a view to ensuring some
minimum supply of the essential commodities to a targeted group of people.
Support price is fixed by the government above the equilibrium price with a view to ensuring some minimum income to the farmers.
QUESTION SET-II
1. Yes. In case of monopoly, there is single seller and large number of buyers. Under monopolistic
competition, there are large numbers of both buyers and sellers.
2. Yes. Monopolist is a price maker because he is the single seller of a commodity with no close substitutes. 3. Yes. Under perfect competition, there are large number of buyers and sellers of a homogeneous
product. No single seller by changing his supply can influence the price.
4. No. Under perfect competition, an individual firm cannot change the price. But market price can
change owing to changes in demand and supply.
5. Yes. Firm’s demand curve is indeterminate or cannot be drawn under oligopoly because of high degree
of interdependence between the firms.
6. Yes. Because of product differentiation, each firm can decide its price policy independently. So that
each firm has a partial control over price of its product.
7. Yes. A monopolist can charge different prices for the same commodity from different buyers because of
no close substitutes of his product.
8. Yes. Often, higher price is fixed when elasticity of demand is low. Low price is fixed when elasticity of
demand is high.
9. Yes. Under perfect competition, only normal profits prevail in the long run because of freedom of entry
and exit of the firms in the market.
10. Yes. A firm makes only normal profits in the long run under monopolistic competition because of
freedom of entry and exit of the firms in the market.
11. Yes. It is because homogeneous products are sold at a uniform price under perfect competition and
because monopoly product has no close substitutes in the market.
12. Yes. Because price of the product is given to a firm under perfect competition.
13. Yes. Firm’s demand curve under monopolistic competition is more elastic than under monopoly
because of availability of close substitutes under monopolistic competition.
14. No. A firm under monopolistic competition has partial control over the price owing to product
differentiation.
15. Yes. Under perfect competition, equilibrium price is determined at the point of intersection of market
demand and market supply. An individual firm cannot change it.
QUESTION SET-III
1. Yes. A firm under perfect competition gets only a break-even price in the long run. It is a price which
corresponds to normal profits in the long run.
2. Yes. It is due to the freedom of entry and exit feature of the market that normal profits prevail in the
long run under perfect competition and under monopolistic competition.
3. Yes. A perfectly competitive firm makes only normal profits(AR= AC) in the long run which happens
only at the lowest point on the AC curve.
4. Yes. Because there is only a small number of big firms in the market. 5. No. In case of excess demand, market price is less than equilibrium
price. Excess demand will push the market price back to its equilibrium level. i.e., equilibrium price is restored in the economy.
6. Yes. In case of non-viable industry, supply curve is entirely above the
demand curve. These curves do not meet anywhere. See diagram.
Introductory Microeconomics 59 Economics–XII
Y X SUPPLY/DEMAND S S D D O Non-viable industry:
supply curve is above the demand curve
7. Yes. Because market supply may change proportionate to market demand.
8. Yes. Equilibrium price will remain unchanged when supply is perfectly elastic whether demand
increases or decreases. See diagram. Here price remains constant at OP when demand increases to D1D1 and also remains constant at OP when demand decreases to D2D2.
9. Yes. Owing to improvement in technology supply of the good in the market will increase causing a
rightward shift of the supply curve. Accordingly, equilibrium price will decrease.
10. Yes. Because, fearing shortage, demand curve for rice will shift forward, causing a rise in equilibrium
price.
11. Yes. In a situation of support price (which is the minimum price assured to the producers) market price
ought to be equal or greater than the support price.
12. Yes. When import of inputs become expensive, the supply of the commodity reduces and supply curve
shifts to the left. Accordingly, equilibrium price of the commodity tends to rise.
13. Yes. The income effect for an ‘inferior good’ is negative. It implies that for an increase in income of its
buyers, the demand for the good falls. Diagrammatically, demand curve, DD, as shown in the diagram shifts leftward, i.e., from DD to D1D1. The new equilibrium struck at point E1. The equilibrium price
decreases from OP to OP1.
14. Yes. Because supply may rise proportionately greater than the rise in demand. See diagram.
Introductory Microeconomics 60 Economics–XII
X PRICE QUANTITY P D D D2 D2 S S O Y D1 D1 X P R IC E QUANTITY P D D D1 P1 D1 E E1 S S Q Q1 O Y X P R IC E QUANTITY D1 S2 P1 P2 D1 S1 O Y D2 Q D2
15. No. With a substantial cut in production, supply curve shifts to the left and equilibrium price will
increase. See diagram.
QUESTION SET-IV
1. (i) large number of buyers and sellers (ii) homogeneous product
(iii) freedom of entry and exit of firms. 2. (i) single seller and large number of buyers
(ii) no close substitutes.
3. (i) large number of buyers and sellers (ii) product differentiation
(iii) freedom of entry and exit of firms.
4. (i) a few firms
(ii) large number of buyers.
5. is a horizontal straight line parallel to X-axis. 6. monopoly.
7. in the long run. 8. equilibrium price. 9. increases.
10. to the left.
11. (i) not a uniform price
(ii) imperfect knowledge of market condition (iii) imperfect mobility of factors.
12. (i) large number of buyers and sellers (ii) freedom of entry and exit of firms.
13. perfect competition. 14. monopoly.
15. increase.
Introductory Microeconomics 61 Economics–XII
P P1 D Q Q1 O PRICE QUANTITY Y X S1 S S1 S D E
HOTS
1. True. Under perfect competition, demand curve of the firm is a horizontal straight line parallel to
X-axis. It implies the firm will sell the product at the prevailing price which is determined by the industry. The individual firm cannot influence the price.
2. True. As a single seller he can fix whatever price he wishes to fix for his product. But he can sell more
only by lowering the price of his product.
3. True. Firm’s demand curve is indeterminate under oligopoly because there is a high degree of
interdependence between the firms. Price and output policy of one firm has a significant impact on the price and output policy of the rival firms in the market. When one firm lowers its price, the rival firms may also lower the price. And, when one firm raises the price, the rival firms may not do it. Accordingly, it becomes very difficult to estimate change in firm’s sales caused by a change in price. Implying that a precise relationship between price and sales cannot be established. Or, that the firm’s demand curve cannot be drawn.
4. True. In a situation of excess supply, supply is more than demand. Excess supply forces the market
price to slide down to its equilibrium level. In a situation of excess demand, demand is more than supply. Shortage of supply shall push the price to its equilibrium level.
5. True. In a situation of constant demand or perfectly inelastic demand, increase or decrease in supply
causes a full impact on price of the commodity but equilibrium quantity does not change.
6. True. A monopoly firm can make abnormal profits in the long run because of lack of freedom of entry
and exit of firms in the market. Due to freedom of entry and exit of firms under monopolistic competition, a producer cannot earn abnormal profits in the long run.
7. True. Because under perfect competition AR = MR, while under monopoly AR > MR. While
equilibrium in both cases is struck when MR = MC.
Introductory Microeconomics 62 Economics–XII
Y
X P
Firm’s Demand Curve under Perfect Competition
O Q 2 Q1 AR=MR PRICE OUTPUT