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प्रश्न
If the prevailing market price is above the equilibrium price, explain its chain of effects.
उत्तर
When the price is above the equilibrium market price of a good (OP), the price ceiling leads to excess of supply. In the diagram, the equilibrium price and quantity are OP and OQ. As the equilibrium price is low for farmers, the government fixes the price floor, i.e. the price level increased from OP to OP1 which leads to a decline in the quantity demand, and therefore, there is excess supply in the market. Here, the competition will increase among the sellers, and hence, the price will come down to the equilibrium point where market demand is equal to market supply.
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संबंधित प्रश्न
Determination of equilibrium price under perfect competition.
Explain the chain effects, if the prevailing market price is below the equilibrium price.
Giving reason, state whether the following statement is true or false.
When equilibrium price of a good is less than its market price, there will be competition among the sellers.
Explain the chain of effects of excess supply of a good on its equilibrium price
Explain the chain of an effect of excess demand of a good on it equilibrium price.
Explain the meaning of excess demand and excess supply with the help of a schedule. Explain their effect on equilibrium price.
Distinguish between Gross domestic product at a market price and Gross domestic product at factor cost.
Define or Explain the General equilibrium.
Define or explain the following concepts (Any THREE):
Effective demand
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?
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?
If the price of a substitute Y of good X increases, what impact does it have on the equilibrium price and quantity of good X?
Define or explain the following concept:
Price discrimination
Define or explain the following concept:
Equilibrium price
State whether the following statement is TRUE and FALSE.
Under perfect competition, price is determined by equilibrium of demand and supply.
Suppose the demand and supply equations of a commodity X in a perfectly competitive market are given by :
Qd = 1700 – 2P
Qs = 1300 + 3P
Calculate the value of equilibrium price and equilibrium quantity of the commodity X.
State whether the following statement is true or false. Give reasons for your answer :
When the equilibrium price is greater than the market price there will be excess supply in the market.
Answer the following question:
The market for a good is in equilibrium. How would an increase in an input price affect the equilibrium price and equilibrium quantity, keeping other factors constant? Explain using a diagram.
The diagram given below shows the change in price of cotton shirts. Which one of the following causes the equilibrium price to move from P1 to P2?
