Advertisements
Advertisements
Question
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.
Advertisements
Solution
True, when equilibrium price of a good is less than its market price, there will be competition among the sellers. 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.
APPEARS IN
RELATED QUESTIONS
Determination of equilibrium price under perfect competition.
Explain the chain effects, if the prevailing market price is below the equilibrium price.
X and Y are complementary goods. The price of Y falls. Explain the chain of effects of this change in the market of X.
Explain the chain of an effect of excess demand of a good on it equilibrium price.
Distinguish between Gross domestic product at a market price and Gross domestic product at factor cost.
Write explanatory answer.
Define perfect competition and explain price determination under perfect competition.
Define or Explain the General equilibrium.
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?
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.
Fill in the blank with appropriate alternative given below
The price at which demand and supply equate to each other is called _______ price.
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.
