DELHI PUBLIC SCHOOL, JAMMU

CLASS:XI SUB: Economics

SESSION(2025-26)
QUESTION BANK

TOPICS- FORMS OF MARKET AND MARKET EQUILIBRIUM

MCQs on Market Equilibrium

1. Market equilibrium occurs when:

(a) Supply exceeds demand
(b) Demand exceeds supply
(c) Demand equals supply
(d) Prices are regulated
Answer: (c)

2. The intersection of the demand and supply curves determines:

(a) Market price only
(b) Market quantity only
(c) Both market price and quantity
(d) Neither market price nor quantity
Answer: (c)

3. When demand increases with no change in supply, the equilibrium price will:
(a) Increase
(b) Decrease
(c) Remain the same
(d) Become zero
Answer: (a)

4. If a price ceiling is set below the equilibrium price, it will lead to:
(a)Excess supply
(b) Excess demand
(c) Market clearing price
(d) No change in price or quantity
Answer: (b)

5. In a perfectly competitive market, a firm is:

(a) Price maker
(b) Price taker
(c) Price controller
(d) Price setter
Answer: (b)
Explanation: Market equilibrium is a fundamental concept in economics where the quantity of goods
demanded equals the quantity supplied, resulting in a stable price and quantity. Understanding the
factors that shift these curves (demand and supply) and their impact on equilibrium is crucial.
6. What is market?
It refers to a mechanism or an arrangement that facilitates the sale and purchase of goods.
This arrangement could simply be through telephonic communication or even through
electronic mail.
Forms of Market Depending on the degree of competition or number of firms in the market
(engaged in the sale of a particular commodity), a market is often described as one of the
following forms: (i) perfect competition (ii) monopoly, (iii) monopolistic competition, and
(iv) oligopoly
7. Why firm is a price taker under perfect competition?

A Firm under Perfect Competition is a Price Taker, not a Price Maker Under perfect competition,
there is a large number of firms producing homogeneous commodity. An individual firm in such a
market cannot change price of the commodity. Price is determined by the forces of market demand
and market supply. All the firms in the industry sell their output at the given price. It is therefore said
that a firm under perfect competition is a price taker.

8. Explain the implications of large number of buyers and sellers in a perfectly competitive
market.
Ans. A perfectly competitive market is dominated by a very large number of buyers and
sellers of a commodity which means that there is no such buyer or seller in the market
whose purchase or sale is so large as to impact the total sale or purchase in the market. Each
buyer/seller has only a fractional share in the market demand/market supply.
Since, price is determined by the market forces of demand and supply, no individual buyer or
seller has any control on it. Each buyer/seller has to accept the price as it is in the market.

9. State three features of perfect competition.

Ans. Features of perfect competition are as follows:
(i) Very large number of buyers and sellers There are very large number of buyers and sellers
are present in the market as a result of which size of each economic agent is so small as
compared to the market that they cannot influence the price through their individual
actions.
(ii) Homogeneous products These are the products which are identical in quality, shape, size
and colour. So, no producer is in a position to charge a different price of the product it
produces. A uniform price prevails in the market. In a perfectly competitive market,
commodity must be homogeneous (identical). Thus, the buyers find no reason to prefer the
product of one seller to the product of another.
(iii) Freedom of entry and exit Firms under this form of market are free to leave the industry
if they are suffering from loss, on the other hand profits could attracts new firms.
(iv) Perfect knowledge Each economic agent have a perfect knowledge about the market
conditions say the prevailing prices in the market etc.

10. Determination of Market Equilibrium under Perfectly Competitive Market

1. Market equilibrium refers to that point which has come to be established under a
given condition of demand and supply and has a tendency to stick to that level, i.e. where
Demand = Supply.
2. If due to some disturbance we divert from our position the economic forces will work in
such a manner that it could be driven back to its original position, i.e., where Demand =
Supply. In short it is the position of rest.
11. Simple Applications Of Tools Of Demand And Supply

Price Ceiling (Maximum Price Ceiling)

When the government imposes upper limit on the price (maximum price) of a good or service which
is lower than equilibrium price is called price ceiling.

Price ceiling is generally imposed on necessary items like wheat, rice, kerosene etc.
It can be explained with the help of given diagram:

(a) In the given diagram, DD is the market demand curve and SS is the market supply curve of Wheat.
(b) Suppose, equilibrium price OP is very high for many individuals and they are unable to afford at
this price.
(c) As wheat is necessary product, government has to intervene and impose price ceiling of Pt, which
is below the equilibrium level.
(d) When the government fixes the price of a commodity at a level lower than the equilibrium price
(say it fixes the price at OP1, there would be a shortage of the commodity in the market. Because at
this price demand exceeds supply. Quantity demanded is P1B, while quantity supplied is only P1A.
There is, thus, a shortage of AB quantity at this price (i.e., OP1). In free market, this excess demand of
AB would have raised the price to the equilibrium level of OP. But, under government price-control
consumers’ demand would remain unsatisfied.
(e) Though the intension of the government was to help the consumers, it would end up creating
shortage of wheat.
(f) To meet this excess demand, government may use Rationing system.
(g) Under rationing system, a certain part of demand of the consumers is met at a price lower than
the equilibrium price. Under this system, consumers are given ration coupons/ Cards to buy an
essential commodities at a price lower than the equilibrium price from Fair price/Ration Shop.
(h) Rationing system can create the problem of black market, under which the commodity is bought
and sold at a price higher than the maximum price fixed by the government.
Price Floor (Minimum Price Ceiling)
1. When the government imposes lower limit on the price (minimum price) that may be charged for
a good or service which is higher than equilibrium price is called price floor.
2. Price Floor is generally imposed on agricultural price support programmes and the
minimum wage legislation.
(a) Agricultural price support programmes: Through an agricultural price support programme, the
government imposes a lower limit on the purchase price for some of the agricultural goods and the
floor is normally set at a level higher than the market—determined price for these good.
(b) Minimum wage legislation: Through the minimum wage legislation, the government ensures that
the wage rate of the labourers does not fall below a particular level and here again the minimum
wage rate is set above the equilibrium wage rate.
3. It can be explained with the help of given diagram:

(a) In the given diagram, DD is the market demand curve and SS is the market supply curve of Wheat.
(b) Suppose, equilibrium price OP is not so profitable for farmers, who have suppose just faced
Drought.

(c) To help farmers government must intervene and impose price floor of P1; which is above than
equilibrium price.
(d) Since, the price P1 is above the equilibrium price P1 the quantity supplied P1B exceeds the quantity
Quantity Demanded and demanded P1A. There is excess supply. Supplied of Wheat
(e) In case of excess supply, farmers of these commodities need not sell at prices lower than the
minimum price fixed by the government.
(f) The surplus quantity will be purchased by the government. If the government does not procure
the excess supply, competition among its sellers would bring down the price to the level of
equilibrium price.