Chapter 9 of 12
NCERT Solutions
Market Equilibrium
CBSE · Class 12 · Economics
NCERT Solutions for Market Equilibrium — CBSE Class 12 Economics.
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Exercises
1Explain market equilibrium.Show solution
Market equilibrium is a situation where the plans of all consumers and firms in the market match and the market clears. At equilibrium, the quantity demanded by consumers equals the quantity supplied by firms. The price at which this happens is the equilibrium price, and the corresponding quantity is the equilibrium quantity.
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2When do we say there is excess demand for a commodity in the market?Show solution
There is excess demand when, at a given price, market demand exceeds market supply. In other words, consumers want to buy more than firms are willing to sell at that price.
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3When do we say there is excess supply for a commodity in the market?Show solution
There is excess supply when, at a given price, market supply exceeds market demand. In other words, firms want to sell more than consumers are willing to buy at that price.
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4What will happen if the price prevailing in the market isShow solution
If the prevailing price is:
(i) above the equilibrium price, there will be excess supply. Firms will not be able to sell all they want to sell, so they will tend to lower the price.
(ii) below the equilibrium price, there will be excess demand. Consumers will not be able to get all they want to buy, so the price will tend to rise.
(i) above the equilibrium price, there will be excess supply. Firms will not be able to sell all they want to sell, so they will tend to lower the price.
(ii) below the equilibrium price, there will be excess demand. Consumers will not be able to get all they want to buy, so the price will tend to rise.
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5Explain how price is determined in a perfectly competitive market with fixed number of firms.Show solution
In a perfectly competitive market with a fixed number of firms, price is determined by the interaction of market demand and market supply. The equilibrium is at the point where the demand curve intersects the supply curve.
- If price is above equilibrium, there is excess supply, so price falls.
- If price is below equilibrium, there is excess demand, so price rises.
Thus, the market moves toward the price at which quantity demanded = quantity supplied. That intersection gives the equilibrium price and equilibrium quantity.
- If price is above equilibrium, there is excess supply, so price falls.
- If price is below equilibrium, there is excess demand, so price rises.
Thus, the market moves toward the price at which quantity demanded = quantity supplied. That intersection gives the equilibrium price and equilibrium quantity.
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6Suppose the price at which 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?Show solution
If the equilibrium price found in exercise 5 is above the minimum average cost, firms are earning supernormal profit. With free entry and exit, new firms will enter the market, which increases market supply and pushes the price downward.
This process continues until supernormal profit is wiped out. Therefore, the market price adjusts to the minimum average cost of the firms, i.e. ****.
This process continues until supernormal profit is wiped out. Therefore, the market price adjusts to the minimum average cost of the firms, i.e. ****.
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7At 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 equilibrium quantity determined in such a market?Show solution
When free entry and exit is allowed, firms supply output at a price equal to the minimum average cost. So the market price in equilibrium is **.
The equilibrium quantity** is determined by the market demand at that price. In other words, at the equilibrium price, the quantity consumers want to buy equals the quantity firms collectively supply.
The equilibrium quantity** is determined by the market demand at that price. In other words, at the equilibrium price, the quantity consumers want to buy equals the quantity firms collectively supply.
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8How is the equilibrium number of firms determined in a market where entry and exit is permitted?Show solution
The equilibrium number of firms is determined by dividing the total market equilibrium quantity by the output supplied by one firm at the equilibrium price.
If total equilibrium quantity is and each firm supplies , then
So the number of firms is just the number needed to produce the total market quantity at the equilibrium price.
If total equilibrium quantity is and each firm supplies , then
So the number of firms is just the number needed to produce the total market quantity at the equilibrium price.
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9How are equilibrium price and quantity affected when income of the consumersShow solution
When the income of consumers increases:
- For a normal good, demand increases, so the demand curve shifts rightward. With supply unchanged, both equilibrium price and equilibrium quantity increase.
- For a decrease in income, the reverse happens for a normal good: demand falls, so the demand curve shifts leftward, and both equilibrium price and equilibrium quantity decrease.
For an inferior good, the effect on demand would be opposite, but the chapter’s general discussion here is for a normal good.
- For a normal good, demand increases, so the demand curve shifts rightward. With supply unchanged, both equilibrium price and equilibrium quantity increase.
- For a decrease in income, the reverse happens for a normal good: demand falls, so the demand curve shifts leftward, and both equilibrium price and equilibrium quantity decrease.
For an inferior good, the effect on demand would be opposite, but the chapter’s general discussion here is for a normal good.
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10Using supply and demand curves, show how an increase in the price of shoes affects the price of a pair of socks and the number of pairs of socks bought and sold.Show solution
An increase in the price of shoes changes the demand for socks because shoes and socks are complementary goods. When shoes become more expensive, people buy fewer shoes, so the demand for socks also falls.
Thus:
- the demand curve for socks shifts leftward,
- the equilibrium price of socks falls,
- the equilibrium quantity of socks decreases.
So fewer pairs of socks are bought and sold at a lower price.
Thus:
- the demand curve for socks shifts leftward,
- the equilibrium price of socks falls,
- the equilibrium quantity of socks decreases.
So fewer pairs of socks are bought and sold at a lower price.
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11How will a change in price of coffee affect the equilibrium price of tea? Explain the effect on equilibrium quantity also through a diagram.Show solution
Tea and coffee are typically treated as substitutes. If the price of coffee increases, consumers shift from coffee to tea. So the demand for tea rises.
Therefore:
- the demand curve for tea shifts rightward,
- the equilibrium price of tea increases,
- the equilibrium quantity of tea increases.
Diagrammatically, with the supply curve unchanged, a rightward shift of demand moves the equilibrium to a point with both higher price and higher quantity.
Therefore:
- the demand curve for tea shifts rightward,
- the equilibrium price of tea increases,
- the equilibrium quantity of tea increases.
Diagrammatically, with the supply curve unchanged, a rightward shift of demand moves the equilibrium to a point with both higher price and higher quantity.
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12How do the equilibrium price and quantity of a commodity change when price of input used in its production changes?Show solution
If the price of an input used in production rises, the cost of production increases. Firms supply less at each price, so the supply curve shifts leftward.
As a result:
- equilibrium price rises,
- equilibrium quantity falls.
If the input price falls, the supply curve shifts rightward, so price falls and quantity rises.
As a result:
- equilibrium price rises,
- equilibrium quantity falls.
If the input price falls, the supply curve shifts rightward, so price falls and quantity rises.
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13If the price of a substitute(Y) of good X increases, what impact does it have on the equilibrium price and quantity of good X?Show solution
If the price of a substitute good Y increases, consumers switch from Y to good X. So the demand for X increases and its demand curve shifts rightward.
Therefore, the equilibrium price of X rises and the equilibrium quantity of X increases.
Therefore, the equilibrium price of X rises and the equilibrium quantity of X increases.
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14Compare the effect of shift in demand curve on the equilibrium when the number of firms in the market is fixed with the situation when entry-exit is permitted.
15Explain through a diagram the effect of a rightward shift of both the demand and supply curves on equilibrium price and quantity.
16How are the equilibrium price and quantity affected when
17In what respect do the supply and demand curves in the labour market differ from those in the goods market?
18How is the optimal amount of labour determined in a perfectly competitive market?
19How is the wage rate determined in a perfectly competitive labour market?
20Can you think of any commodity on which price ceiling is imposed in India? What may be the consequence of price-ceiling?
21A shift in demand curve has a larger effect on price and smaller effect on quantity when the number of firms is fixed compared to the situation when free entry and exit is permitted. Explain.
22Suppose the demand and supply curve of commodity X in a perfectly competitive market are given by:
23Considering the same demand curve as in exercise 22, now let us allow for free entry and exit of the firms producing commodity X. Also assume the market consists of identical firms producing commodity X. Let the supply curve of a single firm be explained as
24Suppose the demand and supply curves of salt are given by:
25Suppose the market determined rent for apartments is too high for common people to afford. If the government comes forward to help those seeking apartments on rent by imposing control on rent, what impact will it have on the market for apartments?
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Ask a Doubt FreeFrequently Asked Questions
What are the important topics in Market Equilibrium for CBSE Class 12 Economics?
Market Equilibrium covers several key topics that are frequently asked in CBSE Class 12 board exams. Focus on the core concepts listed on this page and practise related questions to build confidence.
How to score full marks in Market Equilibrium — CBSE Class 12 Economics?
Understand the core concepts first, then work through the 30 practice questions available for this chapter. Revise formulas and definitions regularly, and use flashcards for quick recall before the exam.
Where can I get free NCERT Solutions for Market Equilibrium Class 12 Economics?
This page has free step-by-step NCERT Solutions for every exercise question in Market Equilibrium (CBSE Class 12 Economics) — written the way examiners award marks: given, formula, working, answer.
Sources & Official References
- NCERT Official — ncert.nic.in
- CBSE Academic — cbseacademic.nic.in
- CBSE Official — cbse.gov.in
- National Education Policy 2020 — education.gov.in
Content is aligned to the official syllabus. Refer to the board website for the latest curriculum.
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