Question 1

Distinguish between:Partial equilibrium and General equilibrium.

Accepted Answer

Partial EquilibriumGeneral Equilibrium(a) Micro economics uses partial equilibrium analysis based on the assumption, other things remaining constant.(a) Macro economics uses general equilibrium. It is not based on any` assumption.(b) Partial equilibrium studies the equilibrium of a consumer, a firm, an industry or a market.(b) It deals with the equilibrium position of the economy as a whole.(c) It deals with one or two variables at a time. So it is a simple method. It is independent.(c) It deals with all the variables of the economic system simultaneously. So it is sophisticated. There is interdependence between variables.(d) Partial Equilibrium is regarded as a worm's eye-view.(d) General Equilibrium is a bird's eye-view.

Question 2

Demand curve slopes upwards from left to right.

Accepted Answer

False. Demand curve slopes downward from left to right because of the law of diminishing marginal utility. According to this law, the utility/satisfaction of the consumer goes on decreasing with every additional consumption of the commodity and hence, the consumer will buy more goods only when the price decreases. Other reasons are income effect, substitution effect, different uses of commodity etc.

Question 3

When a price floor is above the equilibrium price ________________.

Accepted Answer

When the quantity supplied is equal to the quantity demanded it is called the equilibrium point. When the price floor is above the equilibrium price, the quantity supplied will exceed the quantity demanded as will create surplus supply due to higher price and a simultaneous fall in demand.

Question 4

What do you understand by equilibrium price? How do the forces of demand and supply determine the equilibrium price?

Accepted Answer

Equilibrium price is the price at which quantity demanded is equal to quantity supplied. Forces of demand and supply determine the equilibrium price when they are same and graphically the point at which demand and supply intersect is equilibrium point and price is determined.

Question 5

How do the equilibrium price and quantity of a commodity change when price of input used in its production changes?

Accepted Answer

With increase in input price, the supply curve shifts to the left. Accordingly, equilibrium price increases and equilibrium quantity reduces in the product market. Conversely, when there is decrease in input price, the supply curve shifts to the right, causing decrease in equilibrium price and increase in equilibrium quantity.

Question 6

Answer the following question in $20$ sentences.Explain the Market equilibrium with the fixed number of firms with the help of a diagram.

Accepted Answer

The equilibrium price and quantity are determined&#10;at the intersection of the market demand and&#10;market supply curves when there is fixed number&#10;of firms. Figure above illustrates equilibrium for a perfectly&#10;competitive market with a fixed number of firms.&#10;Here SS denotes the market supply curve and DD&#10;denotes the market demand curve for a commodity.&#10;The market supply curve SS shows how much of the&#10;commodity firms would wish to supply at different&#10;prices, and the demand curve DD tells us how much&#10;of the commodity, the consumers would be willing&#10;to purchase at different prices. Graphically, an&#10;equilibrium is a point where the market supply curve&#10;intersects the market demand curve because this is&#10;where the market demand equals market supply. At&#10;any other point, either there is excess supply or there&#10;is excess demand. if the prevailing price is p1, the&#10;market demand is q1 whereas the market supply is&#10;q1&#8217; . Therefore, there is excess demand in the market&#10;equal to q1&#8217; q1. Some consumers who are either&#10;unable to obtain the commodity at all or obtain it in&#10;insufficient quantity will be willing to pay more than&#10;p1. The market price would tend to increase. All other&#10;things remaining the same as price rises, quantity&#10;demanded falls and quantity supplied increases. The&#10;market moves towards the point where the quantity&#10;that the firms want to sell is equal to the quantity&#10;that the consumers want to buy. This happens when&#10;price is p* , the supply decisions of the firms only&#10;match with the demand decisions of the consumers.&#10;Similarly, if the prevailing price is p2, the market&#10;supply (q2) will exceed the market demand ( q &#8216;2 ) at&#10;that price giving rise to excess supply equal to q2 &#8216; q2.&#10;Some firms will not be then able to sell quantity they&#10;want to sell; so, they will lower their price. All other&#10;things remaining the same as price falls, quantity&#10;demanded rises, quantity supplied falls, and at p*, the firms are able to sell their desired output&#10;since market demand equals market supply at that&#10;price. Therefore, p* is the equilibrium price and&#10;the corresponding quantity q* is the equilibrium quantity.

Question 7

Monopolist is price maker.

Accepted Answer

True. A monopoly is a price maker. In monopolist type of market there are no competitors. Having no competitors and no close substitutes enables the monopolist to influence the price in the market and hence is called as the price maker.

Question 8

Explain briefly the concept of equilibrium.

Accepted Answer

Equilibrium is a state of balance between market demand and market supply. Graphically its a situation where the demand and supply curve intersect. When the market is in equilibrium there are no shortages, the price clears the market and optimum utilisation of resources takes place. The quantity and price at equilibrium is known as equilibrium quantity(Q) and equilibrium price(P).

Question 9

Explain the impact of increase in the number of consumers on market equilibrium.

Accepted Answer

When there is an increase in number of consumers then there will be an increase in demand and the demand curve will shift towards the right thereby increasing the quantity demanded and price of the product.

Question 10

How are equilibrium price and quantity affected when income of the consumers increase and  decrease?

Accepted Answer

In case of normal goods income effect is positive which means with increase in income demand tends to rise whereas with decrease in income demand tends to fall. But, in case of inferior goods the income effect is negative with an increase in income the demand for inferior goods will reduce and vice versa.

Quick Summary With Stories

Excess Demand and Deficient Demand

Distinguish between:
Partial equilibrium and General equilibrium.

Demand curve slopes upwards from left to right.

When a price floor is above the equilibrium price ________________.

What do you understand by equilibrium price? How do the forces of demand and supply determine the equilibrium price?

How do the equilibrium price and quantity of a commodity change when price of input used in its production changes?

Answer the following question in $20$ sentences.
Explain the Market equilibrium with the fixed number of firms with the help of a diagram.

Monopolist is price maker.

Explain briefly the concept of equilibrium.

Explain the impact of increase in the number of consumers on market equilibrium.

How are equilibrium price and quantity affected when income of the consumers increase and decrease?

Quick Summary With Stories

Excess Demand and Deficient Demand

Distinguish between:Partial equilibrium and General equilibrium.

Demand curve slopes upwards from left to right.

When a price floor is above the equilibrium price ________________.

What do you understand by equilibrium price? How do the forces of demand and supply determine the equilibrium price?

How do the equilibrium price and quantity of a commodity change when price of input used in its production changes?

Answer the following question in 20 sentences. Explain the Market equilibrium with the fixed number of firms with the help of a diagram.

Monopolist is price maker.

Explain briefly the concept of equilibrium.

Explain the impact of increase in the number of consumers on market equilibrium.

How are equilibrium price and quantity affected when income of the consumers increase and decrease?

Distinguish between:
Partial equilibrium and General equilibrium.

Answer the following question in $20$ sentences.
Explain the Market equilibrium with the fixed number of firms with the help of a diagram.