RBSE Solutions Class 12 Economics Chapter 11 Perfect Competition Market

 

RBSE Class 12 Economics Chapter 11 Multiple Choice Questions

 

Question 1. Market for perishable commodities is :
(a) National
(b) International
(c) Local
(d) Regional
Answer: (c) Local
In simple words: Goods that spoil quickly, like fresh fruits or vegetables, are usually sold in local markets because they need to be sold fast and cannot travel long distances.

🎯 Exam Tip: Remember that the nature of the commodity (perishable or durable) directly impacts the typical geographic scope of its market.

 

Question 3. Firms in the long run under perfect competition receive:
(a) Abnormal Profit
(b) Loss
(c) Normal Profit
(d) Zero Profit
Answer: (c) Normal Profit
In simple words: In perfect competition, over a long time, companies only make enough profit to cover all their costs, including the owner's time and money. This is called normal profit.

🎯 Exam Tip: Long-run equilibrium in perfect competition is characterized by firms earning only normal profits, as abnormal profits attract new entrants and losses lead to exits.

 

Question 4. In which type of market number of buyers and seller is innumerable?
(a) Oligopoly
(b) Perfect Competition
(c) Monopolistic Competition
(d) Duopoly
Answer: (b) Perfect Competition
In simple words: In a perfectly competitive market, there are so many buyers and sellers that no single person or company can change the market price on their own.

🎯 Exam Tip: The presence of a very large number of buyers and sellers is a defining characteristic of perfect competition, leading to firms being price-takers.

 

Question 5. Market for Rajasthani chunnari will be called -
(a) International
(b) National
(c) Regional
(d) Local
Answer: (c) Regional
In simple words: A Rajasthani chunnari is a specific cultural item from a region, so its primary market would be within that region.

🎯 Exam Tip: Products unique to a specific geographic or cultural area often find their primary market in that region before expanding further.

 

RBSE Class 12 Economics Chapter 11 Very Short Answer Type Questions

 

Question 1. Define the word 'market'.
Answer: The term market means where buyers and sellers meet to exchange goods or services. It is not necessarily a physical place, but refers to the interaction and competition among those buying and selling a particular item.
In simple words: A market is where people buy and sell things, even if it's not a specific building.

🎯 Exam Tip: Emphasize that a market is about the interaction of buyers and sellers, not just a physical location, and involves specific commodities.

 

Question 3. What do you mean by Online Market?
Answer: An online market is a way of buying and selling goods or services over the internet using a web browser. In this type of market, buyers and sellers do not meet face-to-face. Popular examples include Amazon and Flipkart, where transactions happen digitally.
In simple words: An online market lets people buy and sell things using the internet without meeting each other, like on Amazon.

🎯 Exam Tip: Highlight that online markets are characterized by electronic transactions and a lack of direct physical contact between buyers and sellers.

 

Question 4. Write down any two characteristics of perfect competition market.
Answer:
(a) There are many buyers and sellers, so each buyer's demand and each seller's supply is a tiny part of the total market.
(b) New companies can easily join the market, and existing companies can leave without problems.
In simple words: Many buyers and sellers are present, and businesses can freely enter or exit the market.

🎯 Exam Tip: Focus on the large number of participants and the absence of entry/exit barriers as key features of perfect competition.

 

RBSE Class 12 Economics Chapter 11 Short Answer Type Questions

 

Question 1. Differentiate betweens retail and wholesale market.
Answer: Here are the differences between retail and wholesale markets:
1. In a wholesale market, goods are mainly sold to retailers who then sell them to customers.
2. Wholesale prices are usually lower than retail prices. This is because retailers add many costs like employee salaries, shop rent, taxes, and advertising to the price.
3. Wholesalers directly connect with manufacturers and buy products from them. Retailers, however, typically do not have direct contact with manufacturers.
In simple words: Wholesalers sell large amounts to other businesses (retailers) at lower prices. Retailers sell small amounts directly to customers at higher prices.

🎯 Exam Tip: Clearly state the primary customers (retailers vs. consumers), pricing structure, and relationship with manufacturers for both market types.

 

Question 2. What do you mean by very short period market? Explain with the help of figure.
Answer: In a very short period market, also known as the market period, the time available is so limited that businesses cannot change their supply. This means the supply of goods is fixed, and only demand can influence the price. Because production cannot be adjusted quickly, perishable goods like milk, fruits, and vegetables are typically sold in this market.

In the figure, the X-axis shows quantity and the Y-axis shows price. The supply curve (SQ) is a straight vertical line, indicating fixed supply. The initial demand curve (DD) crosses SQ at point E, setting the price at P. If demand increases, the demand curve shifts to \( D_1D_1 \), leading to a higher price \( P_1 \). If demand decreases, the curve shifts to \( D_2D_2 \), leading to a lower price \( P_2 \). This shows that in a very short period, demand alone determines the price, as supply cannot change.
In simple words: A very short period market means there's not enough time to make more or less of a product. So, the supply stays fixed, and only how much people want to buy (demand) changes the price. The drawing shows how a fixed supply line meets different demand lines to set prices.

🎯 Exam Tip: For very short period markets, emphasize fixed supply and demand as the sole price determinant. Illustrate with an example of perishable goods.

 

Question 3. Classify the market according to time period.
Answer: Markets can be grouped into four categories based on the time period:
(i) Very Short Period Market: In this market, there's not enough time to increase or decrease sales. Supply is completely fixed, so only demand changes the price. This type of market usually deals with perishable goods like milk, fruits, and vegetables.
(ii) Short Period Market: The time here is brief, but producers can increase supply by using their current resources more fully, changing only the factors that are easy to adjust (variable factors).
(iii) Long Run Market: This period is long enough to adjust production based on demand. Both fixed and variable factors can be changed, allowing adjustments to both supply and demand.
(iv) Very Long Period Market: This is a very long period where big changes happen in both demand and supply due to new products, new technology, and fresh ideas. Consumer tastes and population structure also change significantly.
In simple words: Markets are classified by time: very short (fixed supply, only demand changes price), short (some supply adjustment possible), long (full supply adjustment possible), and very long (big changes in both supply and demand due to new things).

🎯 Exam Tip: Clearly define each time period by its flexibility in adjusting supply and the types of factors that can be changed (fixed vs. variable).

 

RBSE Class 12 Economics Chapter 11 Long Answer Type Questions

 

Question 1. Describe the main characteristics of perfectly competitive market.
Answer: A perfectly competitive market has the following main features:
(a) Large number of buyers and sellers: There are so many buyers and sellers that no single one can affect the market price. Each buyer and seller is too small to make a difference, so they must accept the price set by the market.
(b) Homogeneous product: All products sold by different firms in the industry are identical. Buyers cannot tell the difference between goods from one seller to another. This means no firm can charge a higher price than others.
(c) Perfect mobility of factors of production: Resources like labor and capital can move freely between different firms and industries. Workers can easily switch jobs if better opportunities arise, and capital can be reallocated without barriers.
(d) Free entry and free exit: There are no legal or market barriers preventing new firms from entering the industry or existing firms from leaving. This ensures that firms only earn normal profits in the long run.
(e) Perfect knowledge: Both buyers and sellers have complete and accurate information about market conditions, including prices and product quality. This ensures that a single price prevails in the market.
(f) Transportation Cost is Zero: Buyers and sellers are considered to be so close that there are no costs involved in moving goods from one place to another. This means product prices remain constant due to the absence of transport expenses.
(g) Firms are price acceptors: In a perfectly competitive market, individual firms do not set the price of their product. They must accept the price determined by the overall market demand and supply.
(h) Cut-throat Competition: Intense competition exists among sellers in this market. This fierce rivalry ensures that prices remain at the lowest possible level.
In simple words: A perfect market has many buyers and sellers, all selling the same product. It's easy for new businesses to join or leave, everyone knows all the prices, and there are no transport costs. Businesses simply accept the market price, leading to strong competition.

🎯 Exam Tip: List and briefly explain each characteristic of perfect competition. Remember that these conditions are theoretical and rarely perfectly met in real life.

 

Question 2. Explain the price determination of industry with the help of a suitable figure under perfect competition market.
Answer: In a perfectly competitive market, no single buyer or seller determines the price. Instead, the price of a product is set by the overall market forces of demand and supply for that commodity. This means the industry, not individual firms, decides the equilibrium price. The equilibrium price is where the market demand equals the market supply. Firms then sell their products at this industry-determined price. Essentially, a firm's demand curve is perfectly elastic (horizontal). This is further explained by the following table and figures:

It is clear from the table that the equilibrium price is Rs 3, where both demand and supply are 30 units. If the price falls to Rs 2, demand increases to 40 units while supply decreases to 20 units. This imbalance pushes the price back up to Rs 3. So, Rs 3 is the market's prevailing equilibrium price, and 30 units is the equilibrium quantity.
This concept is further illustrated by the figures below, showing how industry demand and supply determine price, and how an individual firm faces a perfectly elastic demand curve at that price.

In simple words: The price in a perfectly competitive market is set by the whole industry's demand and supply, not by one company. The graphs show how the market equilibrium price is found, and then individual companies must sell at that set price.

🎯 Exam Tip: When explaining price determination, clearly differentiate between the industry (which determines price) and the firm (which accepts price). Use a diagram to illustrate equilibrium.

 

Question 3. Calculate the total revenue and marginal revenue for the following levels:

Answer: According to the formula: Marginal Revenue \( = TR_{n+1} - TR_n \). Total Revenue (TR) is calculated as Number of Units \( \times \) Average Revenue (AR). Marginal Revenue (MR) is the change in TR when one more unit is sold.
In simple words: Total revenue is found by multiplying units sold by average revenue. Marginal revenue is the extra money you get from selling one more unit. When average revenue is constant, total revenue increases steadily, and marginal revenue stays the same as average revenue.

🎯 Exam Tip: Remember that when average revenue (price) is constant, marginal revenue will always be equal to average revenue. Clearly show calculations for each step.

 

Question 4. 'Perfect competition is an imaginary concept.” Explain.
Answer: Perfect competition is an idea, not something truly found in real life. It describes a market where there are many buyers and sellers, everyone knows all the market details, and all products are exactly the same. Prices are uniform, and no single buyer or seller can change them. There are no transport costs, and resources can move freely. If we look at these features, it's clear that such ideal conditions are rarely, if ever, seen in the actual world. While we study it to understand market theory, it's considered an imaginary concept because it's impossible for all its conditions to exist perfectly at the same time.
In simple words: Perfect competition is a theoretical idea of a market with many buyers, sellers, identical products, and perfect information. It's not real because such ideal conditions don't happen in the real world.

🎯 Exam Tip: To explain why perfect competition is imaginary, list its strict conditions and then briefly state why these are difficult to meet in reality.

 

RBSE Class 12 Economics Chapter 11 Other Important Questions - Answers

RBSE Class 12 Economics Chapter 11 Multiple-Choice Questions

 

Question 1. Assume that when price is Rs 20, quantity demanded is 9 units, and when price is Rs 19, quantity demanded is 10 units. Based on this information, what is the marginal revenue resulting from an increase in output from 9 units to 10 units?
(a) Rs 20
(b) Rs 19
(c) Rs 10
(d) Rs 1
Answer: (c) Rs 10
In simple words: When the price drops from Rs 20 to Rs 19 to sell one more unit (from 9 to 10), the total money earned changes. For 9 units, total revenue is \( 9 \times 20 = Rs 180 \). For 10 units, total revenue is \( 10 \times 19 = Rs 190 \). The extra money from selling the 10th unit is \( 190 - 180 = Rs 10 \).

🎯 Exam Tip: To calculate marginal revenue, find the total revenue at each quantity level first, then subtract the previous total revenue from the new one.

 

Question 3. Marginal Revenue is equal to :
(a) The change in price divided by the change in output.
(b) The change in quantity divided by the change in price.
(c) The change in P x Q due to one unit change in output.
(d) Price, but only if the firm is a price determiner
Answer: (c) The change in P x Q due to one unit change in output.
In simple words: Marginal Revenue is simply the extra money a business makes when it sells one more item. It's the change in total revenue (Price multiplied by Quantity) from selling that additional unit.

🎯 Exam Tip: Always remember the definition: Marginal Revenue is the change in total revenue (\( P \times Q \)) from selling an additional unit of output.

 

Question 4. Which of the following is not an essential condition of perfect competition?
(a) Large number of buyers and sellers
(b) Homogenous product
(c) Freedom of entry
(d) Absence of transport cost
Answer: (d) Absence of transport cost
In simple words: While perfectly competitive markets usually assume no transport costs, it's often seen as a simplifying assumption rather than a core "essential" condition like having many buyers, similar products, and easy entry.

🎯 Exam Tip: Focus on the four main conditions of perfect competition: large numbers of buyers/sellers, homogeneous products, free entry/exit, and perfect knowledge. Absence of transport costs is a related simplifying assumption.

 

Question 5. What is the shape of the demand curve faced by a firm under perfect competition?
(a) Horizontal
(b) Vertical
(c) Positively sloped
(d) Negatively sloped
Answer: (a) Horizontal
In simple words: In a perfectly competitive market, a single company can sell any amount of its product at the market price. This means the demand curve for that company is a flat (horizontal) line, showing that the price does not change with the quantity it sells.

🎯 Exam Tip: A horizontal demand curve for a firm in perfect competition signifies that the firm is a price-taker and can sell all its output at the prevailing market price.

 

Question 7. Assume that consumer's income and the number of sellers in the market for good A both decrease. Based upon this information, we can conclude, with certainty, that equilibrium:
(a) Price will increase
(b) Price will decrease.
(c) Quantity will increase
(d) Quantity will decrease
Answer: (d) Quantity will decrease
In simple words: When incomes fall, people buy less (demand decreases). When sellers decrease, less is produced (supply decreases). Both these changes lead to a definite decrease in the total amount sold (equilibrium quantity), though the effect on price might be unclear.

🎯 Exam Tip: Analyze the shifts in both demand and supply curves. When both demand and supply decrease, equilibrium quantity will definitely decrease, while the effect on price is indeterminate unless the magnitudes of the shifts are known.

 

Question 8. Which of the following is not a condition of perfect competition?
(a) A large number of firms.
(b) Perfect mobility of factors.
(c) Informative advertising to ensure that consumers have good information.
(d) Freedom of entry and exit into and out of the market.
Answer: (c) Informative advertising to ensure that consumers have good information.
In simple words: In perfect competition, it's assumed that buyers already have full knowledge, so there's no need for companies to spend money on advertising to inform them.

🎯 Exam Tip: Perfect information is a characteristic of perfect competition, implying no need for advertising. Advertising is more common in imperfectly competitive markets.

 

Question 9. Which of the following is not a characteristic of a perfectly competitive market?
(a) Large number of firms in the industry.
(b) Output of the firms are perfect substitutes for one another.
(c) Firms face downward-sloping demand curves.
(d) Resources are very mobile.
Answer: (c) Firms face downward-sloping demand curves.
In simple words: In perfect competition, individual firms have a flat (horizontal) demand curve because they are price-takers. A downward-sloping demand curve is seen in markets where firms have some power to set prices.

🎯 Exam Tip: Remember that only the entire industry has a downward-sloping demand curve in perfect competition; individual firms face a perfectly elastic (horizontal) demand curve.

 

Question 11. In which form of the market structure is the degree of control over the price of its product by a firm very large ?
(a) Monopoly
(b) Imperfect Competition
(c) Oligopoly
(d) Perfect Competition
Answer: (a) Monopoly
In simple words: In a monopoly, there is only one seller, which gives that company a lot of power to control the price of its product.

🎯 Exam Tip: Monopoly is characterized by a single seller, which grants significant market power and the ability to influence prices.

 

Question 12. Price discrimination will be profitable only if the elasticity of demand in different market in which the total market has been divided is:
(a) Uniform
(b) Different
(c) Less
(d) Zero
Answer: (b) Different
In simple words: A company can charge different prices to different customers for the same product only if those groups of customers react differently to price changes (meaning they have different demand elasticities).

🎯 Exam Tip: Price discrimination requires the ability to segment the market and for each segment to have a different price elasticity of demand.

 

Question 13. The firm in a perfectly competitive market is a price acceptor. This designation as a price acceptor is based on the assumption that:
(a) The firm has some, but not complete, control over its product price.
(b) There are so many buyers and sellers in the market that any individual firm cannot affect the market.
(c) Each firm produces a homogenous product.
(d) There is easy entry into or exit from the market place.
Answer: (b) There are so many buyers and sellers in the market that any individual firm cannot affect the market.
In simple words: A company in perfect competition must take the market price because there are so many other companies and customers that no single one has enough power to change the price.

🎯 Exam Tip: The "price-taker" characteristic in perfect competition directly stems from the presence of a very large number of buyers and sellers, preventing any single entity from influencing the market price.

 

Question 15. In perfect competition in the long run there will be no :
(a) Normal profits
(b) Above-normal profit
(c) Production
(d) Costs
Answer: (b) Above-normal profit
In simple words: Over a long period in perfect competition, businesses can only make a "normal profit" (just enough to stay in business). If they make extra profits, new companies will join, which reduces the price and removes those extra profits.

🎯 Exam Tip: Free entry and exit in the long run ensure that firms in perfect competition earn only normal profits, as above-normal profits attract new entrants, driving prices down.

 

Question 16. An Agricultural goods market depicts the characteristics close to :
(a) Perfect Competition
(b) Oligopoly
(c) Monopoly
(d) Monopolistic Competition
Answer: (a) Perfect Competition
In simple words: Markets for many farm products, like wheat or corn, are similar to perfect competition because there are many farmers selling mostly identical products, and no single farmer can set the price.

🎯 Exam Tip: Agricultural markets often serve as a good real-world example of perfect competition due to the large number of producers and homogeneous products.

 

Question 17. Which of the following markets would most closely satisfy the requirement for a perfectly competitive market ?
(a) Electricity
(b) Cable television
(c) Cola
(d) Milk
Answer: (d) Milk
In simple words: The market for milk is the closest example because many farmers sell similar milk, and no single farm controls the price. Other options like electricity or cola are often controlled by a few big companies or monopolies.

🎯 Exam Tip: When identifying real-world examples of perfect competition, look for industries with many small producers, identical products, and minimal barriers to entry.

 

Question 19. The condition for perfect competition is:
(a) Large number of buyers and sellers, free entry and exit
(b) Homogenous product
(c) Both (a) and (b)
(d) None of the options
Answer: (c) Both (a) and (b)
In simple words: Perfect competition needs many buyers and sellers who can easily join or leave the market, and all the products must be exactly the same.

🎯 Exam Tip: A comprehensive understanding of perfect competition requires knowing all its defining characteristics, including the number of participants, product nature, and market access.

 

Question 20. When the perfectly competitive firm and industry are in long run equilibrium then:
(a) P = MR = SAC = LAC
(b) D = MR = SMC = LMC
(c) P = MR = Lowest point on the LAC curve
(d) All of the options
Answer: (d) All of the options
In simple words: In the long run, for a perfectly competitive market, the price (P) is equal to marginal revenue (MR), short-run average cost (SAC), long-run average cost (LAC), short-run marginal cost (SMC), and long-run marginal cost (LMC). Also, the price equals marginal revenue at the lowest point of the long-run average cost curve.

🎯 Exam Tip: The long-run equilibrium condition for perfect competition is crucial and signifies efficiency: price equals marginal cost, and price equals minimum average cost.

 

RBSE Class 12 Economics Chapter 11 Very Short Answer Type Questions

 

Question 1. What do you mean by local market?
Answer: A local market is where the buyers and sellers of a product are found within a small area, like a village, suburb, or town. For example, markets for perishable goods such as butter, eggs, milk, and vegetables are typically local.
In simple words: A local market is a small area, like a town, where people buy and sell goods, often fresh items.

🎯 Exam Tip: Define a local market by its limited geographical reach and give relevant examples, especially perishable goods.

 

Question 2. What do you mean by regional market?
Answer: A regional market is one where the sale and purchase of a product are limited to a specific region or state. For instance, the market for semi-durable goods like shirts might be regional.
In simple words: A regional market is where products are sold only within a certain area, like one state.

🎯 Exam Tip: Highlight that a regional market extends beyond local but is confined to a particular geographical or administrative region.

 

Question 4. What is international market?
Answer: An international market exists when buyers and sellers of a product are located in different countries around the world. Products traded globally are part of this market.
In simple words: An international market is when products are bought and sold between different countries.

🎯 Exam Tip: Emphasize the global scope of an international market, involving cross-border transactions between buyers and sellers.

 

Question 5. What do you understand by common market?
Answer: A common market is one where various types of products are regularly bought and sold. It is a general market that deals with a wide range of goods. Examples include markets for clothes, utensils, jewelry, and groceries.
In simple words: A common market sells many different kinds of products, like a general store.

🎯 Exam Tip: Define a common market as a general marketplace offering a variety of products, distinguishing it from specialized markets.

 

Question 6. What is special market?
Answer: A special market is dedicated to the sale and purchase of a particular type of product. This market focuses on specific goods, such as a grocery market, a clothes market, or a fruit market.
In simple words: A special market sells only one kind of product, like a market just for clothes.

🎯 Exam Tip: Contrast a special market with a common market by highlighting its focus on a specific product category.

 

Question 7. What is the meaning of retail market?
Answer: A retail market is where products are sold directly to the final consumer in small quantities. This is typically where individuals buy goods for personal use, such as a grocery store in a neighborhood.
In simple words: A retail market sells goods in small amounts directly to people who will use them.

🎯 Exam Tip: Focus on the quantity sold (small) and the target customer (final consumer) to define a retail market.

 

Question 8. What is the meaning of wholesale market?
Answer: A wholesale market is where products are sold in large quantities, usually to retailers or other businesses, rather than directly to individual consumers. Most goods in a wholesale market are bought by retailers who then sell them in smaller amounts.
In simple words: A wholesale market sells products in big amounts to businesses like retailers.

🎯 Exam Tip: Define a wholesale market by the large quantities sold and its primary customers being other businesses (retailers).

 

Question 9. What do you mean by very short period market?
Answer: In a very short period market, the available time is so limited that it's impossible to increase or decrease the sale of a product. This means the supply is completely fixed, and businesses cannot adjust their output at all. Only demand changes the price.
In simple words: A very short period market means you can't change how much you sell because there's too little time. Supply is fixed.

🎯 Exam Tip: Reiterate that in a very short period market, supply is perfectly inelastic (fixed), and market price is solely determined by demand fluctuations.

 

Question 11. What do you understand by long-run market?
Answer: When the time period is long enough to adjust production according to demand, it is considered a long-term situation. Because the time frame is quite extensive, both variable and fixed factors can be changed. Adjusting these factors helps balance both supply and demand.
In simple words: A long-run market means there is enough time to change how much is made and sold, by adjusting everything like machines and workers, to meet what people want to buy.

🎯 Exam Tip: In economics, understanding the difference between short-run and long-run markets is crucial for explaining production and supply adjustments over time.

 

Question 12. What is the meaning of perfect competition market?
Answer: Perfect competition describes a market where there are many buyers and sellers dealing in identical products. In this market, the industry, not individual firms, determines the price based on overall demand and supply.
In simple words: A perfect competition market has many buyers and sellers, all selling the same exact thing, and the price is set by everyone together, not by one single seller.

🎯 Exam Tip: Key terms like "many buyers and sellers," "homogeneous products," and "price determined by industry" are essential for defining perfect competition.

 

Question 13. What is the meaning of homogenous product?
Answer: A homogenous product means that the goods from different firms are exactly alike and cannot be told apart. They are perfect substitutes for each other.
In simple words: A homogenous product is like all pencils of the same brand; they are all identical, so you can easily swap one for another.

🎯 Exam Tip: The concept of homogeneous products is fundamental to perfect competition, implying no firm can charge a higher price due to product differentiation.

 

Question 14. What is the meaning of industry?
Answer: An industry refers to a group of firms that produce a specific type of good.
In simple words: An industry is simply all the companies that make the same kind of product or provide the same service.

🎯 Exam Tip: Distinguish between a "firm" (single producer) and an "industry" (all producers of a specific good or service).

 

Question 15. What do you understand by cut-throat competition?
Answer: When there is very intense competition among different firms, it is called cut-throat competition.
In simple words: Cut-throat competition means businesses are competing very, very hard against each other, often by trying to offer the lowest prices.

🎯 Exam Tip: Cut-throat competition is characterized by aggressive pricing and market strategies, often seen in industries with many competitors.

RBSE Class 12 Economics Chapter 11 Short Answer Type Questions

 

Question 1. What are the four characteristics of perfect competition market?
Answer: The four characteristics of a perfect competition market are:
(a) **Large Number of Firms and Sellers:** In perfect competition, there are many firms and sellers in the industry. No single firm can influence the product's price by changing its output. Each firm accepts the market price and adjusts its production to maximize profits. So, a firm is a price taker and an output adjuster.
(b) **Homogenous Product:** All firms in the industry produce identical or perfectly homogenous products. This means products from various firms are indistinguishable and are perfect substitutes for each other.
(c) **Perfect Knowledge:** Both buyers and sellers have complete knowledge about the market price. Buyers fully know at what price sellers are selling a product. As a result, only one price exists in the market.
In simple words: The main features of perfect competition are having many companies, all selling the same product, and everyone knowing all the prices and market conditions.

🎯 Exam Tip: Remember these core characteristics as they define the ideal model of perfect competition and differentiate it from other market structures.

 

Question 17. "In perfect competition, the firm is acceptor of price”. What does it mean?
Answer: In perfect competition, individual firms have no power to set the price of their product. The market as a whole determines the price, and each firm must sell its products at that accepted price. Therefore, a firm is called a price acceptor.
In simple words: In perfect competition, a single company cannot decide its own prices. It must accept the price already set by the entire market.

🎯 Exam Tip: Emphasize that in perfect competition, firms are "price-takers" because their individual output is too small to influence the overall market price.

 

Question 18. What is the shape of demand curve of perfect competition?
Answer: The demand curve for a firm in perfect competition is perfectly elastic. This means it is a horizontal line parallel to the X-axis.
In simple words: For a company in perfect competition, its demand line is flat, meaning it can sell any amount at the market price.

🎯 Exam Tip: A perfectly elastic demand curve signifies that consumers are highly sensitive to price changes; even a slight price increase would cause demand to fall to zero.

 

Question 19. Is the perfect competition seen in the real world?
Answer: Perfect competition is an imaginary idea. It does not actually exist in the real world.
In simple words: Perfect competition is just a theory; it is not something we see happening in real-life markets.

🎯 Exam Tip: Highlight that perfect competition is a theoretical model used as a benchmark for comparison rather than a reflection of actual market conditions.

 

Question 20. What do you mean by the absence of transportation cost?
Answer: The absence of transportation cost means that buyers and sellers are so close in a perfectly competitive market that there is no expense to move goods from one place to another.
In simple words: No transportation cost means that sellers and buyers are so close that moving goods between them costs nothing.

🎯 Exam Tip: Zero transportation costs are an ideal assumption in perfect competition, ensuring all firms can sell at the same price regardless of location.

 

Question 21. What are Shopping Malls?
Answer: Shopping malls are places where many companies sell various types of goods in large quantities under one roof.
In simple words: Shopping malls are big buildings where many different shops sell many different things together.

🎯 Exam Tip: This question relates to market structures; malls represent a retail market where many sellers offer diverse products in a convenient location.

 

Question 22. What is very long-run market?
Answer: The very long-run market is a period so extended that significant, lasting changes can happen in both demand and supply. This includes the introduction of new products, new technology, and new innovations.
In simple words: A very long-run market means there's enough time for big changes in what people want to buy and what companies can make, like new inventions or ways of doing things.

🎯 Exam Tip: In the very long run, fundamental economic variables like technology, population, and consumer tastes are all considered changeable, leading to major structural shifts.

 

Question 24. In relation to determining price in perfect competition, what is the position of the firm and industry?
Answer: In perfect competition, the industry sets the price, and individual firms must accept this price. Firms have to sell their products at the price determined by the entire industry.
In simple words: The whole industry decides the price in perfect competition, and each company then has to sell its products at that exact price.

🎯 Exam Tip: Understand that the industry acts as a price maker, while individual firms are price takers in a perfectly competitive market.

 

Question 25. What is the shape of Marginal Revenue Curve of firm in perfect competition?
Answer: In perfect competition, a firm's marginal revenue curve is a straight line parallel to the X-axis.
In simple words: For a company in perfect competition, the marginal revenue line is flat, running straight across the graph.

🎯 Exam Tip: The marginal revenue curve for a perfectly competitive firm is horizontal and equal to the market price and average revenue.

RBSE Class 12 Economics Chapter 11 Short Answer Type Questions

 

Question 1. What are the four characteristics of perfect competition market?
Answer: The four characteristics of a perfect competition market are:
(a) **Large Number of Firms:** In perfect competition, many firms exist in the industry. No single firm can influence the product's price by changing its output. Each firm accepts the market price and adjusts its production to maximize profits. So, a firm is a price taker and an output adjuster.
(b) **Homogenous Product:** All firms in the industry produce identical or perfectly homogenous products. This means products from various firms are indistinguishable and are perfect substitutes for each other.
(c) **Perfect Knowledge:** Both buyers and sellers have complete knowledge about the market price. Buyers fully know at what price sellers are selling a product. As a result, only one price exists in the market.
In simple words: The main features of perfect competition are having many companies, all selling the same product, and everyone knowing all the prices and market conditions.

🎯 Exam Tip: When listing characteristics, provide a brief explanation for each to demonstrate a thorough understanding of the concept.

 

Question 3. Classify the market on the basis of their areas.
Answer: Markets are classified based on their areas as follows:
(a) **Local Market:** This market is for products whose buyers and sellers are spread across a village, suburb, or township. Examples include markets for perishable goods like butter, eggs, milk, and vegetables.
(b) **Regional Market:** This market is limited to a specific region for any product. An example is semi-durable goods - Shirts.
(c) **National Market:** In this market, buyers and sellers of a product are spread throughout the entire country. Examples include durable goods and industrial goods.
(d) **International Market:** This market involves buyers and sellers of products spread across different countries worldwide.
In simple words: Markets can be local (like for milk in a village), regional (like for clothes in a state), national (for goods sold across the country), or international (for goods sold around the world).

🎯 Exam Tip: When classifying markets, clearly state the geographical scope for each type and provide relevant examples to illustrate the concept.

 

Question 5. Classify the markets on the basis of their sales.
Answer: Markets are classified on the basis of their sales as follows:
(a) **Retail Market:** This is a market where goods are sold in small quantities to consumers. Examples include a local grocery shop, a sweet shop, and a clothes shop.
(b) **Wholesale Market:** In this market, goods are sold in large quantities to retailers. Examples include a textile market and a drug market.
In simple words: Markets are grouped by how they sell: retail is selling small amounts directly to people, while wholesale is selling large amounts to other businesses.

🎯 Exam Tip: Clearly differentiate between retail and wholesale markets by focusing on the quantity of goods sold and the type of buyer.

 

Question 6. State the short period market with the help of diagram.
Answer: In a short period market, the time available is so limited that supply can only be increased or decreased by changing variable factors. The time period is just enough for producers to increase output by fully using their existing capacity. The diagrams below illustrate typical market structures in economics.

In simple words: For a short period market, companies can only make small changes to what they sell using existing resources, not big changes like building new factories. The charts illustrate general market structures.

🎯 Exam Tip: When explaining short-period markets, always highlight the constraint of fixed factors and the limited ability to adjust supply quickly.

 

Question 7. What do you understand by long term market?
Answer: A long-term market refers to a period long enough to adjust production according to demand. This is a long-run condition. Due to the long duration, all variable and fixed factors can be changed, helping to adjust both supply and demand.

In simple words: A long-term market gives businesses enough time to change everything, like their factories and workers, to match what people want to buy, adjusting both how much they make and what is needed. The diagram shows how supply curves change over very short, short, and long periods.

🎯 Exam Tip: In long-term markets, all factors of production are considered variable, allowing for full adjustment of supply to meet demand changes. The steepness of the supply curve reflects the flexibility in production timeframes.

 

Question 8. What do you understand by very long term market?
Answer: A very long-term market is when the time period is so extended that significant, lasting changes can occur in both demand and supply. These changes are driven by new products, new technology, and new innovations, completely altering the supply side. Demand also changes entirely due to shifts in consumer preferences, tastes, fashion, and population structure.
In simple words: A very long-term market means there's enough time for big changes in what people want to buy and what companies can make, like new inventions or changes in how many people live somewhere.

🎯 Exam Tip: In the very long run, fundamental economic variables like technology, population, and consumer tastes are all considered changeable, leading to major structural shifts.

 

Question 9. What are the differences between sales by grading and sample?
Answer: When products are certified for quality, their sale is called sales by grading. Examples include K-68 or RR-21 Wheat and Hallmark Jewellery. On the other hand, when a product is sold by showing samples, it is called sales by sample. An example is placing an order for woolen clothes after seeing a sample.
In simple words: Selling by grading means goods are sold based on their quality certification, like graded wheat. Selling by sample means showing a small piece of the product before the buyer decides, like a fabric sample.

🎯 Exam Tip: Distinguish between grading (quality certification) and sampling (representative display) as methods of sale, ensuring you provide clear examples for each.

 

Question 10. Find out the average revenue and marginal revenue from the following table-

Answer:
According to the formula:
Marginal Revenue \( = TR_n - TR_{n-1} \)

In simple words: To find Average Revenue, divide Total Revenue by Units of Output. To find Marginal Revenue, subtract the previous Total Revenue from the current one. Both turn out to be 10 Rs in this example.

🎯 Exam Tip: Remember the formulas for Average Revenue (\(AR = TR/Q\)) and Marginal Revenue (\(MR = \Delta TR / \Delta Q\)) and practice applying them to given data tables.

 

Question 11. Make a firm's average revenue curve and marginal revenue curve, while the price of the commodity in the perfect competition market decreases from Rs. 8 to Rs. 5 per unit.
Answer: In a perfectly competitive market, the firm must accept the price determined by the industry. Therefore, if the firm has to sell its item at a price of Rs. 5, both the average revenue and marginal revenue of the firm will always be equal to Rs. 5. Their curve will be a horizontal line at the price of Rs. 5.

In simple words: In a perfectly competitive market, the price a company gets for each product (Average Revenue) and the extra money from selling one more product (Marginal Revenue) are always the same. If the market price is Rs. 5, then both AR and MR are Rs. 5, shown as a flat line on the graph.

🎯 Exam Tip: Remember that in perfect competition, price, marginal revenue, and average revenue are all equal and represented by a horizontal demand curve for the firm.

 

Question 12. Why does the supply of goods increase when the price of the item increases?
Answer: When the price of goods increases, the profit for producers also increases. In this situation, existing producers try to earn more profit by increasing their production. Additionally, higher prices attract new producers to enter the industry, further increasing the overall supply of goods in the market.
In simple words: When an item's price goes up, companies make more money, so they make more of it. New companies also start making that item because it looks profitable, causing the total supply to grow.

🎯 Exam Tip: This illustrates the law of supply: a direct relationship between price and quantity supplied, driven by profit incentives and market entry/exit.

 

Question 13. When the price of the commodity decreases, why is the supply of the item also reduced?
Answer: When the price of a product decreases, the profit for producers also falls. This leads existing producers to reduce their production because it becomes less profitable. Additionally, some producers might leave the market if it's no longer viable, leading to a decrease in the overall supply of the item.
In simple words: If an item's price drops, companies make less money, so they produce less of it or even stop making it altogether, which lowers the total supply.

🎯 Exam Tip: This demonstrates the inverse aspect of the law of supply: lower prices reduce incentives for production, leading to a decrease in quantity supplied.

 

Question 14. On increasing the number of firms that fulfil the supply of homogenous commodity, what impact does the equilibrium of an item have on the equilibrium price and equilibrium quantity?
Answer: When the number of firms supplying homogeneous items in the market increases, the equilibrium price of that item decreases, and the equilibrium quantity increases.
In simple words: If more companies start selling the same product, the price usually goes down, and more of that product is bought and sold.

🎯 Exam Tip: An increase in the number of firms shifts the market supply curve to the right, leading to a lower equilibrium price and higher equilibrium quantity.

 

Question 15. When is equilibrium in a perfectly competitive market established?
Answer: Equilibrium in a perfectly competitive market is achieved when the demand for the product equals the supply from the industry. Individual firms do not contribute to setting this equilibrium; they simply accept the price fixed by the industry. Changes in perfect competition equilibrium happen due to shifts in the industry's demand and supply.
In simple words: A perfect competition market finds its balance when the total amount people want to buy is the same as the total amount the industry can sell. Companies just follow the price set by everyone.

🎯 Exam Tip: Equilibrium in perfect competition occurs at the intersection of market demand and market supply, where there's no tendency for price or quantity to change.

RBSE Class 12 Economics Chapter 11 Essay Type Questions

 

Question 1. Classify the market on the basis of their areas, on the basis of commodity, on the basis of time period and on the basis of sales.
Answer: Markets can be classified in the following ways:

**1. On the basis of area:**
(a) **Local Market:** Where buyers and sellers are limited to a village, suburb, or township. E.g., markets for perishable goods like butter, eggs, milk, vegetables.
(b) **Regional Market:** Where the market for a product is limited to a specific region. E.g., semi-durable goods - Shirts.
(c) **National Market:** Where buyers and sellers of a product are spread all over the country. E.g., durable goods and industrial goods.
(d) **International Market:** Where buyers and sellers of a product are spread in different countries across the world.

**2. On the basis of commodity/type:**
(a) **Common Market:** Where various types of goods like clothes, utensils, jewelry, and groceries are sold.
(b) **Special Market:** A market that deals in specific kinds of products. E.g., a grocery market, clothes market, jewelry market, fruit market.
(c) **Market of Sales from Sample:** Goods are sold by showing a sample. E.g., sale of goods in wholesale markets where samples are displayed.
(d) **Market of Sales from Grading:** Purchase and sale of items based on their quality grading. E.g., Usha Stitching Machine, K-68 Wheat, Lux Soap, Dalda Ghee, Hero Cycle.

**3. On the basis of time period:**
(a) **Long Run Market:** A period long enough to adjust production according to demand by changing all variable and fixed factors.
(b) **Short Period Market:** A period so short that supply can only be increased or decreased by changing variable factors, utilizing existing capacity fully.
(c) **Very Long-Run Market:** A period where long-term changes in demand and supply occur due to new products, technology, and innovations.
(d) **Very Short Period Market:** A period where the sale of the product cannot be increased or decreased, meaning supply is completely fixed, and only demand can change. E.g., perishable products like milk, curd, butter, fruits, vegetables, eggs.

**4. On the basis of sales:**
(a) **Retail Market:** A market where small quantities of goods are sold to consumers. E.g., grocery shops, sweet shops, clothes shops.
(b) **Wholesale Market:** A market where goods are sold in large quantities to retailers. E.g., textile market, drug market.
In simple words: Markets can be grouped by how big they are (local to international), what kind of goods they sell (special markets, by sample, or by quality), how much time is available to change production (short to very long run), and how they sell things (retail for small amounts or wholesale for large amounts).

🎯 Exam Tip: For comprehensive classification questions, present each category with clear definitions and relevant examples. Ensure all requested bases of classification (area, commodity, time, sales) are covered.