RBSE Solutions Class 12 Economics Chapter 13 Market Equilibrium

Question 1. Relation between price and market demand for a particular good is :
(a) Positive
(b) Negative
(c) Zero
(d) No relation
Answer: (b) Negative
In simple words: Usually, when the price of a good goes up, people want to buy less of it, and when the price goes down, they want to buy more. This is why the relationship is negative.

🎯 Exam Tip: Remember the law of demand: as price increases, quantity demanded decreases, and vice versa. This creates a negative relationship.

 

Question 2. At equilibrium price, satisfaction is gained by :
(a) Buyer and seller both
Answer: (a) Buyer and seller both
In simple words: At the equilibrium price, both buyers and sellers are happy. Buyers feel they got a fair deal, and sellers feel they sold their product for a good price.

🎯 Exam Tip: Equilibrium is the point where market supply equals market demand, making both parties involved satisfied.

 

Question 3. Main cause for demand of a commodity is :
(a) Supply of money
(b) Supply of goods
(c) Attribute of want satisfying capacity
(d) Availability of goods
Answer: (c) Attribute of want satisfying capacity
In simple words: People demand a product mainly because it can satisfy one of their wants or needs. If a product doesn't fulfill a need, there's no demand for it.

🎯 Exam Tip: The ability of a good to satisfy a want or need is known as its utility, which is a key driver of demand.

 

Question 4. A producer produces an object with the aim of :
(a) Social service
(b) Self satisfaction
(c) To earn profit
(d) To achieve prestige
Answer: (c) To earn profit
In simple words: The main goal of any producer in a market is to make a profit. They produce goods and services to sell them for more than it cost to make them.

🎯 Exam Tip: In economics, the primary motive for most firms operating in a market economy is profit maximization.

 

Question 5. Due to increase in supply of a product, the supply curve:
(a) Shifts to the right
(b) Shifts to the left
(c) Remains constant
(d) No change
Answer: (a) Shifts to the right
In simple words: When there's more of a product available to sell at every price, the supply curve moves to the right. This means an increase in overall supply.

🎯 Exam Tip: An increase in supply, shown as a rightward shift of the supply curve, means producers are willing to sell more at each given price.

 

Rbse Class 12 Economics Chapter 13 Very Short Answer Type Questions

 

Question 1. Give the definition of equilibrium as given by Prof. J.K. Mehta.
Answer: As defined by Prof. J.K. Mehta, “Equilibrium denotes a state whose feature is a lack of change.” It is a point of balance.
In simple words: Prof. J.K. Mehta said that equilibrium is a stable state where nothing tends to change on its own.

🎯 Exam Tip: When defining terms, especially from specific economists, try to quote accurately. Highlight key phrases like "lack of change" for equilibrium.

 

Question 3. What do you mean by market equilibrium? Explain.
Answer: Market equilibrium is a situation in the market where the demand for a product exactly matches its supply at a specific price. This is the point of balance between buyers and sellers.
In simple words: Market equilibrium is when the amount of a product buyers want to buy is equal to the amount sellers want to sell, all at one particular price.

🎯 Exam Tip: Clearly state that market equilibrium occurs when quantity demanded equals quantity supplied at a specific price.

 

Question 4. What do you mean by market demand? Explain.
Answer: Market demand is the total amount of a product that all buyers in the market are willing to purchase at a specific price. It sums up everyone's individual demands.
In simple words: Market demand is the total quantity of a product that all people in the market want to buy at a certain price.

🎯 Exam Tip: Emphasize that market demand is the *sum total* of individual demands across all consumers.

 

Rbse Class 12 Economics Chapter 13 Short Answer Type Questions

 

Question 1. Write down any three elements which affect the supply of a commodity.
Answer: The three main elements affecting the supply of a product are:
(a) Supply changes when the cost of production changes. If making the product becomes more expensive, supply decreases. If it becomes cheaper, supply increases.
(b) Supply is also affected by new inventions. When new and better replacement products become available, the supply of older, similar goods often goes down.
(c) Technological changes impact a product's supply by changing how much can be produced. Better technology can increase production levels and thus supply.
In simple words: The supply of a product is changed by how much it costs to make, new inventions that bring new products, and better technology used in production.

🎯 Exam Tip: When listing factors, provide a brief explanation for each to show a clear understanding of its impact on supply.

 

Question 2. Show supply curve diagrammatically.
Answer: The supply curve shows how the quantity of a product offered for sale changes with its price. It generally slopes upwards, indicating that producers are willing to supply more at higher prices.

In simple words: This diagram shows that as the price of a product goes up (Y-axis), the quantity that producers are willing to sell also goes up (X-axis). The line going upwards shows this relationship.

🎯 Exam Tip: For diagrams, clearly label both axes and the curve. An upward-sloping supply curve illustrates the law of supply where higher prices lead to increased quantity supplied.

 

Question 3. What is supply schedule?
Answer: A supply schedule is a table that lists the different quantities of a product a seller is ready to offer for sale at various prices over a specific time. The market supply schedule combines these quantities for all sellers in the market.
In simple words: A supply schedule is simply a list that shows how much of a product a seller will offer at different prices.

🎯 Exam Tip: Remember to differentiate between an individual supply schedule (for one producer) and a market supply schedule (for all producers combined).

 

Rbse Class 12 Economics Chapter 13 Essay Type Questions

 

Question 1. Construct a hypothetical market demand schedule. Explain it with the help of figure.
Answer: A demand schedule shows the quantity of a product demanded at different prices. Each buyer has their own demand schedule. The market demand schedule is found by adding up the demands of all buyers in the market. We can understand this better with an example table and diagram:

In the diagram above, the quantity of the product is shown on the X-axis, and the price is on the Y-axis. The total demand from all consumers is represented by the market demand curve (DD). At price OP, the quantity demanded is OQ. As the price of the product increases, the demand for it decreases. The downward slope of the DD demand curve shows this negative relationship between price and demand in the market.
In simple words: A market demand schedule lists how many products people want to buy at different prices, and the diagram shows this by a line going down as prices go up.

🎯 Exam Tip: When drawing a demand curve, ensure it slopes downwards from left to right, showing the inverse relationship between price and quantity demanded. Label all axes and points clearly.

 

Question 2. "Due to change in demand, equilibrium price changes". Explain this statement diagrammatically.
Answer: Changes in demand impact the equilibrium price. Demand for an item can shift due to factors like changes in consumer interest, income, trends, or preferences. If the supply of the item and other conditions remain constant, but demand for the item increases for any reason, both the equilibrium price and quantity will rise. Conversely, if demand decreases, both the price and quantity sold will fall, assuming supply stays the same.

(i) Effect of increase in demand – The initial intersection of demand (DD) and supply (SS) is at point E. The equilibrium price is OP, and the equilibrium quantity is OQ. If demand increases, the demand curve shifts upwards to \( D_1D_1 \). The new equilibrium is at \( E_1 \). This means the new equilibrium price becomes \( OP_1 \) and the new equilibrium quantity becomes \( OQ_1 \). Both price and quantity increase.
(ii) Effect of decrease in demand – Once equilibrium is established, it changes if demand decreases. If demand falls for any reason, the demand curve shifts downwards to \( D_1D_1 \). Here, the supply curve (SS) and the new demand curve \( D_1D_1 \) intersect at \( E_1 \). So, the new equilibrium price becomes \( OP_1 \) and the new quantity is \( OQ_1 \). In this scenario, market price decreases, and the equilibrium quantity also decreases from OQ to \( OQ_1 \).
In simple words: When people want to buy more of something (demand increases), the price and the amount sold both go up. When people want to buy less (demand decreases), both the price and the amount sold go down. The diagrams show how these changes shift the balance in the market.

🎯 Exam Tip: When illustrating shifts in demand, remember that an increase shifts the demand curve right (up), leading to higher equilibrium price and quantity, while a decrease shifts it left (down), leading to lower equilibrium price and quantity.

 

Question 3. Discuss demand and supply with the help of schedule and figure.
Answer: Analyzing demand, we see that the highest price a buyer is willing to pay for a product is determined by its marginal utility. From the supply side, a product's marginal cost sets the lowest price a seller is willing to accept. Therefore, the actual market price is set somewhere between these two limits, where the quantity demanded (Dx) equals the quantity supplied (Sx). Buyers want to pay as little as possible, and sellers want to charge as much as possible. The price set at this point is called the "equilibrium price", and the quantity is the "equilibrium quantity". This balance ensures that both buyers and sellers are satisfied.

**Explanation of the Figure:** (Please note: The diagram described here was not provided in the source material, but its explanation outlines a standard supply and demand equilibrium.) On the X-axis, units of demand and supply are shown, and on the Y-axis, the price of goods (X) is shown. DD represents the demand curve, and SS represents the supply curve. These two curves cross each other at point E. This point E is the equilibrium point where the price (OP) and the quantity demanded and supplied (OQ) are determined. So, at equilibrium, the quantity demanded (Qd) is equal to the quantity supplied (Qs). For instance, if the price of commodity X is Rs 20, then both Qd and Qs would be 15 units. This confirms that E is the equilibrium point where \( Q_d = Q_s \).
In simple words: Demand shows what buyers want, and supply shows what sellers offer. The market finds a middle price where the amount buyers want exactly matches the amount sellers want to sell. This is the equilibrium price and quantity.

🎯 Exam Tip: When asked to explain demand and supply equilibrium, remember to define both demand and supply, then explain how their interaction (intersection of curves) determines the equilibrium price and quantity.

 

Question 4. Analyse market equilibrium. What is the effect of change in supply on its equilibrium? Explain.
Answer: Market equilibrium is the point in a market where the quantity of a product demanded perfectly matches the quantity supplied at a specific price. This price is known as the equilibrium price. At this point, the market "clears itself," meaning there's no extra demand or supply left over. This theory is also called the general theory of price determination, which states that price is set by both demand (how useful a product is) and supply (how much it costs to produce), not just one. Economist Marshall believed that both demand and supply forces work together to determine a product's price.

**Effect of changes in supply on Equilibrium** The supply of any product can change due to various reasons. The main reasons are:
1. Supply can change if the cost of production changes. If costs go up, supply usually goes down, and if costs go down, supply goes up.
2. New inventions also affect supply. For example, if many new substitute products appear, the supply of older products might decrease.
3. Changes in technology can change how much a product is made, which then changes its supply.
4. Discovering new sources of raw materials can lead to an increase in the supply of goods.
5. The producer's approach or decisions can also alter supply levels.
6. Government policies, such as taxes or subsidies, can also cause supply to change.
In simple words: Market equilibrium is when the amount people want to buy matches the amount available to sell at a certain price. If the supply changes (like if it becomes cheaper to make things or new methods are found), this balance shifts. More supply usually lowers prices and increases the quantity bought and sold.

🎯 Exam Tip: When analyzing market equilibrium, define it clearly first. For effects of changes in supply, explain both the shift in the curve and the resulting change in equilibrium price and quantity. List factors influencing supply with brief explanations.

 

Question 1. What are the causes of origination of excess demand?
(a) Increase in supply of currency
(b) Increase in public expenses
(c) Increase in taxes
(d) None of the options
Answer: (d) None of the options
In simple words: Excess demand usually happens when prices are too low, making people want to buy more than what is available. None of the given options directly cause this imbalance.

🎯 Exam Tip: Excess demand occurs when quantity demanded is greater than quantity supplied at a given price. This typically happens when the prevailing price is below the equilibrium price.

 

Question 2. According to which of the following, the price of any product is determined by the forces of both demand and supply?
(a) Walrus
(b) Marshall
(c) Hicks
(d) Benham
Answer: (b) Marshall
In simple words: Economist Alfred Marshall explained that both demand and supply together decide the price of a product in the market.

🎯 Exam Tip: Alfred Marshall's contribution to economics includes the concept of demand and supply curves intersecting to determine market price, often referred to as the "Marshallian cross".

 

Question 3. Equilibrium price is equal in the perfect competitive market –
(a) to equilibrium quantity
(b) to total receipt
(c) to total cost
(d) to minimum average cost
Answer: (d) to minimum average cost
In simple words: In a market where there is perfect competition, the equilibrium price for a product ends up being equal to the lowest average cost of making it.

🎯 Exam Tip: In perfect competition, firms operate at their minimum average total cost in the long run, meaning the equilibrium price equals this minimum cost.

 

Question 4. Word 'equilibrium' is of which language –
(a) Italian
(b) French
(c) Latin
(d) Babylonian
Answer: (c) Latin
In simple words: The word 'equilibrium' comes from the Latin language.

🎯 Exam Tip: Understanding the origins of economic terms can sometimes offer insight into their meaning, but for this question, it's a factual recall.

 

Question 5. Which of the following is a characteristic of equilibrium?
(a) Stability
(b) Unchangeability
(c) Mobility
(d) All of the options
Answer: (b) Unchangeability
In simple words: A key feature of equilibrium is that it is a state of balance, meaning it tends to stay the same unless something outside changes it.

🎯 Exam Tip: In economics, equilibrium implies a state where there are no internal forces causing a change, making it stable or unchangeable on its own.

 

Question 6. What is the effect on the price if the supply of a product increases ?
(a) Increases
(b) decreases
(c) No effect
(d) None of the options
Answer: (b) decreases
In simple words: If there is more of a product available to sell, and demand stays the same, the price will usually go down.

🎯 Exam Tip: An increase in supply, all else being equal, typically leads to a decrease in equilibrium price and an increase in equilibrium quantity.

 

Question 7. What is the impact on the price if the supply of a product decreases?
(a) Increases
(b) decreases
(c) No effect
(d) None of the options
Answer: (a) Increases
In simple words: If there is less of a product available to sell, and demand stays the same, the price will usually go up.

🎯 Exam Tip: A decrease in supply, all else being equal, typically leads to an increase in equilibrium price and a decrease in equilibrium quantity.

 

Question 8. The relation between the price and demand of a product is :
(a) Positive
(b) Negative
(c) Equal
(d) None of the options
Answer: (b) Negative
In simple words: The relationship between the price of a product and how much people want to buy is usually opposite. When one goes up, the other goes down.

🎯 Exam Tip: This inverse relationship is fundamental to the law of demand. Higher prices typically discourage consumption, while lower prices encourage it.

 

Question 9. When the price of any product increases, what happens to its demand?
(a) Increases
(b) Decreases
(c) No effect
(d) None of the options
Answer: (b) Decreases
In simple words: When a product's price goes up, people usually want to buy less of it.

🎯 Exam Tip: This illustrates the law of demand: price and quantity demanded move in opposite directions.

 

Question 10. When the price of any product increases, its demand :
(a) Increases
(b) Decreases
(c) No effect
(d) None of the options
Answer: (b) Decreases
In simple words: If the price of a product rises, people will generally buy less of it.

🎯 Exam Tip: This question reinforces the basic principle of demand: price and quantity demanded have an inverse relationship.

 

Rbse Class 12 Economics Chapter 13 Very Short Answer Type Questions

 

Question 1. What do you mean by equilibrium?
Answer: Equilibrium means a balanced state where all forces are equal and opposite, so there is no tendency for change. In economics, it's where supply and demand balance.
In simple words: Equilibrium is a steady, balanced state where things don't tend to change on their own.

🎯 Exam Tip: Define equilibrium as a state of rest or balance where opposing forces are equal, leading to no tendency for change.

 

Question 2. What is the meaning of excess supply?
Answer: Excess supply occurs when the amount of a product that sellers want to provide is more than what buyers want to purchase at a specific price. This happens when the price is too high.
In simple words: Excess supply means there are more products available to sell than people want to buy at a certain price.

🎯 Exam Tip: Remember that excess supply arises when the market price is above the equilibrium price, causing a surplus of goods.

 

Question 3. What do you mean by excess demand?
Answer: Excess demand happens when the total amount of a product that buyers want to purchase is more than the total amount sellers are offering at a given price. This typically occurs when the price is too low.
In simple words: Excess demand means people want to buy more products than are available to sell at a certain price.

🎯 Exam Tip: Excess demand occurs when the market price is below the equilibrium price, leading to a shortage of goods.

 

Question 4. What is the meaning of equilibrium price?
Answer: The equilibrium price is the specific price at which the quantity of a product demanded by buyers exactly matches the quantity supplied by sellers. It's the market-clearing price.
In simple words: The equilibrium price is the price where the number of items buyers want to buy is the same as the number of items sellers want to sell.

🎯 Exam Tip: Clearly state that equilibrium price is where quantity demanded equals quantity supplied.

 

Question 6. What is the condition of demand and supply at any other point in place of equilibrium point?
Answer: At any point other than the equilibrium point, there will either be a surplus of demand (excess demand) or a surplus of supply (excess supply). The market is not balanced.
In simple words: If the market isn't at equilibrium, either buyers want more than sellers offer (excess demand) or sellers offer more than buyers want (excess supply).

🎯 Exam Tip: Understand that the market naturally adjusts towards equilibrium when there is either excess demand or excess supply.

 

Question 7. What is the slope of market demand curve?
Answer: The slope of the market demand curve is negative. This means it goes downwards from left to right.
In simple words: The market demand curve slopes downwards.

🎯 Exam Tip: A negative slope for the demand curve reflects the inverse relationship between price and quantity demanded (the law of demand).

 

Question 8. What is the slope of market supply curve?
Answer: The slope of the market supply curve is positive. This means it goes upwards from left to right.
In simple words: The market supply curve slopes upwards.

🎯 Exam Tip: A positive slope for the supply curve reflects the direct relationship between price and quantity supplied (the law of supply).

 

Question 9. Write down one characteristic of market.
Answer: In a market, goods, services, and resources are exchanged, meaning they are both bought and sold. It's a place for transactions.
In simple words: A market is where goods and services are bought and sold.

🎯 Exam Tip: Focus on the fundamental activity of exchange—buying and selling—as a core characteristic of any market.

 

Question 10. What is the objective of firms in a perfect competitive market?
Answer: The main objective of firms operating in a perfectly competitive market is profit maximization. They aim to make the highest possible profit.
In simple words: Companies in a perfect market mostly want to make the most profit.

🎯 Exam Tip: Profit maximization is a universal assumption for firms in most economic models, especially in perfect competition.

 

Question 11. What is the impact of an increase in the price of an input on its demand?
Answer: When the price of an input (like raw materials or labor) increases, the demand for that input generally decreases. Producers will try to use less of the now more expensive input.
In simple words: If something needed to make a product becomes more expensive, then less of that input will be wanted.

🎯 Exam Tip: This follows the basic law of demand, applied to factors of production. Higher input costs reduce demand for those inputs, leading to changes in production.

 

Question 12. If the supply of a product is perfectly elastic, then tell the effect of the increase in the demand of the object on the price and quantity of the product.
Answer: If the supply of a product is perfectly elastic, an increase in demand will cause the quantity of the product to increase, but its price will not be affected. The price stays the same.
In simple words: If supply can easily change, more demand means more products are sold, but the price doesn't change.

🎯 Exam Tip: Perfectly elastic supply means producers can supply any quantity at a fixed price. Therefore, only quantity changes with demand shifts, not price.

 

Question 14. If the supply of the product is perfectly inelastic, then what will be the effect on the price and quantity of the product, when the demand of item decreases?
Answer: If the supply of a product is perfectly inelastic, and demand for it decreases, then its equilibrium price will decrease. However, the quantity of the product supplied will not be affected, remaining the same.
In simple words: If a product's supply cannot change at all, and fewer people want it, its price will go down, but the amount available will stay the same.

🎯 Exam Tip: Perfectly inelastic supply means the quantity supplied is fixed regardless of price. Thus, demand shifts only affect price, not quantity.

 

Question 15. If the demand is perfectly elastic, then what will be the effect on its equilibrium price and quantity, when the supply of object decreases?
Answer: If demand is perfectly elastic and the supply of the product decreases, the price will not be affected. However, the quantity sold will increase because consumers are highly sensitive to price changes.
In simple words: If buyers are very sensitive to price, a drop in supply means more products are sold, but the price does not change.

🎯 Exam Tip: Perfectly elastic demand means consumers will buy an infinite quantity at a certain price but none at a slightly higher price. A decrease in supply, if price remains constant, leads to a higher quantity transacted. This is an unusual scenario, often simplified for theoretical purposes.

 

Question 16. If the demand of a product is perfectly elastic, then what will be the effect on its equilibrium price and quantity, when the supply of the product increases?
Answer: If demand is perfectly elastic and the supply of the product increases, the product's price will remain unaffected. The quantity sold, however, will increase.
In simple words: When supply goes up and demand is very sensitive to price, the price stays the same but more of the product is sold.

🎯 Exam Tip: With perfectly elastic demand, any change in supply will only impact the quantity exchanged, keeping the price stable, as buyers will not accept any price change.

 

Question 17. If the demand of a product is perfectly inelastic, then what will be the effect on its equilibrium price and quantity, when the supply of object increases?
Answer: If demand for a product is perfectly inelastic, and its supply increases, the quantity of the product bought and sold will not be affected. However, its price will decrease.
In simple words: If people will buy the same amount no matter the price, and there's more available, then the price will just fall, but the amount sold won't change.

🎯 Exam Tip: Perfectly inelastic demand means quantity demanded is fixed regardless of price. Therefore, supply shifts only affect price, not quantity.

 

Question 18. When the market supply is more than market demand, then what will this condition be called?
Answer: This condition, where market supply is more than market demand, will be called Excess Supply.
In simple words: If there's more of a product to sell than people want to buy, it's called excess supply.

🎯 Exam Tip: Excess supply (or a surplus) typically leads to downward pressure on prices as sellers compete to sell off their extra stock.

 

Question 20. If both, the market demand and supply curves are shifted to left, then what will be the effect on equilibrium quantity?
Answer: If both the market demand and supply curves shift to the left, the equilibrium quantity will decrease. Both fewer people want to buy, and fewer products are available.
In simple words: If both what people want and what sellers offer go down, then the total amount bought and sold will decrease.

🎯 Exam Tip: When both curves shift in the same direction, the effect on quantity is clear. The effect on price depends on the magnitude of each shift.

 

Question 21. If both, the market demand and supply curves are shifted to the right, then what will be the effect on equilibrium, quantity?
Answer: If both the market demand and supply curves shift to the right, the equilibrium price increases. More demand and more supply can lead to a higher price, depending on the shifts.
In simple words: If both buyers want more and sellers offer more, the market price goes up.

🎯 Exam Tip: When both curves shift right, equilibrium quantity will definitely increase, but the effect on equilibrium price is ambiguous without knowing the relative sizes of the shifts. The source answer implies an increase in price. This often happens if the increase in demand is greater than the increase in supply.

 

Question 22. In the event of uninterrupted entry and exit of firms in a market, what will be the price in the perfectly competitive market?
Answer: In a perfectly competitive market with free entry and exit of firms, the price will be equal to the minimum average cost of production in the long run. This prevents supernormal profits or losses.
In simple words: In a market where companies can easily join or leave, the price will settle at the lowest average cost to make the product.

🎯 Exam Tip: Free entry and exit ensure that, in the long run, firms in perfect competition earn only normal profits, leading to a price equal to minimum average total cost.

 

Question 23. What is the condition of market demand and supply in the condition of equilibrium of market?
Answer: In a state of market equilibrium, the market demand and market supply are exactly equal to each other. This is the definition of equilibrium.
In simple words: At market equilibrium, the amount buyers want is the same as the amount sellers offer.

🎯 Exam Tip: The core condition for market equilibrium is that quantity demanded must equal quantity supplied. This is a foundational concept.

 

Question 24. Who demands the goods in the merchandise market?
Answer: In the merchandise market, goods are primarily demanded by households. These are individual consumers or families buying for their own use.
In simple words: Families and individual people are the ones who buy goods in the market.

🎯 Exam Tip: Clearly distinguish between the roles of households (consumers) and firms (producers) in different market contexts.

 

Question 25. Who supplies the goods in the merchandise market?
Answer: In the merchandise market, goods are supplied by the producing firms. These businesses create and offer products for sale.
In simple words: Companies that make products are the ones who supply goods to the market.

🎯 Exam Tip: Remember that firms (businesses) are the suppliers in the goods market, aiming to maximize profits by selling products.

 

Question 27. What are the two causes of decrease in supply in market?
Answer: The two main causes of a decrease in supply in the market are:
1. Price of goods: If the price of related goods that producers could make instead increases, they might shift production, decreasing the supply of the original good.
2. Cost of the means of production: If the cost of raw materials, labor, or other inputs rises, it becomes more expensive to produce goods, leading producers to supply less.
In simple words: Supply can go down if the cost to make products increases or if other products become more profitable to produce.

🎯 Exam Tip: When listing causes for shifts in supply, explain how each factor directly influences producers' willingness or ability to supply goods at various prices.

 

Question 28. What will be the equilibrium in the condition of uninterrupted entry and exit, if the market demand curve \( q_0 = 200-P \) and equilibrium price \( (P) = 10 \).
Answer: To find the equilibrium quantity \( (q_0) \) when the equilibrium price \( (P) = 10 \):
Equilibrium Quantity \( (q_0) = 200 - P \)
Now, substitute the equilibrium price:
\( = 200 - 10 \)
So, the equilibrium quantity is:
\( = 190 \)
In simple words: If the market demand is given by the formula, and the equilibrium price is 10, then the number of products bought and sold at equilibrium will be 190.

🎯 Exam Tip: For calculation questions, clearly show each step, from plugging in the given values to arriving at the final answer. Double-check your arithmetic.

 

Question 29. What do you understand by Rationing?
Answer: Rationing refers to the government's method of setting a maximum quantity of a product that an individual can consume. This is usually done to ensure fair distribution during shortages.
In simple words: Rationing is when the government limits how much of a product each person can buy, often to make sure everyone gets some.

🎯 Exam Tip: Explain rationing as a government intervention, usually in times of scarcity, to control consumption and ensure equitable distribution of essential goods.

 

Question 30. What will be the effect on demand of labour when the price of product increases?
Answer: When the price of the final product increases, the demand for labor (an input in production) generally increases. This is because higher product prices make it more profitable to produce, thus increasing the need for labor.
In simple words: If a product sells for a higher price, companies will want to hire more workers to make that product.

🎯 Exam Tip: The demand for labor is a derived demand, meaning it depends on the demand for the product it helps produce. A higher product price usually signals higher demand for that product.

 

Rbse Class 12 Economics Chapter 13 Short Answer Type Questions (Sa-I)

 

Question 1. Explain the status of zero excess demand and zero excess supply.
Answer: The status of zero excess demand and zero excess supply occurs when the market demand and market supply for a product are exactly equal at a particular price. This is the definition of market equilibrium, where the market clears.
In simple words: Zero excess demand and zero excess supply means that the number of products people want to buy is exactly the same as the number of products sellers want to sell.

🎯 Exam Tip: This condition signifies market equilibrium, where there is no pressure for the price to change due to shortages or surpluses.

 

Question 3. What does the market supply curve reflect?
Answer: The market supply curve shows how much of a product each company is willing to sell at various prices.
In simple words: It tells us how much sellers are ready to offer for sale at different prices.

🎯 Exam Tip: Remember that a supply curve typically slopes upward, showing that more is supplied at higher prices.

 

Question 4. What is the effect on the equilibrium price when there is an increase in the price of the substitute good?
Answer: When the price of a substitute good goes up, people want to buy more of the original good. This causes the demand for the original good to increase, which then makes its equilibrium price also increase.
In simple words: If a similar product gets more expensive, people buy more of your product, making its price go up.

🎯 Exam Tip: Understand how changes in related goods' prices (substitutes or complements) impact the demand and equilibrium of the primary good.

 

Question 5. What do you understand by controlled price?
Answer: A controlled price, or price ceiling, is a price set by the government at a level lower than the normal equilibrium price. This is done to make sure that essential goods are available and affordable for people who are poor.
In simple words: It is a price limit set by the government, below the usual market price, to help poorer people afford things.

🎯 Exam Tip: Know that controlled prices (price ceilings) are typically set below equilibrium and can lead to shortages.

 

Question 6. What does support price mean?
Answer: A support price, or price floor, is a higher price set for a product, usually by the government, to protect farmers and ensure they get a fair income. This price is above what the market would normally set.
In simple words: It is a guaranteed higher price for farmers, set by the government, to protect their income.

🎯 Exam Tip: Remember that support prices (price floors) are typically set above equilibrium and can lead to surpluses.

 

Question 7. What does the market price mean?
Answer: Market price is the value of a product that is decided by the relative forces of demand (how much people want it) and supply (how much is available). It is a short-term price that can change very fast.
In simple words: Market price is the current price of something, changing all the time based on what people want and what's available.

🎯 Exam Tip: Differentiate market price from equilibrium price; market price is the actual price at any moment, while equilibrium is the stable theoretical price.

 

Question 8. What is the meaning of normal price?
Answer: In a market for goods, the demand curve generally slopes downward, meaning less is demanded at higher prices. Conversely, the supply curve generally slopes upward, meaning more is supplied at higher prices.
In simple words: This refers to how demand goes down when prices go up, and supply goes up when prices go up.

🎯 Exam Tip: Be precise with definitions; if an answer seems to describe a different concept, ensure your rephrasing accurately reflects the given text.

 

Question 10. Clarify the meaning of equilibrium in an industry.
Answer: An industry is in equilibrium when the total amount of a product it makes and sells at a certain price is exactly equal to the total amount people want to buy at that same price.
In simple words: An industry is in balance when the amount it produces equals what customers want to buy at a specific price.

🎯 Exam Tip: For industry equilibrium, focus on the equality of total supply from all firms and total demand from all consumers.

 

Question 11. Find out the equilibrium price, when the market demand curve \( QD = 200 - P \) and supply curve \( Qs = 120 + P \).
Answer: To find the equilibrium price, we set the quantity demanded \( (QD) \) equal to the quantity supplied \( (Qs) \).
First, we set the demand equation \( 200 - P \) equal to the supply equation \( 120 + P \):
\( 200 - P = 120 + P \)
Now, we collect the price terms on one side and constant terms on the other:
\( 200 - 120 = P + P \)
\( 80 = 2P \)
Finally, we solve for \( P \):
\( P = \frac{80}{2} \)
\( P = 40 \)
So, the equilibrium price is Rs 40.
In simple words: We set the demand and supply formulas equal to each other to find the price where they meet, which is Rs 40.

🎯 Exam Tip: Always remember that equilibrium occurs where quantity demanded equals quantity supplied.

 

Question 12. Find out the quantity of equilibrium, if market supply curve \( Qs = 140 + P \) and price of equilibrium \( P = Rs 20 \).
Answer: To find the equilibrium quantity, we use the given market supply curve equation:
\( Qs = 140 + P \)
We are told the equilibrium price \( P \) is Rs 20.
We substitute \( P = 20 \) into the supply equation:
\( Qs = 140 + 20 \)
\( Qs = 160 \)
So, the equilibrium quantity is 160 units.
In simple words: We put the given equilibrium price (Rs 20) into the supply formula to get the total quantity supplied, which is 160 units.

🎯 Exam Tip: Once the equilibrium price is known, you can find the equilibrium quantity by plugging the price into either the demand or supply equation.

 

Question 13. What do you understand by Maximum Fixed Price?
Answer: The maximum fixed price, also known as a price ceiling, is the highest price that the government allows a product or service to be sold for.
In simple words: It is a price limit set by the government, meaning something cannot be sold for more than that amount.

🎯 Exam Tip: A maximum fixed price is a government intervention to prevent prices from rising too high.

 

Question 14. What do you understand by Minimum fixed Price?

🎯 Exam Tip: Minimum fixed price (or price floor) is a government intervention to prevent prices from falling too low, often to support producers.

 

Question 15. If the government imposes a tax on a commodity in the market, how will it affect the equilibrium price?
Answer: When the government adds a tax to a product sold in the market, the equilibrium price of that product will go up.
In simple words: Adding a tax on a product makes its market price increase.

🎯 Exam Tip: Taxes typically increase the cost of production, shifting the supply curve left and leading to a higher equilibrium price.

 

Question 16. Write down one difference between equilibrium price and control price.
Answer: The main difference is that the government sets the control price, but the equilibrium price is naturally decided by how much people want a product (demand) and how much is available (supply).
In simple words: Control price is set by the government; equilibrium price is set by market demand and supply.

🎯 Exam Tip: Clearly distinguish between market-determined prices and government-imposed prices.

 

Question 17. What do you understand by Black Marketing?
Answer: Black marketing happens when products are sold illegally for more money than the government has officially allowed, especially when there are price controls.
In simple words: It is selling things illegally at prices higher than government limits.

🎯 Exam Tip: Black marketing often arises when price ceilings are set too low, creating artificial shortages.

 

Question 18. What is the difference between the price and quantity of commodity?
Answer: Price and quantity typically have an opposite relationship in terms of demand. When the price of an item goes up, the amount people want to buy usually goes down. If the price goes down, the quantity purchased tends to increase.
In simple words: Usually, if prices rise, people buy less; if prices fall, people buy more.

🎯 Exam Tip: Remember the law of demand: price and quantity demanded move in opposite directions.

 

Question 19. What are the types of government interferences in an economy?
Answer: The government can interfere in an economy in two main ways:
1. Directly
2. Indirectly.
In simple words: Governments can get involved in the economy either straight on (direct) or through other means (indirect).

🎯 Exam Tip: Direct interventions include price controls, while indirect ones involve taxes, subsidies, or regulations.

 

Question 20. If there is a decrease in both demand and supply, then what will be the impact on equilibrium price?
Answer: If both the demand and supply for a product go down, the equilibrium price will remain stable due to the similar reduction in both forces.
In simple words: When both demand and supply decrease, the final price might not change much.

🎯 Exam Tip: When both demand and supply shift in the same direction, the change in equilibrium quantity is certain, but the change in equilibrium price is indeterminate without knowing the magnitude of shifts.

 

Question 21. If a commodity's demand quantity increases and its supply quantity decreases, what will be the effect on its equilibrium price?
Answer: When people want to buy much more of a product (demand increases) and there is less of it available (supply decreases), the equilibrium price for that product will go up.
In simple words: More demand and less supply means the price will definitely increase.

🎯 Exam Tip: Higher demand and lower supply create upward pressure on prices, leading to a higher equilibrium price.

 

RBSE Class 12 Economics Chapter 13 Short Answer Type Questions (SA-II)

 

Question 1. What does equilibrium mean? In which situation is the market said to be in a state of equilibrium?
Answer: Equilibrium means a balanced state where nothing tends to change. In a market, this happens when the total amount of goods people want to buy (demand) is exactly equal to the total amount of goods sellers offer (supply). This balance means that market supply \( (Qs) \) equals market demand \( (Qd) \).
In simple words: Equilibrium is a steady state where supply meets demand.

🎯 Exam Tip: Define equilibrium as a state of rest or balance where opposing forces (demand and supply) are equal.

 

Question 2. Explain market equilibrium through a table and diagram.
Answer: We can explain market equilibrium using a table and a diagram for a commodity 'A'.
The table below shows different quantities demanded and supplied at various prices.

The diagram below visually represents this data.

From the table and diagram, it is clear that for item 'A', equilibrium occurs when both supply and demand are 200 units at a price of Rs 6 per unit. This is the point of equilibrium in the market.
In simple words: The table and graph show that the market is balanced when the price is Rs 6 and 200 units are bought and sold.

🎯 Exam Tip: Always label your axes and curves clearly in diagrams, and ensure the equilibrium point is correctly marked with corresponding price and quantity values.

 

Question 3. When will the equilibrium price not changed, even when the demand and supply increase?
Answer: The equilibrium price will stay the same, even if both demand and supply increase, but only if the percentage increase in demand is exactly equal to the percentage increase in supply.
In simple words: The price won't change if the rise in customer wants is exactly matched by the rise in available products.

🎯 Exam Tip: When both demand and supply increase proportionally, the equilibrium quantity rises, but the equilibrium price remains constant.

 

Question 4. Describe with diagram that the increase in demand and supply does not show any effect on the equilibrium price.
Answer: In this figure, the demand curve DD shifts to the right, becoming \( D_1D_1 \). Similarly, the supply curve SS shifts to the right, becoming \( S_1S_1 \). This shows an equal increase in both demand and supply, meaning a proportionate change has happened in both. As a result, the equilibrium price remains stable at point P.

In simple words: When demand and supply both grow by the same amount, the price stays the same, but more goods are sold.

🎯 Exam Tip: For diagrams showing proportional shifts, ensure the equilibrium price line remains horizontal, indicating no change.

 

Question 5. What will be the effect on the equilibrium price and quantity if the supply curve shifts in left and right side?
Answer: If the supply curve moves to the right (meaning more supply), the equilibrium price will go down, and the quantity traded will go up. But if the supply curve moves to the left (meaning less supply), the equilibrium price will go up, and the quantity traded will go down.
In simple words: More supply means lower prices and more sales. Less supply means higher prices and fewer sales.

🎯 Exam Tip: Remember that supply shifts have an inverse effect on equilibrium price and a direct effect on equilibrium quantity.

 

Question 6. What will be the effect on the equilibrium price and quantity if the supply curve shifts to the left and right side? Explain it by a diagram.
Answer: Due to an increase in supply, the supply curve shifts to the right, creating a new supply curve \( S_1S_1 \). This leads to a new equilibrium point \( E_1 \), where the equilibrium price is \( OP_1 \) and the equilibrium quantity is \( OQ_1 \). If supply decreases, the supply curve will shift to the left, creating a new supply curve \( S_2S_2 \). This results in a new equilibrium point \( E_2 \), where the new equilibrium price is \( OP_2 \) and the equilibrium quantity reduces from \( OQ \) to \( OQ_2 \).

In simple words: The diagram shows that when supply goes up, the price drops and sales increase. When supply goes down, the price rises and sales decrease.

🎯 Exam Tip: Clearly illustrate the initial equilibrium (E), then new equilibria (E1, E2) for both rightward and leftward shifts in supply, showing how price and quantity change.

 

Question 8. What will be the effect of shift in demand curve on the price and quantity of equilibrium? Clarify it by diagram.
Answer: On the X-axis, the quantity of demand and supply is shown, and on the Y-axis, the price of good X is shown. The initial equilibrium of demand and supply is at point E. This means the equilibrium price is \( OP \) and the equilibrium quantity is \( OQ \). If demand increases (with other things being equal), the equilibrium price will rise to \( OP_1 \). Conversely, if demand decreases, the equilibrium price will fall to \( OP_2 \).

In simple words: The graph shows how changes in demand shift the equilibrium. More demand means higher prices and more sales, while less demand means lower prices and fewer sales.

🎯 Exam Tip: When the demand curve shifts, both equilibrium price and quantity change in the same direction as the shift (e.g., right shift means higher price and quantity).

 

Question 9. Explain with a diagram that in short term, the law of demand applies on demand of labour.
Answer: From the diagram, it is clear that the demand for labor slopes downwards from left to right. This shows that the demand for labor decreases when the wage rate is high, and the demand for labor becomes greater when the wage rate is low.

In simple words: The graph shows that employers want fewer workers when wages are high, and more workers when wages are low.

🎯 Exam Tip: When drawing the demand curve for labor, remember it's downward sloping, reflecting that firms hire more labor at lower wages.

 

Question 10. What do you understand by supply of labour in perfectly competitive market?
Answer: In a perfectly competitive market, the supply of labor means the total hours or days that people are willing to work, not just the count of workers. These workers come from households, and businesses hire them. So, households supply labor, and firms buy it.
In simple words: Supply of labor means the total work hours offered by people, where households offer labor and businesses employ them.

🎯 Exam Tip: Focus on 'hours or days of labor' as the unit of supply, and remember the roles of households (suppliers) and firms (demanders) in the labor market.

 

Question 11. What do you understand by maximum fixed price?
Answer: The maximum fixed price, also called a controlled price, is a price set by the government below the market's natural equilibrium price. This is done to make sure essential goods are affordable and available to poorer people, often through rationing.
In simple words: It is a government-set price cap, lower than usual, to help poor people get necessary items.

🎯 Exam Tip: Understand that maximum fixed prices (price ceilings) create an artificial shortage and often lead to rationing or black markets.

 

Question 12. What do you understand by minimum fixed price?
Answer: A minimum fixed price, also known as a support price, is set by the government above the market's natural equilibrium price, especially when the market price is too low. This is to help farmers by ensuring they get a fair price for their agricultural products, and the government often buys any extra supply at this set price.
In simple words: It is a government-set minimum price, higher than usual, to support farmers and ensure they earn enough.

🎯 Exam Tip: Remember that minimum fixed prices (price floors) create an artificial surplus, often leading to government purchases or storage of excess goods.

 

Question 13. Explain the supply of labour by a diagram, in the perfectly competitive market.
Answer: In the figure, SS is the labor curve that is seen bending backwards after point E, since when the wages of [The answer text from the source is incomplete here.]

In simple words: The graph shows the labor supply curve, which sometimes bends backward after a certain wage point.

🎯 Exam Tip: Note that the labor supply curve can become backward-bending at very high wage rates, as individuals may prefer more leisure over additional income.

 

Question 14. Show the price controlled by the government through a diagram.
Answer: In the figure, SS is the supply curve and DD is the demand curve. P is the equilibrium price, and q is the equilibrium quantity. The government fixes a controlled price \( P_1 \) that is lower than the equilibrium price. Thus, the price is reduced from \( OP \) to \( OP_1 \).

In simple words: The diagram shows that when the government sets a controlled price lower than the natural market price, the price goes down.

🎯 Exam Tip: Illustrate controlled prices by drawing a horizontal line below the equilibrium point, indicating a price ceiling.

 

Question 15. Clarify the concept of market price.
Answer: Market price is the value of a product that is decided by the market forces, which means demand and supply. It is the price set in the short and very short term. This price has a tendency to change quickly.
In simple words: Market price is how much something sells for right now, shaped by supply and demand, and it can change fast.

🎯 Exam Tip: Emphasize that market price is dynamic and constantly adjusts to current demand and supply conditions.

 

Question 16. What do you mean by normal price?
Answer: In a market for goods, the demand curve generally slopes downward, meaning less is demanded at higher prices. Conversely, the supply curve generally slopes upward, meaning more is supplied at higher prices.
In simple words: This explains that as prices rise, demand usually falls, and supply usually rises.

🎯 Exam Tip: While the given answer describes market curve behavior, a "normal price" is often considered a long-run equilibrium price where firms earn normal profits.

 

Question 17. What is the difference between goods market and labour market? Clarify it.
Answer: In a goods market, households demand products and firms supply them. In contrast, in a labor market, firms demand labor and households supply it.
In simple words: In the goods market, families buy and businesses sell. In the labor market, businesses buy and families sell their work.

🎯 Exam Tip: Clearly define the roles of households and firms as buyers and sellers in both goods and labor markets.

 

Question 18. Explain the minimum support price by diagram.
Answer: In the figure, SS is the supply curve and DD is the demand curve. \( OP \) is the equilibrium price, and \( Oq \) is the equilibrium quantity. The government fixes a support price \( OP_1 \) that is above the equilibrium price, which is the minimum fixed price for the product. Here, the price is increased from \( OP \) to \( OP_1 \).

In simple words: The diagram shows that the government sets a support price higher than the normal market price to help producers.

🎯 Exam Tip: Illustrate support prices by drawing a horizontal line above the equilibrium point, indicating a price floor.

 

Question 19. Explain the marginal aquisition product of labour.
Answer: The marginal acquisition product of labor means the extra benefit a business gets when it uses one more unit of labor. It is found by multiplying the additional output from that labor (marginal product) by the additional revenue earned from selling that output (marginal acquisition). This value is often shown as W.
In simple words: It is the extra money a business makes by hiring one more worker.

🎯 Exam Tip: Remember that marginal acquisition product links the output from an additional worker to the revenue it generates for the firm.

 

Question 20. Explain marginal product price of labour.
Answer: The marginal product price of labor is calculated by multiplying the additional production achieved by using one more unit of labor.
In simple words: It is found by multiplying how much more is produced by one extra worker by the selling price of that extra production.

🎯 Exam Tip: This concept helps firms decide how many workers to hire by comparing the cost of labor to the value of output gained.

 

Question 22. When do we say that there is an excess demand in market?
Answer: Excess demand in a market happens when people want to buy more of a product than what is available to sell. This usually occurs when the price of the product is lower than its normal market price, looking at both the demand and supply curves.

In simple words: Excess demand means people want to buy more than what's available, usually because the price is too low.

🎯 Exam Tip: In diagrams, excess demand is shown as the horizontal distance between the demand and supply curves below the equilibrium price.

 

Question 23. When do we say that there is an excess supply in market?
Answer: Excess supply happens when the market price is higher than the equilibrium price. At this higher price, customers buy less, and sellers offer more, leading to a surplus of goods that are not sold.

In simple words: Excess supply means there are more goods to sell than people want to buy, often because the price is too high.

🎯 Exam Tip: In diagrams, excess supply is shown as the horizontal distance between the supply and demand curves above the equilibrium price.

 

Question 24. What happens if the prevailing price in the market is :
(a) More than the equilibrium price
(b) Less than the equilibrium price.
Answer:
(a) If the market price is higher than the equilibrium price, then people will want to buy less (demand decreases), and sellers will offer more (supply increases).
(b) If the market price is lower than the equilibrium price, then people will want to buy more (demand increases), and sellers will offer less (supply decreases). This situation will lead to too much demand.
In simple words: If price is too high, demand falls and supply rises. If price is too low, demand rises and supply falls, leading to shortages.

🎯 Exam Tip: Understand how market forces naturally push prices back towards equilibrium in cases of excess demand or supply.

 

Question 25. Suppose that the equilibrium price is higher than the minimum average cost of firms in the market. If we allow uninterrupted entry and exit of firms, how will the market adjust with the price?
Answer: If the market's equilibrium price is higher than the lowest cost for firms to produce (minimum average cost), new firms will quickly enter the market to make a profit. This entry of new firms will increase the total supply until it matches the total demand. Eventually, the market price will settle at the lowest average cost, which is the equilibrium price.
In simple words: If companies can make good profits, new companies will join the market, increasing supply until prices drop to a normal profit level.

🎯 Exam Tip: In perfect competition, free entry and exit ensure that in the long run, firms earn only normal profits, and price equals minimum average cost.

 

Question 26. When the market permits uninterrupted entry and exit, then at what level of price does the perfect competition market is satisfied? How is the equilibrium quantity determined in such a market?
Answer: In a perfectly competitive market where firms can freely enter and exit, the market finds balance when the price matches the lowest average cost of production for firms. The equilibrium quantity, or the amount bought and sold, is then set where this price line meets the market demand curve.
In simple words: In a perfectly competitive market, price settles at the lowest production cost, and the amount sold is where this price meets customer demand.

🎯 Exam Tip: In long-run perfect competition, equilibrium price equals minimum average total cost, and equilibrium quantity is determined by the intersection of this price with market demand.

 

Question 27. By using supply and demand curves, show how does the increase price of shoes influences the sale and purchase price and quantity of pair of socks?
Answer: Socks and shoes are used together, meaning they are complementary goods. According to the diagram on the left, an increase in shoe prices leads to a decrease in the demand for shoes. As a result, the demand for socks also decreases. Consequently, the price of socks also decreases. The figure on the right shows that the demand for socks decreases from \( Q \) to \( Q_1 \), and the price decreases from \( P \) to \( P_1 \). This causes the demand curve to shift from \( DD \) to \( D_1D_1 \).

In simple words: When shoes get more expensive, people buy fewer shoes. Since socks are used with shoes, people also buy fewer socks, making their price drop.

🎯 Exam Tip: For complementary goods, an increase in the price of one good will lead to a decrease in demand for the other, shifting its demand curve to the left.

 

Question 28. Suppose that the demand and supply of commodity x in the perfectly competitive market,- is given in the following ways: equilibrium, how much of the quantity of commodity x is produced?
Answer: The question asks to find the equilibrium quantity of commodity 'x'.
First, we are given the demand and supply equations:
Demand: \( QD = 700 - P \)
Supply: \( QS = 500 + 3P \) (when \( P > 15 \))
Supply: \( QS = 0 \) (when \( P < 15 \))
Here, \( QD \) is quantity demanded, \( QS \) is quantity supplied, and \( P \) is price.

To find the equilibrium price, we set quantity demanded equal to quantity supplied:
\( QD = QS \)
\( 700 - P = 500 + 3P \)
Now, we collect the price terms on one side and constant terms on the other:
\( 700 - 500 = 3P + P \)
\( 200 = 4P \)
So, we solve for \( P \):
\( P = \frac{200}{4} \)
\( P = 50 \)
The equilibrium price is Rs 50 per unit.

Next, we find the equilibrium quantity using the equilibrium price \( P = 50 \). We can use either the demand or supply equation:
Using the demand equation:
\( QD = 700 - P \)
\( QD = 700 - 50 \)
\( QD = 650 \) units

Using the supply equation (for \( P > 15 \)):
\( QS = 500 + 3P \)
\( QS = 500 + (3 \times 50) \)
\( QS = 500 + 150 \)
\( QS = 650 \) units
Therefore, the equilibrium quantity of commodity 'x' is 650 units. Firms will not produce less than Rs 50 because they would face losses.
In simple words: We find the price where demand equals supply (Rs 50). Then we use this price in the demand or supply formula to find the total amount bought and sold (650 units).

🎯 Exam Tip: Always verify that the calculated equilibrium price satisfies any conditions given for the supply function (e.g., \( P > 15 \) in this case).

 

RBSE Class 12 Economics Chapter 13 Long Answer Type Questions

 

Question 1. Explain market equilibrium. Show through diagrams the effect on equilibrium quantity and price when the supply curve shifts to the right and demand curve shifts to the right.
Answer: Market equilibrium is a situation in a market where the demand for a commodity is exactly equal to its supply at a particular price. In this balanced state, the market clears itself because the quantity demanded matches the quantity supplied. This means there is no extra demand (shortage) and no extra supply (surplus). The price that exists in the market at this point is called the equilibrium price. This concept is central to the general theory of how prices are determined by demand and supply.
In simple words: Market equilibrium is when the amount people want to buy equals the amount sellers want to sell at a certain price, making the market balanced.

🎯 Exam Tip: Start by clearly defining market equilibrium as the point where demand and supply curves intersect, leading to a stable price and quantity.

Question 1. Explain market equilibrium. Show through diagrams the effect on equilibrium quantity and price when the supply curve shifts to the right and demand curve shifts to the right.
Answer: According to Professor J.K. Mehta, equilibrium means a stable state where there is no tendency for change. Professor Boulding also compares it to a ball rolling at a steady speed or a forest where individual trees grow and die, but the forest as a whole remains unchanged. This means the overall balance stays the same. When the supply curve shifts to the right and the demand curve shifts to the left, the equilibrium price decreases. The equilibrium quantity remains unchanged. The final equilibrium depends on how much demand decreases and how much supply increases. We can understand this with different situations:
(i) Effect when decrease in demand is less, and increase in supply is more: In the figure below, when demand decreases, the new demand curve moves to \( \text{D}_1\text{D}_1 \). When supply increases, the new supply curve moves to \( \text{S}_1\text{S}_1 \). The new equilibrium point is \( \text{E}_1 \). This causes the equilibrium price to decrease from OP to \( \text{OP}_1 \), and the equilibrium quantity to increase from OQ to \( \text{OQ}_1 \). In this case, the price reduces more than the quantity.
(ii) Effect when decrease in demand and increase in supply are equal: The diagram shows that an equal reduction in demand shifts the demand curve to \( \text{D}_1\text{D}_1 \), and an equal increase in supply shifts the supply curve to \( \text{S}_1\text{S}_1 \). The new equilibrium point is \( \text{E}_1 \). In this situation, the equilibrium quantity remains unchanged, but the equilibrium price decreases.

🎯 Exam Tip: Remember to clearly label all curves, axes, and equilibrium points in your diagrams. Explain each scenario step-by-step, describing the shifts and their impact on price and quantity.

(iii) When reduction in demand is more and increase in supply is less: When the new demand curve \( \text{D}_1\text{D}_1 \) is formed due to a decrease in demand, and the new supply curve \( \text{S}_1\text{S}_1 \) is formed due to an increase in supply, the new equilibrium point is \( \text{E}_1 \). The equilibrium quantity reduces from OQ to \( \text{OQ}_1 \), and the price reduces from OP to \( \text{OP}_1 \). Here, the price reduces more significantly compared to the quantity.

🎯 Exam Tip: When drawing diagrams for shifts, ensure the new curves are clearly labeled (\( \text{D}_1 \), \( \text{S}_1 \)) and the new equilibrium point (\( \text{E}_1 \)) is marked to show the direction of change in price and quantity.

 

RBSE Class 12 Economics Chapter 13 Numerical Questions

 

Question 1. Suppose that the demand and supply curve in a perfectly competitive market is as follows: \( \text{QD} = 800 - P \), \( \text{QS} = 500 + 3P \), When \( P \ge 15 \), \( \text{QS} = 0 \), when \( P < 15 \) Explain (i) Why is the market supply of goods zero at any price less than 15 rupees? (ii) What is the equilibrium price of goods? (iii) What quantity of the product will be produced on equilibrium?
Answer:
(i) The market supply of goods is zero at any price less than Rs 15 because the minimum average cost of producing this product is Rs 15. If a firm sells the product for less than Rs 15, it will face a loss. Therefore, firms will not supply any goods if the price is below Rs 15.
(ii) We can find the equilibrium price by setting the quantity demanded (\( \text{QD} \)) equal to the quantity supplied (\( \text{QS} \)). Given: \( \text{QD} = 800 - P \) \( \text{QS} = 500 + 3P \) At equilibrium: \( \text{QD} = \text{QS} \) \( 800 - P = 500 + 3P \) Now, let's solve for P: \( 800 - 500 = 3P + P \) \( 300 = 4P \)
\( \implies P = \frac{300}{4} \)
\( \implies P = 75 \) So, the equilibrium price is Rs 75.
(iii) Now, let's find the equilibrium quantity by putting \( P = 75 \) into either the demand or supply equation. Using the demand equation: \( \text{QD} = 800 - P \) \( \text{QD} = 800 - 75 \)
\( \implies \text{QD} = 725 \) Using the supply equation: \( \text{QS} = 500 + 3P \) \( \text{QS} = 500 + (3 \times 75) \) \( \text{QS} = 500 + 225 \)
\( \implies \text{QS} = 725 \) Thus, the equilibrium quantity produced will be 725 units.
In simple words: Firms won't sell below Rs 15 as they would lose money. The price where demand and supply match is Rs 75, and at this price, 725 units will be bought and sold.

🎯 Exam Tip: Always remember to state the reason why supply might be zero below a certain price, especially in competitive markets. For calculations, show all steps clearly and substitute the equilibrium price into both demand and supply equations to verify your quantity answer.

 

Question 2. Suppose one commodity has the following demand and supply function. \( \text{QD} = 100 - 20P \), \( \text{QS} = -5 + 15P \) Find out the equilibrium price and quantity.
Answer: To find the equilibrium price and quantity, we set the quantity demanded (\( \text{QD} \)) equal to the quantity supplied (\( \text{QS} \)). Given: \( \text{QD} = 100 - 20P \) \( \text{QS} = -5 + 15P \) At equilibrium: \( \text{QD} = \text{QS} \) \( 100 - 20P = -5 + 15P \) Now, let's solve for P: \( 100 + 5 = 15P + 20P \) \( 105 = 35P \)
\( \implies P = \frac{105}{35} \)
\( \implies P = 3 \) So, the equilibrium price is Rs 3 per unit. Next, we find the equilibrium quantity by putting \( P = 3 \) into either the demand or supply equation. Using the demand equation: \( \text{QD} = 100 - (20 \times 3) \) \( \text{QD} = 100 - 60 \)
\( \implies \text{QD} = 40 \) Using the supply equation: \( \text{QS} = -5 + (15 \times 3) \) \( \text{QS} = -5 + 45 \)
\( \implies \text{QS} = 40 \) Thus, the equilibrium quantity is 40 units.
In simple words: When we make demand and supply equal, we find the price where everything balances out. For these equations, that price is Rs 3, and the quantity bought and sold is 40 units.

🎯 Exam Tip: Always ensure your final price is positive and makes sense in a real-world context. Remember to calculate both equilibrium price and quantity, showing both substitutions for full marks.

 

Question 3. Suppose the equation of demand curve and the supply curve is given below. Solve the equation to know the price and quantity. \( \text{QD} = 8,196 - 3,596P \), \( \text{QS} = 600 + 4000P \)
Answer: To find the equilibrium price and quantity, we set the quantity demanded (\( \text{QD} \)) equal to the quantity supplied (\( \text{QS} \)). Given: \( \text{QD} = 8,196 - 3,596P \) \( \text{QS} = 600 + 4000P \) At equilibrium: \( \text{QD} = \text{QS} \) \( 8,196 - 3,596P = 600 + 4000P \) Now, let's solve for P: \( 8,196 - 600 = 4000P + 3,596P \) \( 7,596 = 7,596P \)
\( \implies P = \frac{7,596}{7,596} \)
\( \implies P = 1 \) So, the equilibrium price is Rs 1. Next, we find the equilibrium quantity by putting \( P = 1 \) into either the demand or supply equation. Using the demand equation: \( \text{QD} = 8,196 - (3,596 \times 1) \) \( \text{QD} = 8,196 - 3,596 \)
\( \implies \text{QD} = 4,600 \) Using the supply equation: \( \text{QS} = 600 + (4,000 \times 1) \) \( \text{QS} = 600 + 4,000 \)
\( \implies \text{QS} = 4,600 \) Thus, the equilibrium quantity is 4,600 units.
In simple words: When demand equals supply, the price is Rs 1. At this price, 4,600 units of the product will be bought and sold.

🎯 Exam Tip: Be careful with large numbers and decimal calculations. Double-check your arithmetic, especially when isolating the price variable, to avoid simple errors.

 

Question 4. The equation of the demand for laptop and the opposite fulfillment curve is given below - \( P = 2\text{QS} \), \( P = 42 - \text{QD} \) Find out the equilibrium price.
Answer: We are given two equations: 1. \( P = 2\text{QS} \) 2. \( P = 42 - \text{QD} \) From equation (1), we can express \( \text{QS} \) in terms of P: \( \text{QS} = \frac{P}{2} \) From equation (2), we can express \( \text{QD} \) in terms of P: \( \text{QD} = 42 - P \) At equilibrium, the quantity demanded (\( \text{QD} \)) equals the quantity supplied (\( \text{QS} \)). So, \( \text{QD} = \text{QS} \) Substituting the expressions for \( \text{QD} \) and \( \text{QS} \): \( 42 - P = \frac{P}{2} \) To remove the fraction, multiply both sides by 2: \( 2 \times (42 - P) = P \) \( 84 - 2P = P \) Now, gather P terms on one side: \( 84 = P + 2P \) \( 84 = 3P \)
\( \implies P = \frac{84}{3} \)
\( \implies P = 28 \) So, the equilibrium price is Rs 28.
In simple words: We have two rules for how price relates to how much is wanted and how much is available. When we make those rules meet, we find the price will be Rs 28.

🎯 Exam Tip: When equations are given with P on one side and Q on the other, first rearrange them to have Q on one side and P on the other. This makes equating QD and QS easier.

 

Question 5. Suppose following are the equations of demand and supply \( \text{QD} = 110 - 10P \), \( \text{QS} = -100 + 20P \) Find out the equilibrium price and its quantity.
Answer: We know that at the equilibrium price, the quantity demanded (\( \text{QD} \)) and the quantity supplied (\( \text{QS} \)) are equal. Given: \( \text{QD} = 110 - 10P \) \( \text{QS} = -100 + 20P \) At equilibrium: \( \text{QD} = \text{QS} \) \( 110 - 10P = -100 + 20P \) Now, let's solve for P: \( 110 + 100 = 20P + 10P \) \( 210 = 30P \)
\( \implies P = \frac{210}{30} \)
\( \implies P = 7 \) Thus, the equilibrium price (\( P \)) is Rs 7. Next, we find the equilibrium quantity by putting \( P = 7 \) into either the demand or supply equation. Using the demand equation: \( \text{QD} = 110 - (10 \times 7) \) \( \text{QD} = 110 - 70 \)
\( \implies \text{QD} = 40 \) Using the supply equation: \( \text{QS} = -100 + (20 \times 7) \) \( \text{QS} = -100 + 140 \)
\( \implies \text{QS} = 40 \) Thus, the equilibrium quantity is 40 units.
In simple words: To find the balance point, we set demand and supply equations equal. The price where they meet is Rs 7, and the amount traded is 40 units.

🎯 Exam Tip: Pay close attention to negative signs in the equations, especially when moving terms from one side to the other. A small error can lead to a completely different answer.

 

Question 6. (iii) If the market price is ₹ 3, then what will be the condition of the demand and supply of market?
Answer: To determine the market condition at a price of Rs 3, we first need to find the equilibrium price and quantity based on the implicit demand and supply relationships being used here.
(i) First, let's establish the equilibrium price and quantity based on the equations that seem to be implied by the working shown. Assume the demand equation is \( \text{QD} = 10 - P \) and the supply equation is \( \text{QS} = P \). At equilibrium, \( \text{QD} = \text{QS} \): \( 10 - P = P \) \( 10 = P + P \) \( 10 = 2P \)
\( \implies P = \frac{10}{2} \)
\( \implies P = 5 \) So, the equilibrium price is Rs 5. At this equilibrium price, the quantity demanded is \( \text{QD} = 10 - 5 = 5 \) units, and the quantity supplied is \( \text{QS} = 5 \) units.
(ii) Now, consider if the market price is Rs 7. If the market price is Rs 7, which is higher than the equilibrium price of Rs 5. In this case, there will be an excess supply in the market. This means suppliers will want to sell more than what buyers are willing to purchase at that higher price.
(iii) Finally, consider the given condition: if the market price is Rs 3. If the market price is Rs 3, which is lower than the equilibrium price of Rs 5. In this market condition, there will be an excess demand. This means buyers will want to purchase more than what suppliers are willing to sell at that lower price.
In simple words: If the market price is Rs 5, things are balanced. If the price goes up to Rs 7, sellers have too much. If the price goes down to Rs 3, buyers want more than what's available.

🎯 Exam Tip: When given a market price, always compare it to the equilibrium price. If market price > equilibrium price, there is excess supply. If market price < equilibrium price, there is excess demand. Clearly state this relationship.