CBSE Class 12 Economics Market Equilibrium VBQs

Very Short Answer Type Questions

Question. How is Total utility derived from marginal utilities?
Answer : Total utility is derived by summing up the marginal utilities TU = SMU.

Question. What will be the behaviour of total utility when marginal utility is zero?
Answer :  Total utility will be maximum.

Question. Define consumers equilibrium.
Answer : Consumers equilibrium refers to a situations in which a consumer gets maximum satisfaction from his given income and market price.

Question. What is meant by budget set.
Answer : The set of bundles available to the consumer with his given income at prevailing market price is called the budget set.

Question. How is budget line defined?
Answer : Budget line is a line showing all different possible combinations of two goods which a consumer can buy with his given income and the price of both goods.

Question. What is the impact of diminishing marginal rate of substitution on the slope of indifference curve?
Answer :  Indifference curve become convex towards the origin.

Question. How is market demand schedule derived with the help of individual demand schedules?
Answer :  By summations of individual schedules.

Question. How does availability of substitute good affect the elasticity of demand?
Answer :  The demand of a good becomes elastic if its substitute good is available in the market.

Question. What will be the impact on demand of the good due to increase in price of the substitute good?
Answer : The demand of the good will increase.

Question. What is meant by market demand?
Answer : Market demand is the sum of total demand of all the consumers in the market at a particular time and at a given price.

Question. What cause an upward movement along a demand curve?
Answer : Increase in price while other factors are constant.

Question.  A straight line demand curve is given. What will be elasticity of demand on the mid point of this curve.
Answer : Equal to unit.

Question. Why is demand of water inelastic?
Answer : Because water is a necessity good.

Question. What do you mean by homogenous product?
Answer : It means product produced by different firms is identical in all respect like quality, colour, size, weight etc. such products are perfect substitutes.

Question. What is the common feature shared by perfect and monopolistic competition?
Answer : (i) Free entry and exit of firms
(ii) Perfect mobility of factors.

Question. Define the monopoly market.
Answer : It is a form of market under which there is a single seller, selling a product which does not have close substitutes.

Question. What is normal profit?
Answer : It is the minimum profit which a firm must get to stay in business.

Question. What is cartel?
Answer :  A cartel is a group of firms which jointly set ‘output and price’ policy of its product in such a way so as to reap benefits of monopoly.

Question. What do you mean by price discrimination?
Answer : Price discrimination is a policy under which a seller sells a similar product at different prices to different buyers.

Question. Define equilibrium price.
Answer : It is the price at which demand = supply.

Question. What will be the effect on equilibrium price when increase in demand is than increase in supply?
Answer : When increase in demand is more than increase in supply, equilibrium price will increase.

Question. What is the relation between average revenue curve and demand curve under monopolistic competition?
Answer : Both AR and MR curves have negative slope

Short Answer Type Questions

Question. Given price of a good, how does a consumer decide as to how much of that good to buy?
Answer : Consumer purchases up to the point where marginal utility is equal to the price (MU=P). So long as marginal utility is greater than price, he keeps on purchasing. As he makes purchases MU falls and at a particular quantity of the good MU becomes equal to price. Consumer purchases up to this point.

Question. Explain how the demand for a good is affected by the price of its related goods. Give examples.
Answer : Related goods are either substitutes or complementary
Substitutes Goods : When price of a substitute falls, it becomes cheaper than the given good. So the consumer substitutes it for given good will decrease. Similarly, a rise in the price of substitute will result in increase in the demand for given good.
For example Tea and Coffee.
Complementary Goods : When the price of a complementary good falls its demand rises and the demand for the given good will increase. Similarly when price of complementary ood increases, then demand for given good decreases.
For example : – Car & Petrol.

Question. Explain any four factors that affect price elasticity of demand.
Answer : 1. Nature of Commodity : Necessaries like Salt, Kerosene oil etc. have inelastic demand and luxuries have elastic demand.
2. Availability of substitutes : Demand for goods which have close substitutes is
relatively more elastic and goods without close substitutes have less elastic demand.
3. Different uses : Commodities that can be put to different use have elastic demand for instance electricity has different uses.
4. Habit of the consumer : Goods to which consumers become habitual will have inelastic demand.
Examples – Liquor and Cigarette.

Question. Define marginal utility. State the law of diminishing marginal utility.
Answer : Marginal Utility : It is addition more to the total utility as consumption is increased by one more unit of the commodity.
Law of Diminishing Marginal utility : It states that as consumer consumes more and more units of a commodity, the utility derived from each successive unit goes on decreasing. According to this law TU increases at decreasing rate and MU decreases.