MP Board Class 12th Economics Important Questions Unit 4 Form of Market and price Determination

Micro Economics Form of Market and price Determination Important Questions

Micro Economics Form of Market and price Determination Objective Type Questions

Questions 1.
Choose the correct answers:

Question 1.
Main feature of perfectly competitive market is:
(a) Uniform price
(b) Homogeneous product
(c) Large number of buyers and sellers
(d) All of the above.
(d) All of the above.

Question 2.
The market in which there is free entry and exit is:
(a) Monopolistic competition market
(b) Imperfect competition market
(c) Perfect competitions market
(d) None of these.
(c) Perfect competitions market

Mp board 12th Economics Unit 4 Question 3.
There is inverse relation between demand and price of goods in:
(a) Only monopoly
(b) Only monopolistic competition
(c) Both (a) and (b)
(d) Only perfect competition.
(d) Only perfect competition.

Question 4.
According to which economist “Price of a commodity is determined by the forces of demand and supply”:
(a) Jevons
(b) Valros
(c) Marshall
(d) None of these.
(c) Marshall

Question 5.
Not a condition of equilibrium of monopoly firm:
(a) Average revenue = Marginal revenue
(b) Marginal revenue = Marginal cost
(c) Marginal cost curve cuts marginal revenue curve from downwards.
(d) Both (b) and (c).
(a) Average revenue = Marginal revenue

Question 6.
Market price is found in:
(a) Short period market
(b) Long period market
(c) Very long period market
(d) None of these.
(a) Short period market

12th Economics Unit 4 Question 7.
Demand curve of a firm is perfectly elastic in:
(a) Perfect competition
(b) Monopoly
(c) Monopolistic competition
(d) Oligopoly.
(a) Perfect competition

Question 2. Fill in the blanks:

  1. The price on which demand and supply are equal, is called ………………..
  2. Price discrimination is possible in ……………….. market.
  3. Increase in total revenue by the sale of additional unit of the commodity is called ………………..
  4. If the supply of any good remains unchanged, and with the increase in demand its ……………….. increases.
  5. In perfect competition market, a firm is a ………………..
  6. Price ceiling is done by the ………………..
  7. In the ………………..period demand force is more effective.
  8. In ……………… there should be two or more two firms.
  9. A group of firms is called ………………..
  10. The market for petrol is ………………..


  1. Normal
  2. Monopolistic
  3. Marginal revenue
  4. Increase
  5. Price takes
  6. Government
  7. Short period
  8. Oligopoly
  9. Industry
  10. International.

MP Board 12th Economics Unit 4 Question 3.
State true or false:

  1. Market of bricks is provincial.
  2. Normal price is imaginary.
  3. Imperfect competition is a practical approach.
  4. The forces of demand and supply remains in the state of equilibrium for a long period.
  5. Among the forces of demand and supply, either of the two determines the price of the goods.
  6. Under perfect competition firms themselves determine the price.
  7. Under monopolistic competition demand curve is uncertain.


  1. False
  2. True
  3. True
  4. False
  5. False
  6. False
  7. True.

Question 4.
Match the following:


  1. (c)
  2. (a)
  3. (e)
  4. (d)
  5. (b).

Question 5. Answer the following in one word / sentence:

  1. The market was Tomatoes is known as?
  2. Market price revolves around?
  3. A perfectly competitive firm in the long period earns which type of profit?
  4. Who has given importance to time in the determination of price?
  5. Unusual gain or loss is found in which market competition?
  6. In practical life which competition is not found?


  1. Very short period
  2. Normal price
  3. Normal profit
  4. Prof. Marshall
  5. Imperfect competition
  6. In case of perfect competition.

Form of Market and price Determination Very Short Answer Type Questions

Question 1.
What is equilibrium price?
The price at which the demand and supply of product is equal is called equilibrium point.

Question 2.
What is the effect on equilibrium price when demand and supply change?
Changes in demand and supply is a normal process. It directly affects the equilibrium price sometimes demand is more than the supply, and supply sometimes exceeds the demand. Increase or decrease in both can cause a fall in equilibrium price.

Question 3.
What are the causes of changes in demand?
Changes in demand can be of many reasons:

  1. Change in income of the consumer.
  2. Change in population.
  3. Change in habits, interest and income of the consumer.
  4. Change in availability of substitute goods.
  5. Change in price of related goods.

MP Board 12th unit 4 important Question 4.
What are the causes of changes in the supply?
Following causes can be responsible for the changes in the supply of a goods.

  1. Change in the price of raw material. .
  2. Change in availability of raw material.
  3. Change in the wages of the laborious
  4. Change in price of machinery.
  5. Change in the laws of production.
  6. Change in the techniques of production.

Question 5.
Define perfect competition.
According to Prof. Marshall:
“The more nearly perfect market is the stronger, the tendency for the same price to be paid for the same thing at the same time in all parts of the market.”

Question 6.
What is market price?
Market price is also known as short period price which is determined by temporary interaction of demand and supply. It is also known as temporary price.

Question 7.
What is normal price?
Normal price is a long-term price of any commodity. It is determined with the interaction of demand and supply. It is an imaginary price and is not found in actual life.

Question 8.
What is perfect competition?
Perfect competition refers to market situation where there are large numbers of ‘buyers and seller’s. They have perfect knowledge about the market. Goods are homogeneous, perfect mobility of the factors of production and one price prevails in the market.

12th Economics Unit 4 Question 9.
What is the effect of large number of buyers and sellers?
In perfect competition, the number of buyers and sellers are very large. Each buyer buys a very small part of the product and is unable to influence the price output or price prevailing in the market. Likewise the supply of an individual seller is Very small in comparison to total supply and thus, he is unable to affect the price policy of the product alone by changing his supply.

Question 10.
Write three features of Monopolistic competition.

  1. There are large number of buyers and sellers selling closely related, but not homogeneous products. Each firm has a limited share/control over the market. Large number of firms leads to competition in the market.
  2. The products of the sellers are differentiated but are close substitute of one another. The products produced by one firm is different from products produced by other firms.
  3. There is free entry and exit of firms.

Question 11.
Why there are very few firms in Oligopoly market?
Following reasons show that why few firms exist in Oligopoly:

  1. Huge set-up costs,
  2. Patent rights,
  3. License requirements,
  4. Control over raw materials, etc,
  5. Presence of cut throat competition among firms.

Question 12.
In perfect competition situation sellers and buyers have full knowledge about the market. What is its effect?
In perfect competition buyers and sellers both have perfect knowledge about the prevailing market condition. Due to homogeneous product, the sellers can not sell the goods on different prices. This is the reason that the buyers and sellers accept the same price.

mp board 12th economics unit 4 very short Question 13.
What do you mean by supply?
Supply refers to the quantity of goods available for sale at a given price in a given market at a given time.

Question 14.
What do you mean by contraction of supply?
Other factors remaining constant when a decrease in price causes fall in supply, it in called contraction of supply.

Question 15.
What do you mean by price control?
Price control means fixation of price by law. At the controlled price quantity demanded in not equal to quantity supplied. The price is fixed by the government below the equilibrium price. Its aim is to make the goods available to poor.

Question 16.
What do you mean by equilibrium price?
The equilibrium price is that price at which its two determinants: Demand and supply are balanced or equal. Thus,
S = D.

Question 17.
What do you mean by explicit cost?
Explicit cost refers to all those expenses made by a firm to buy goods directly. They include payment of raw material, taxes, wages, etc.

Question 18.
What do you mean by supported price?
The government fixes the prices of several goods higher than their equilibrium price to protect the interest of farmers.

Class 12th Economics Unit 4 Question 19.
Define Monopoly market or Explain Monopoly.
Monopoly is a market situation in which there is a single seller of a single, commodity. In this way, he can control the supply of the goods and also fixes the price according to his own choice.

Question 20.
What to you mean by Oligopoly?
In oligopoly, there are few two or three producers or sellers. They deal in either homogeneous or different products. They compromise and form organization. The person or the organization who produces the maximum generally fix the prices.

Question 21.
What do you mean by dumping?
When there are excess production the monopolist starts selling his goods at lower rate in other countries or dispose off, the goods it is called dumping.

Question 22.
What do you mean by monopolistic competition?
It is the market situation in which there are many sellers of a particular product, but the product of each seller is in same way, differentiated in the minds of consumer from the product of every seller. It is the midway situation between perfect competition and monopoly.

Form of Market and price Determination Short Answer Type Questions

Question 1.
Distinguish between Market Price and Normal Price.
Differences between Market Price and Normal Price:
Market Price:

  1. Market price is a short term price.
  2. Market price always fluctuates.
  3. Market price may be less or more than the cost of production.
  4. Market price is the real price.
  5. Demand has got more impact on the determination of price.
  6. Market price can be fixed for both productive and reproductive goods.

Normal Price:

  1. Normal price is the long term price.
  2. Normal price remains stable.
  3. Normal price is always equal to the cost of production.
  4. Normal price is imaginary price.
  5. Supply has more importance in the determination of price.
  6. Normal price is fixed for reproductive goods only.

Question 2.
Write the characteristics of Market price?
It has the following characteristics:
1. Short period price:
Market price is also known as short period price. In it prices will always be fluctuating. It will be of perishable goods and the demand will always influence the price. In this supply will be rigidly fixed. This will be very short period to meet the demand of the goods. Therefore, it is known as short period price.

2. Demand is active:
In the market price only demand will be. active. On the other hand there will be no effect of supply on it because it is passive. If demand increases price will go up and its vice versa. So, the supply is rigidly fixed in it. In other words supply is inelastic. So, in short period the effect of only demand can be seen on the price line.

3. Proportional relation between demand and supply:
Thirdly, there is proportionate relationship between demand and market price. If the demand increases two times,the price will too go double because the supply is rigidly fixed. Similarly will happen in the case of the fall of the demand. So, it can be said that there is direct relationship between the demand and the market price.

4. Market price is more or less to marginal cost:
Due to passiveness of the supply the market price may be more or less to marginal cost. It is because supply is inelastic. It never be increased. If the demand increases again and again the price will be very high and the marginal cost remain constant. So, it will be lower to price line. The same will be in the case of decrease of demand i.e., it will be high. So, market price can be more or less to marginal cost.

5. Market price is practical:
In our day-to-day life this market price can be seen. In market this price actually we get in our daily life. So, it is true to say that market price is practical and can be realized in our real life. Hence, it is said market price is practical. It can be visualized in our day to day economic life.

Question 3.
Write features of normal price.
Normal price is long term price determined by the interactions of demand and supply.

  1. Normal price is long term price of durable goods. This price is determined by the interaction of demand and supply.
  2. In normal price both demand and supply are active. So, it has permanent equilibrium. Here, demand and supply both can be increased in due course of time.
  3. Normal price is imaginary price and is not found in actual market.
  4. Normal price is long term price, because it is determined by the permanent forces of demand and supply.
  5. In the determination of normal price, supply has got more importance because the producer has got enough time to meet the demand.
  6. Normal price is generally related with reproductive goods, because it relates with long term period.

Question 4.
Market for a goods is in equilibrium. Explain the chain of reaction in the market if the prices are.
1. Higher than an equilibrium price:
When price prevailing in the markets is higher than that of equilibrium price, demand will be less than supply i.e., there is excess supply in the market. Excess supply will force the market price to slide down causing extension of demand and contraction of supply. This process will continue till equilibrium between supply and demand is stuck.
Thus, equilibrium price will be restored through the free play of market forces of demand and supply.

2. Market price lower than equilibrium price:
In a situation of excess demand consumers are willing to buy greater amount of commodity than what the producers are willing to sell. Accordingly, price of the commodity will be pushed up. This will cause expansion of supply and contraction of demand. This process will continue till demand becomes equal to supply and equilibrium is stuck in the market.

Question 5.
Explain the effect of changes in demand and supply on equilibrium price?
If there is a change in demand and supply, the demand curve and supply curve will also shift from their original position and as a result, the equilibrium price will change. This change can take place in three ways:

1. When the supply is fixed but the demand is changed:
If the supply does not change but there is a change in demand, the increase in demand will result in rise, in price and the decrease in demand will result in fall in price. It is clear from the diagram. Here, the DD curve is shifted to D1 D, the price will rise from QP to Q1 P and the quantity sold will be increased from OQ to OQ1. Conversely if the D1 D1 curve is shifted to DD or the demand is decreased, the price will full form Q1 P1 to QP and the quantity sold will fall from OQ1 to OQ.

2. When the demand is fixed but the supply is changed: When the demand for a commodity is fixed but this is changed in supply, the supply curve will shift.The rise in supply will result in fall in price and the fall in supply will which result in rise in price. In the case of rise in supply, the supply curve will shift towards the right. If the supply falls, the supply curve will shift towards the left.

This can be explained with the help of diagram. Here, SS is shifted to S1S1 whereas DD curve is unchanged, hence the price is reduced from QP to Q1 P1 and the quantity sold is increased from OQ to OQ1. Conversely, the fall in supply i.e., from S1S1 to SS, the price will rise from Q1 P1 to QP and the quantity sold will reduce from OQ1 to OQ.

Question 6.
“When equilibrium price of a good is less than its market price, there will be competition among the sellers.” Give reasons.
When equilibrium price of a goods is less than its market price, there will be competition among the sellers. At a price lower than market price, there will be excess supply, i.e. supply will be more than demand.

Question 7.
“In monopoly in the long period the equilibrium of a firm may reach to zero.” Why?
Why can a firm not earn abnormal proof its or zero under perfect competition in the long run?
A firm under perfect competition can earn abnormal profit in the short-run and not in the long-run. When a firm is earning abnormal profit in the short-run. Then new firms will be motivated to enter the industry. With the entry of new firms in the industry, the total supply will increase. With the increase in the supply and total demand remaining same. The price will start decreasing as a result abnormal profits earned by the existing firms will start disappearing. This process will continue until all the firms earn only normal profit, i.e., zero abnormal profit.

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