# CBSE Board Exam 2020: Check Important Questions & Answers for Class 12 Economics (Micro) - Chapter 5: Market Equilibrium

If you are appearing for CBSE Class 12th Board exams 2020, check this list of important questions and answers from Chapter 5 of Microeconomics.

Important Questions & Answers for Class 12 Economics (Micro) - Chapter 5

CBSE Class 12th Economic exam is scheduled for 13th March 2020. In this article we have complied a list of important questions from Chapter 5 of Part A (Microeconomics): Market Equilibrium. Questions given below are important questions and are expected to be asked in Class 12 Economics board exam 2019-20.

Ques 1 Suppose the demand and supply equations of a commodity X in a perfectly competitive market are given by :

Qd = 1700 – 2P

Qs = 1300 + 3P

Calculate the value of equilibrium price and equilibrium quantity of the commodity X.

Solution: Equilibrium price and quantity for the commodity X in a perfectly

competitive market will be determined where:

Qd = Qs

1700– 2P = 1300 + 3P

1700-1300= 3P+2P

400 = 5P

P= 80

Therefore, Equilibrium price = 80

Equilibrium quantity can be ascertained by substituting equilibrium price =

80, either in Qd or Qs.

Qd = 1700– 2P

Qd = 1700-2(80)

Qd = 1700-160 = 1,540 units

Therefore, equilibrium quantity =1,540 units.

CBSE Class 12 Syllabus 2020: All Subjects

Ques 2 ‘‘For a firm to be in equilibrium, Marginal Revenue (MR) and Marginal Cost (MC) must be _________ and beyond that level of output Marginal Cost must be _________.’’ (Fill up the blank)

Solution: equal, rising

Ques 3 The market for a good is in equilibrium. How would an increase in an input price affect the equilibrium price and equilibrium quantity, keeping other factors constant? Explain using a diagram.

Solution:

The market for a good is in equilibrium at point e, increase in the input price will decrease the supply in the market and supply curve will shift towards left from SS to S’S’. New supply curve intersects the original demand curve DD at higher point e’, so equilibrium price will increase from OPe to OPe’ and equilibrium quantity will fall from OQe to OQe’.

Ques 4 Given the following schedule, state at which level of output, will the firm be at equilibrium and why.

 Quantity (in units) Price (in Rs.) Total Cost (in Rs.) 0 20 10 1 20 50 2 20 80 3 20 100 4 20 105 5 20 125 6 20 150

Solution:

 Quantity (in units) Price =AR (in ) TR (in ) TC (in     ) MR (in ) MC (in     ) 0 20 0 10 - - 1 20 20 50 20 < 40 2 20 40 80 20 < 30 3 20 60 100 20 = 20 4 20 80 105 20 > 5 5 20 10 125 20 = 20 6 20 120 150 20 > 25

The firm will be in equilibrium at 5 units of output as at this level of output  both the conditions of firm’s equilibrium are satisfied, i.e.

i) MR isequalto MC (20)

ii) MC isincreasingat the point of equilibrium

Ques 5 The market for a commodity is in equilibrium. The supply of the commodity increases without any corresponding change in the demand for the commodity. Discuss the impact of the change on the equilibrium price and equilibrium quantity.

Solution: If the market for a good is in equilibrium and there is an increase in the

supply of a commodity. This will lead to occurrence of “excess supply” of the commodity in the market. This would lead to:

• There will be competition among the sellers to sell their commodities.
• Sellers reduce the price as demand is less.
• Equilibrium price falls.
• Equilibrium quantity increases.

Ques 6 ‘‘For a consumer to be in equilibrium position, marginal rate of substitution between the two goods must be equal to ratio of prices of the two goods.’’ Do you agree with the given statement ? Justify your answer.

Solution: The given partially statement is true. As the consumer will get stable equilibrium only when the following two conditions are satisfied:

Slope of Indifference Curve is equal to the price ratio or MRS XY = Px/Py

ii) MRSxy must be diminishing. There may be following two situations that may arise: If MRS XY>Px/Py. consumer is willing to pay more for commodity X than the price preventing in the market It will induce him to purchase more of X less of Good Y, which leads to decline of MRS. This will continue until MRS XY = Px/Py vice – versa. It must be supported by the second condition i.e. MRS must diminish. Thus, the consumer will get stable equilibrium only when MRS XY = Px/Py and Indifference curve is convex to the origin.

Ques 7 The market for a commodity is in equilibrium. The supply of the  commodity decreases, without any corresponding change in the demand for the commodity.

Discuss the impact of the given change on the equilibrium price and equilibrium quantity of the commodity.

Solution:

The market for a good is in equilibrium at point e. Any decrease in the supply only will shift the supply curve towards left of the original supply curve i.e. from SS to S’S’. This will create excess demand which will lead to competition among buyers, putting the upward pressure on price.) New supply curve (S’S’) intersects the original demand curve DD at higher point e’, so equilibrium price will increase from OPe to OPe’ and equilibrium quantity will fall from OQe to OQe’.

Ques 8 In the given diagram, OP is the market determined price and OP1 is the price fixed by the government.

(a) Identify if the diagram represents, price ceiling or price flooring.

(b) Discuss the likely behaviour of the market in the given condition.

Solution: (a) ‘AB’ in the given diagram represents ‘Price Floor’.

(b) In the situation of price floor the Government sets the price above the equilibrium price, it creates the situation of excess supply in the market that leads to surplus of unsold stock with the producer and other consequences.

Ques 9 What is meant by ‘Price Floor’ ? Explain using a suitable example.

Solution: Price floor: Price fixed by the government at a higher level than the equilibrium price to support the interest of the producers.

Example:-Minimum support price on agricultural commodities is an example of price floor.

Ques 10 What is meant by ‘Price Ceiling’ ? Explain using a suitable example.

Solution: The government may impose upper limit on the price to be charged for a good or service. This maximum price is called ‘price ceiling’. It is normally fixed below the equilibrium price, for the benefits of the consumers. Example :-Price ceiling is generally imposed on necessity goods like wheat, rice, sugar etc.

mportant Questions & Answers for Class 12 Economics (Micro) - Chapter 1

Important Questions & Answers for Class 12 Economics (Micro) - Chapter 2

Important Questions & Answers for Class 12 Economics (Micro) - Chapter 3

Important Questions & Answers for Class 12 Economics (Micro) - Chapter 4

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