Forms Of Market And Price Determination Under Perfect Competition With Simple Applications Class 11 Notes Economics Chapter 7 - CBSE
Chapter : 7
Market
The term “Market” refers to the arrangement that bring the buyers and sellers in contact with each other to facilitate sale and purchase of goods and services.
Forms Of Market
- Perfect Competition
- Monopolistic Competition
- Monopoly
- Oligopoly
Note: Only perfect competition is in syllabus.
Perfect Competition
It is a form of market structure where there is a large number of buyers and sellers of a homogeneous commodity.
Features of Perfect Competition
- Large number of sellers: It implies that no individual firm is able to influence the total market supply.
- Large number of buyers: It implies that no individual buyer can affect the total demand in the market.
- Homogeneous Market: The products sold under perfect competition are homogeneous. Thus, the price of
product remains same throughout market. - Perfectly Knowledge: Buyers and sellers are fully aware of the market prices of a commodity and prevailing market conditions.
- Free Entry and free exit of firms: There are no restrictions on the entry and exit of firms.
- Perfectly Mobility: Resources are perfectly mobile.
- Absence of transport cost: No extra transport cost, to ensure same price throughout market.
Note :
- A firm under perfect competition is a price taker, and not a price maker.
- Demand curve of a firm under perfect competition is perfectly elastic.
[ed = ∞] i.e. parallel to x axis. - A firm under perfect competition earns only normal profits in the long run.
Market Equilibrium
Market Equilibrium is a state
where: Total market Demand = Total Market Supply
Equilibrium Price
Price at which total market demand equals total market supply.
Equilibrium Quantity
Quantity at which total demand equals total supply.
Effects Of Shift In Demand Curve
When supply curve is perfectly elastic
Effect of Increase in Demand
Effect of Decrease in Demand
When supply curve is perfectly inelastic
Effect of Increase in Demand
Effect of Decrease in Demand
Effects Of Shift In Supply Curve
When demand curve is perfectly elastic
Effect of Increase in Supply
Effect of Decrease in Supply
When demand curve is perfectly inelastic
Effect of Increase in Supply
Effect of Decrease in Supply
Effects Of Simultaneous Change In Demand And Supply
Simultaneous Increase in Demand and Supply
- Increase in Demand is more than increase in Supply.
- Increase in Demand is equal to increase in Supply.
- Increase in Demand is less than increase in Supply.
Simultaneous Decrease in Demand and Supply
- Decrease in Demand is more than decrease in Supply.
- Decrease in Demand is equal to decrease in Supply.
- Decrease in Demand is less than decrease in Supply.
Applications Of Demand And Supply Curves
Price Ceiling (Maximum Price Legislation)
Price Ceiling is the maximum legal price which the suppliers can change for a particular good or service.
Effects
- Situation of excess demand.
- Emergence of black market.
- Assuring the availablity of certain essential commodities at minimal price to poors.
- Emergence of various methods of allocation.
- First come, first served.
- Allocation by sellers preference.
- Rationing
Floor Price (Minimum Price Legislation)
Floor Price fixed the minimum price at which the sellers may sell a particular product. To ensure higher price to producers.
Effects
- Excess supply, because producer produces more units at high price.
- Maintenance of buffer stock by government.
