CBSE & NCERT Economics Class 12 Questions Answer For Chapter 4

Posted on November 15th, 2019
CBSE & NCERT Economics Class 12 Questions Answer For Chapter 4
Solved Economics Questions and Answer

CBSE & NCERT Economics Class 12 Questions Answer For Chapter 4

Hello students, below is a topic of Economics Questions Answer for Class 12 and Class 11 based on the pattern of CBSE Class 12 Economics. Use the following Economics Questions Answer to frame your answers and score extraordinary marks in your examinations.

Question 1: What are the characteristics of a perfectly competitive market?

ANSWER: Perfect Competition

This type of structure is referred to as the market that consists of a large number of sellers as well as buyers. No individual seller is able to influence the price of an existing product in the market. All sellers are in perfect competition and produce homogenous outputs, i.e. the outputs of all the sellers are similar to each other. Thus, the products are uniformly priced.

Features of Perfectly Competitive Market are:-

1) A large number of buyers and sellers

There are a large number of buyers and sellers that exist in a perfectly competitive market. The number of sellers is so high that no individual company owns the control over the market price of a commodity.

Due to a large number of sellers present in the market, there exists a perfect and free competition. A company acts as a price taker while the price is determined by the ‘invisible hands of the market’, i.e. by ‘demand for’ and ‘supply of’ goods. Thus, we can conclude that under a perfectly competitive market, an individual company is not a price maker but a price taker.

2) Homogenous products

All the companies in a perfectly competitive market produce homogeneous products. This implies that the output of each company is a perfect substitute for others’ output in terms of quantity, quality, color, size, features, etc. This indicates that the buyers are indifferent to the output of different companies. Because of the homogenous nature of products, the existence of a uniform price is guaranteed.

 

 

3) Free exit and entry of companies

In the long run, there is free entry and exit of companies. However, in the short run, some fixed factors obstruct the free entry and exit of companies. This ensures that all the companies in the long-run earn a normal profit or zero economic profit that measures the opportunity cost of the companies either to continue production or to shut down. If there are abnormal profits, new companies will enter the market and if there are abnormal losses, a few existing companies will exit the market.

4) Perfect knowledge among buyers and sellers

Both buyers and sellers are fully aware of the market conditions, such as the price of a product at different places. The sellers are also aware of the prices at which the buyers are willing to buy the product. The implication of this feature is that if any individual company is charging a higher (or lower) price for a homogeneous product, the buyers will shift their purchase to other companies (or shift their purchase from the company to other companies selling at lower prices).

5) No transport costs

This feature means that all companies have equal access to the market. The goods are produced and sold locally. Therefore, there is no cost of transporting the product from one part of the market to another.

6) Perfect mobility of factors of production

There exists geographically and occupationally perfect mobility of factors of production. This implies that the factors of production can move from one place to another and can move from one job to another.

7) No promotional and selling costs

There are no advertisements and promotional costs incurred by the companies. The selling costs under a perfectly competitive market are zero.

 

Question 2: How are the total revenue of a company, market price, and the quantity sold by that company related to each other?

ANSWER: Total revenue is defined as the total sales proceeds of a producer by selling the corresponding level of output. In other words, it can be defined as price times the quantity of output sold.

Total Revenue = Price × Quantity of output sold

TR = P × Q

TR = PQ

In a perfectly competitive market, the market price is given, i.e., a company acts as a price taker and cannot influence the price. Hence, a particular company can influence its TR by altering the quantity of output sold.

 

Question 3: What is the price line?

ANSWER: The price line is referred to as the graphical representation of the relationship between output and price, with x-axis denoting the output and y-axis denoting the price. For a competitive company, the price line and demand curve are the same.

Economics Questions Answer : Chapter-4

 

Question 4: Why is the total revenue (TR) curve of a price-taking company an upward-sloping straight line? Why does the curve pass through the origin?

ANSWER: The total revenue curve that denotes a company in a perfectly competitive market is an upward sloping curve because the price or Average Revenue (AR) remains constant and Marginal Revenue (MR) is also equal to AR. Thus, Total Revenue (TR) can only be influenced or changed by altering the output sold, as the price remains constant. The increase in TR is in the same proportion as the increase in the output sold.

The curve that passes through the origin, and implies that no matter what the price level is, if the output sold is zero, TR will also be zero.

Economics Questions Answer : Chapter-4

 

Question 5: What is the relation between market price and average revenue of a price-taking company?

ANSWER: Average Revenue can be defined as the revenue per unit of the output sold. It is expressed as the ratio between total revenue and the output sold.

AR = TR/Q

We know that

TR = P × Q

AR=PXQ/Q

AR = P

Thus, the market price and the average revenue are the same for a perfectly competitive company.

 

Download the Class 12 Economics Questions Answer Part – 1

 

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