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Important Questions for CBSE Class 12 Micro Economics Chapter 6 - Non-competitive Markets

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Last updated date: 22nd Mar 2024
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MVSAT 2024

CBSE Class 12 Micro Economics Chapter-6 Important Questions - Free PDF Download

Free PDF download of Important Questions with Answers for CBSE Class 12 Micro Economics Chapter 6 - Non-competitive Markets prepared by expert Economics teachers from latest edition of CBSE(NCERT) books. Register online for Online tuition on Vedantu.com to score more marks in CBSE board examination.

Competitive Exams after 12th Science

Study Important Questions for class 12 Micro Economics Chapter 6 – Non Competitive Markets

Very Short Answer Questions – 1 Marks

1. Which of the following is not the feature of an imperfect competition? 

a) Large number of buyers 

b) Single seller 

c) Homogeneous products 

d) Price maker 

Ans: (c) Homogeneous


2. The demand curve of oligopoly is? 

a) Kinked 

b) Vertical 

c) Horizontal 

d) Rising left to right 

Ans: (a) Kinked


3. A monopolist is a price 

a) Acceptor 

b) Taker 

c) Giver 

d) Maker 

Ans: (d) Maker


4. In perfect competition, when the marginal revenue and marginal cost are equal, profit is? 

a) Zero 

b) Average 

c) Maximum 

d) Negative 

Ans: (c) Maximum


5. In perfect competition, a firm earns abnormal profit when __________ exceeds the _____________? 

a) Total cost, total revenue 

b) Average revenue, average cost 

c) Total revenue, total fixed cost 

d) Marginal cost, marginal revenue 

Ans: (b) Average revenue, average cost


6. Which of the following types of competition is just a theoretical economic concept, not a realistic case where actual competition and trade take place? 

a) Oligopoly 

b) Monopoly 

c) Monopolistic competition 

d) Perfect competition 

Ans: (d) Perfect competition 


7. In monopolistic competition, which of the following curves generally lies below the demand curve and slopes downward? 

a) Marginal cost 

b) Average cost 

c) Average revenue 

d) Marginal revenue 

Ans: (d) Marginal revenue 


8. The concept of supply curve relevant only for? 

a) Oligopoly 

b) Monopoly 

c) Monopolistic competition 

d) Perfect competition 

Ans: (d) Perfect competition 


9. In the case of a negatively sloping straight line demand curve, the total revenue curve is 

a) A rectangular hyperbola 

b) Convex to the origin 

c) An inverted vertical parabola 

d) Concave to the origin 

Ans: (c) An inverted vertical parabola

 

10. The market structure in which the number of sellers is small and there is interdependence in decision making by the firms is known as 

a) Oligopoly 

b) Monopolistic competition 

c) Monopoly 

d) Perfect competition 

Ans: (a) Oligopoly 


11. Cartels exist in 

a) Oligopoly 

b) Duopoly 

c) Monopoly 

d) Perfect Competition 

Ans: (a) Oligopoly 


12. Marginal revenue for any quantity level can be measured by the slope of the total revenue curve. 

a) False 

b) True 

c) Can’t say 

d) None of these 

Ans: (b) True 


13. In monopolistic competition the goods are 

a) Durable 

b) Differentiated 

c) Heterogeneous 

d) Homogeneous 

Ans: (b) Differentiated


14. Oligopoly having identical products is known as 

a) Pure oligopoly 

b) Collusive oligopoly 

c) Independent oligopoly 

d) None of above 

Ans: (a) Pure oligopoly 


15. Which market have characteristic of product differentiation 

a) Monopolistic competition 

b) Oligopoly 

c) Monopoly 

d) Perfect competition 

Ans: (a) Monopolistic competition


Short Answer Questions – 3 or 4 Marks

16. Equilibrium price of an essential medicine is too high. What can be done to bring the price down only through market forces? Explain the series of changes that will occur in the market. 

Ans: Since medicine is a necessary good, its demand will be perfectly elastic.

The equilibrium price determined by market forces of demand and supply is excessively high. 

Because it is a necessity, an increase in price will not result in a decrease in demand, so the government should increase its supply. The government should reduce taxes or provide subsidies to increase its supply. 

The supply curve shifts to the right as the demand rises, and the new equilibrium point is determined at point E1.

Because it is an essential good, it causes a decrease in equilibrium price from OP to OP1 but no change in equilibrium quantity (OQ).


Decrease in equilibrium price


17. Market for a necessary good is competitive in which the existing firms are earning supernormal profits. How can the policy of liberalisation by the government help in making the market more competitive in the interest of the consumers? Explain.  

Ans: The liberalization strategy promotes new enterprises to enter the industry. This boosts the industry's overall output. The total market demand stays steady, and prices begin to fall. As a result, consumers receive things at significantly lower prices.


Liberalization policies will remove market barriers such as licensing quotas. As a result, new firms will enter the industry. This will increase market supply and make the market more competitive. Inferring a shift to the right in the market supply curve. Other things being equal, a rightward shift in the market supply curve will result in a decrease in equilibrium price and an increase in equilibrium quantity. Extraordinary profits will eventually be wiped out, and consumers can expect to enjoy a greater quantity at a lower price.


18. Explain the effects of a ‘price ceiling’. 

Ans: Black marketing can be defined as a direct result of a price ceiling. It denotes a circumstance in which a commodity subject to the government's control policy is illegally sold at a greater price than that set by the government. It may occur primarily as a result of the presence of consumers who are willing to pay a higher price for the commodity rather than go without it.


19. Explain the effects of a ‘price floor’. 

Ans: Buffer stock is an important instrument in the government's arsenal for ensuring a price floor or minimum support price. If the market price is less than what the government believes should be paid to farmers or producers. This will cause them to purchase the product at a higher price from the farmers or producers in order to have stock of the commodity on hand in case of future shortages.


20. Market for goods is in equilibrium. Demand for the good “increases”. Explain the chain effects of this change. 

Ans: ‘Given equilibrium, demand rises,' the following are the chain effects of the change:

i. If the price remains constant, excess demand emerges.

ii. As a result of the increased rivalry among purchasers, prices rise.

iii. A price increase produces a decrease or contraction in demand and an increase or expansion in supply.

iv. The price continues to rise until the market returns to equilibrium at a higher price.


Long Answer Questions - 6 Marks


21. Distinguish between collusive and non-collusive oligopoly. Explain how the oligopoly firms are interdependent in taking price and output decisions. 

Ans: The following points focus on the distinction between collusive and non-collusive 

oligopoly: -

Basis of Differences

Collusive Oligopoly 

Non-collusive oligopoly

Meaning

In this case, firms decide to collude rather than compete with one another.

Firms do not cooperate in this case, but rather compete with one another.

Behaviour of firms

In this case, all enterprises act as a single unit or exhibit monopolistic behavior.

In this case, all enterprises act independently of one another.

Aim

This seeks to maximize collective earnings rather than individual gains.

This tries to maximize revenues and determines the quantity to be produced.


There is also a significant degree of interconnectedness between enterprises in an oligopoly. The price and production policy of one firm has a significant impact on the price and output policy of the market's rival enterprises. The reason for this is that there are only a few large corporations. When one company cuts its pricing, competitors may follow suit in order to compete. On the other hand, if one company raises the price of a specific commodity, rival enterprises may make a decision in response. Enterprises always consider the likely reaction of the market's dominant rival companies when making price and output decisions.


22. Explain the implications of the following features of the oligopoly market. 

(i) Few firms 

(ii) Barriers to the entry of firms 

Ans: The implications of the given features of oligopoly market are as follows:  

(i) Oligopoly occurs when there are just a few firms in a market. However, each company is so large that it has a monopoly on a specific customer section of the market. It is so significant that the price or production policy of one firm has a direct impact on the price and output policy of competitors. As a result, drawing a precise demand curve for an oligopoly firm is likewise impossible. We have shown that oligopolistic enterprises seek to form trusts and cartels in order to avoid market pricing competition. They benefit from monopoly earnings in this manner. However, this is a very small proportion of the whole market.

(ii) It is usually more when there are barriers to firm admission. These restrictions are nearly identical to those seen in monopolistic circumstances. It is highly difficult, but not impossible, for a new firm to enter the market. These barriers might be natural, such as the need for large amounts of cash or the need to operate at the lowest possible cost, or artificial, such as patent rights. They mostly keep new entrants out of the market.


23. Explain the implications of the following: 

(i) Products under monopolistic competition 

(ii) Large number of sellers under perfect competition 

Ans: (i) When a product is subject to monopolistic competition, this has ramifications. It is a distinguishing trait. A product is frequently differentiated by trade marks or brand name, size, number, and so on. The differentiated products are typically close alternatives for each other. Bagh bakri tea and Tajmahal tea are two examples. Because of product differentiation, each firm can choose its own price policy. As a result, each firm has a limited amount of control on the pricing of its product. This is done to entice buyers from competing companies. Also, because these companies produce in large quantities and their products are unique, they always have some devoted customers who buy these things and just these products.

(ii) When there are a lot of sellers on the market. In an economy, there are always more consumers and sellers. As a result, the size of each economic agent in comparison to the market is so small that they cannot influence the price through their individual actions.


24. Distinguish between perfect competition and monopolistic competition 

Ans: The following are the distinctions between perfect and monopolistic contest:

Basis of Difference

Perfect Competition

Monopolistic Competition

Number of buyers and sellers

In this case, there are a large number of buyers and sellers in the market.

There are many buyers and sellers in this market, but it is not a perfectly competitive market.

Products

In this case, products are homogeneous.

In this case, products are heterogeneous.

Slops of firm’s DD curve

In this case, horizontal straight line (AR = MR)is present.

In this case, it slopes downward with significant flexibility (AR > MR)

Mobility

Perfect movement in this case.

Imperfect movement in this case.

Selling cost

In this case, selling cost is not very important.

It is significant in this case because it has monopoly prices.

Degree of price control

In this case, there is no pricing control.



25. Explain the implications of the following features of perfect competition. 

      (i) Homogenous products 

      (ii) Freedom of entry and exit to firms. 

Ans: (i) The ramifications of homogeneous products are significant. This essentially means that the products are the same in terms of nature, quality, size, shape, and color. As a result, no producer is able to demand a different price for the product. The market has consistent pricing. Commodity must always be identical in a totally competitive market. As a result, it gives consumers or buyers no incentive to prefer one seller's product over another.

(ii) Enterprises have the freedom to enter and quit the market. When a company decides to depart or enter a market, it is entirely up to them. In this case, enterprises can only generate regular profits in the long run, with TC=TR, AR=MR, and P=MC. In exceptional circumstances, if typical profits are achieved, new firms will enter the industry, resulting in an increase in market supply. Marek's price will fall, and any extra earnings will be lost. In the event of unusually large losses, some of the existing enterprises will abandon the industry. Marek supply will be reduced, and the commodity's market price will rise. Extraordinary losses will be erased.