Question Bank

(Module – V)

 SECTION A: Very Short Answer Questions

1. Define a market in economics.
   A market in economics refers to any place, system, or arrangement where buyers and sellers interact to exchange goods and services at agreed prices.

2. List the main types of markets.
   The main types of markets are:
• Perfect Competition
• Monopoly
• Monopolistic Competition
• Oligopoly

3. What is perfect competition?
   Perfect competition is a market structure with many buyers and sellers dealing in identical products, where no single buyer or seller can influence the price.

4. Give any two features of monopoly.
• A single seller controls the entire supply.
• There are no close substitutes for the product.

5. Mention two features of monopolistic competition.
• Many sellers offer differentiated but similar products.
• Firms have some control over price. 

6. What do you understand by oligopoly?
   Oligopoly is a market with few large sellers dominating the industry, and their decisions are interdependent.

7. Define the law of supply.
   The law of supply states that, other things being equal, the quantity supplied of a good increases as its price increases.

8. What is the supply schedule?
   A supply schedule is a table showing how much of a good a seller is willing to offer at different prices.

9. Write two determinants of supply.
• Price of the good
• Technology used in production

10. What is meant by equilibrium price?
    It is the price at which quantity demanded equals quantity supplied.

 

SECTION B: Short Answer Questions

 

1. Explain the essential features of a perfectly competitive market.
   A perfectly competitive market has the following features:
• Large number of buyers and sellers so no one can influence the price.
• Homogeneous products – all firms sell identical goods.
• Free entry and exit of firms in the long run.
• Perfect knowledge – buyers and sellers are fully informed.
• No transportation costs and perfect mobility of factors.
• Firms are price takers – market price is determined by demand and supply.
  In such a market, equilibrium is reached where marginal cost equals market price. Perfect competition is mostly theoretical but useful for understanding price mechanisms. 

2. Describe the major characteristics of monopoly.
   Monopoly is a market with a single seller and many buyers. Its features include:
• Sole producer with no close substitutes.
• Price maker – the firm decides the price.
• High entry barriers – due to legal restrictions, patents, or large capital needs.
• Price discrimination may be practiced to maximize profit.
• Monopoly leads to restricted output and higher prices compared to perfect competition. Natural monopolies (e.g., railways) occur due to high fixed costs and are sometimes regulated by the government.

3. Explain the law of supply with a diagram.
   The law of supply states that other things remaining constant, as the price of a good increases, the quantity supplied also increases.
   This is because higher prices offer higher profits, encouraging producers to supply more.
   Diagram: An upward-sloping supply curve shows this relationship.

 

           Table Example:

 

Price (₹)	Quantity Supplied (units)
10	50
20	100
30	150

Exceptions: Perishable goods, future price expectations, etc.

 

4. Explain how equilibrium price is determined under perfect competition.
   In a perfectly competitive market, the equilibrium price is where quantity demanded equals quantity supplied.
• If price is above equilibrium, surplus occurs, leading to price fall.
• If price is below equilibrium, shortage occurs, pushing the price up.
  The interaction of demand and supply curves determines the point of equilibrium.
  Diagram: Intersection of demand and supply curves indicates the equilibrium point.

 SECTION C: Long Answer/Essay Type Questions

 

1. Discuss the concept of market and explain the different types of markets based on competition.
   A market is not just a physical place but any setup where buyers and sellers interact to exchange goods and services. Based on competition, markets are classified as:
• Perfect Competition: Many sellers, homogeneous products, price takers, free entry/exit.
• Monopoly: Single seller, unique product, full control over price, high entry barriers.
• Monopolistic Competition: Many sellers, product differentiation (e.g., soaps, toothpaste), limited price control, non-price competition.
• Oligopoly: Few dominant firms, interdependence, may produce similar or differentiated goods (e.g., airlines, telecoms).

These market types influence price, output, and competition strategies. For example, prices are lowest and output is highest under perfect competition, while monopolies may lead to inefficiencies and high prices. Understanding market structures helps firms make better pricing and production decisions.

 

2. Explain in detail the mechanism of price determination using demand and supply forces.
   Price in a free market is determined by the interaction of demand and supply.
• Demand: Higher when price is low (law of demand).
• Supply: Higher when price is high (law of supply).
  At equilibrium, the quantity demanded equals the quantity supplied.
  If price is too high → surplus → price falls.
  If price is too low → shortage → price rises.
  Diagram: The point where demand and supply curves intersect is the equilibrium price.
  Any change in demand or supply shifts the curves, causing a new equilibrium. For instance, during festivals, demand rises, shifting the demand curve right and increasing price.