class 12 microeconomics market equilibrium under perfect competition Notes

Market equilibrium....... short and easy notes for the board exam.

1. Relation between market price and normal price.
>There are a close relation found between market price and normal price.
Market price has changing tendency, which normal price the permanent trade. After every change, market price has the tendency to become equal to normal price. Market price moves up and down around the normal price.



2. Difference between market price and normal price.

3. How price determined under perfect competition?
> According to Marshall, price is determined at that point where demand and supply of a commodity become equal. Marshal presented the example of scissor, according to him, both played are essential to cut a piece of paper. Similarly both the force demand and supply are essential in price determination.
                               Price of commodity is determined by both, demand and supply curve. Demand curve is related to consumer. When price fall, consumer try to buy more at lower price. On the other hand supply curve belong to producer. Producer will place higher supply at Higher price.
                               Hence, both forces come in operation in the market and the prices are determined at that point where the demand equal to supply.

4. How price determined under Monopoly?

> In short period, it is the wrong concept that Monopoly always earn profit. In which situation Monopoly will work under profit, normal profit and loss. It will depend on demand curve of market and on the cost condition.
There are three situation;

• Profit situation - Average revenue of monopoly goods and marginal revenue are cut from 'point E' at this point; MR = MC , Total profit = PRSQ
• Situation of normal profit - Normal profit is also called zero profit. At this situation, price of goods = average production cost. Where the Monopoly is getting the zero profit.
• Situation of loss - Demand curve of monopoly goods can be so weak. The price of monopoly goods could be reduced from cost of production. At this situation, monopoly gets loss.

POINTS;

• Demand for commodity and supply of commodity, determined equilibrium price.
• Price is determined by both demand and supply forces said by 'Marshall'.
• Price of commodity is determined at that point where demand equal to supply.
• The concept of time element in price determination given by 'Marshall'.
• Market price found in short period.
• In very short period, supply will perfectly inelastic.
• Demand curve of a firm is perfectly elastic, under perfect competition.
• In long run, supply curve is highly elastic.
• Normal price is constant.
• Market price is found in short period.

THE END