12th Class Economics Solved Paper - Economics 2011 Outside Delhi Set-I

Market for a good is in equilibrium. There is ?increase? in supply of the good. Explain the chain of effects of this change. Use diagram.

Or

Distinguish between ?non-collusive? ad ?collusive? oligopoly. Explain the following features of oligopoly:

(i) Few firms

(ii) Non-price competition

Answer:

Market equilibrium is a state or a position where market demand equals market supply. Now, if the market supply increases, then it results in a change in the equilibrium.

In the above figure, the initial demand curve is \[D{{ & }_{1}}{{D}_{1}}\] and the initial supply curve is \[{{S}_{1}}{{S}_{1}}\]. The Initial. Equilibrium is at point \[{{E}_{1}}\], where the equilibrium price is \[O{{P}_{2}}\] and the equilibrium output is\[O{{q}_{1}}\].

Now, with the increase in market supply (say, due to a fall in the input prices), the supply curve parallel rightwards to \[{{S}_{2}}{{S}_{2}}\]from \[{{S}_{1}}{{S}_{1}}\]. Holding demand unchanged, at the initial price \[O{{P}_{2}}\], there exist excess supply equivalent to \[(O{{q}_{1}}'-Oq{{'}_{1}})\] units of output. This excess supply will increase competition among the producers and consequently they would be willing to sell their output at a lower price. The price will continue to fall until it reaches \[O{{P}_{1}}\], where, the new supply curve \[{{S}_{2}}{{S}_{2}}\] intersects the initial demand \[{{D}_{1}}{{D}_{1}}\]. The new equilibrium output is \[O{{q}_{2}}\] and the equilibrium price is \[O{{P}_{1}}\].

At the new equilibrium\[{{E}_{2}}\],

Equilibrium output has increased from \[O{{q}_{2}}\] to\[O{{q}_{1}}\]

Equilibrium price has fallen \[O{{q}_{2}}\] to \[O{{q}_{1}}\]

Hence, an increase in. supply with demand, remaining constant, results in rise in the equilibrium quantity and a tall in equilibrium price.

Or

Collusive Oligopoly Non-collusive Oligopoly

Under this form of oligopoly, firms might decide to collude together and not to compete with each other. In this form of oligopoly, firms do not culled and instead compete with each other.

Under collusive oligopoly, firms would behave as a single monopoly with an aim of maximizing their collective profits rather than their individual profits. Under non-collusive oligopoly, each firms aim at maximizing its own profits and decides how much quantity to produce assuming that the change their quantity supplied.

Few Large Firms: There exists few but large and dominating firms. These firms account for majority of market supply, thereby control the market price and quantity of the output.

Non-Price Competition: In an oligopoly market structure, all the firms take their price and output decisions keeping in mind the decision taken by their competitors. In this process of making their price and output decisions, firms also indulge in some strategic behavior in order to compete with their competitors. To survive in the cut-throat competition, firms incur heavy selling costs such as, advertisement expenditures to convince and attract the consumers to buy the products.

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Market equilibrium is a state or a position where market demand equals market supply. Now, if the market supply increases, then it results in a change in the equilibrium.

In the above figure, the initial demand curve is \[D{{ & }_{1}}{{D}_{1}}\] and the initial supply curve is \[{{S}_{1}}{{S}_{1}}\]. The Initial. Equilibrium is at point \[{{E}_{1}}\], where the equilibrium price is \[O{{P}_{2}}\] and the equilibrium output is\[O{{q}_{1}}\].
Now, with the increase in market supply (say, due to a fall in the input prices), the supply curve parallel rightwards to \[{{S}_{2}}{{S}_{2}}\]from \[{{S}_{1}}{{S}_{1}}\]. Holding demand unchanged, at the initial price \[O{{P}_{2}}\], there exist excess supply equivalent to \[(O{{q}_{1}}'-Oq{{'}_{1}})\] units of output. This excess supply will increase competition among the producers and consequently they would be willing to sell their output at a lower price. The price will continue to fall until it reaches \[O{{P}_{1}}\], where, the new supply curve \[{{S}_{2}}{{S}_{2}}\] intersects the initial demand \[{{D}_{1}}{{D}_{1}}\]. The new equilibrium output is \[O{{q}_{2}}\] and the equilibrium price is \[O{{P}_{1}}\].
At the new equilibrium\[{{E}_{2}}\],
Equilibrium output has increased from \[O{{q}_{2}}\] to\[O{{q}_{1}}\]
Equilibrium price has fallen \[O{{q}_{2}}\] to \[O{{q}_{1}}\]
Hence, an increase in. supply with demand, remaining constant, results in rise in the equilibrium quantity and a tall in equilibrium price.
Or
Collusive Oligopoly	Non-collusive Oligopoly
Under this form of oligopoly, firms might decide to collude together and not to compete with each other.	In this form of oligopoly, firms do not culled and instead compete with each other.
Under collusive oligopoly, firms would behave as a single monopoly with an aim of maximizing their collective profits rather than their individual profits.	Under non-collusive oligopoly, each firms aim at maximizing its own profits and decides how much quantity to produce assuming that the change their quantity supplied.
Few Large Firms: There exists few but large and dominating firms. These firms account for majority of market supply, thereby control the market price and quantity of the output.
Non-Price Competition: In an oligopoly market structure, all the firms take their price and output decisions keeping in mind the decision taken by their competitors. In this process of making their price and output decisions, firms also indulge in some strategic behavior in order to compete with their competitors. To survive in the cut-throat competition, firms incur heavy selling costs such as, advertisement expenditures to convince and attract the consumers to buy the products.