GSEB Solutions Class 11 Economics Chapter 6 Market

GSEB Gujarat Board Textbook Solutions Class 11 Economics Chapter 6 Market Textbook Exercise Important Questions and Answers, Notes Pdf.

Gujarat Board Textbook Solutions Class 11 Economics Chapter 6 Market

GSEB Class 11 Economics Market Text Book Questions and Answers

1. Choose correct option for the following from the options provided :

Question 1.
How many types of markets are there according to location?
(A) One
(B) Three
(C) Four
(D) Seven
Answer:
(C) Four

Question 2.
‘Negligible Transportation Expense’ is the characteristic of which market?
(A) Perfect competition
(B) Monopoly
(C) Monopolistic competition
(D) Oligopoly
Answer:
(A) Perfect competition

Question 3.
‘Product Differentiation’ is the characteristic of which market?
(A) Perfect competition
(B) Monopoly
(C) Monopolistic competition
(D) Oligopoly
Answer:
(C) Monopolistic competition

Question 4.
In which market ‘Firm is an industry’?
(A) Perfect competition
(B) Monopoly
(C) Monopolistic competition
(D) Oligopoly
Answer:
(B) Monopoly

Question 5.
‘Selling Cost’ is an important characteristic of which market?
(A) Monopoly
(B) Bilateral monopoly
(C) Monopolistic competition
(D) Perfect competition
Answer:
(C) Monopolistic competition

Question 6.
Inter-dependence is seen in which market?
(A) Oligopoly
(B) Monopoly
(C) Monopolistic competition
(D) Perfect competition
Answer:
(A) Oligopoly

Question 7.
‘Price Stickiness’ is seen in which market?
(A) Perfect competition
(B) Oligopoly
(C) Monopolistic competition
(D) Monopoly
Answer:
(B) Oligopoly

Question 8.
Which market restricts the entry of firms?
(A) Simple competition
(B) Perfect competition
(C) Monopoly
(D) Monopolistic competition
Answer:
(C) Monopoly

Question 9.
‘Identical products’ is a characteristic of which market?
(A) Perfect competition
(B) Monopoly
(C) Monopolistic competition
(D) Intensive competition
Answer:
(A) Perfect competition

Question 10.
‘Super Normal Profit’ is a characteristic of which market?
(A) Monopolistic competition
(B) Oligopoly
(C) Monopoly
(D) Perfect competition
Answer:
(C) Monopoly

Question 11.
Kinked demand curve is possible in which market?
(A) Monopolistic competition
(B) Oligopoly
(C) Monopoly
(D) Perfect competition
Answer:
(B) Oligopoly

2. Answer the following questions in one sentence :

Question 1.
Define Market.
Answer:
The system through which the buyers and sellers come in contact with each other directly or indirectly for the sale or purchase of goods or services is called market.

Question 2.
What is regional market?
Answer:
A market where in selling of the products and services is limited to a region or a state is called regional market. Markets that exist in the various parts of the state fall under the category of regional market. Example: Kite market of Ahmedabad, a publisher selling his books only in Gujarat, Regional movies, etc.

Question 3.
What is national market?
Answer:
A market wherein selling of the products and services takes place throughout the country is called a national market. This market is spread across various states of nation. Example: Shoe company, Saree market, Hindi novels, national newspapers like The Times of India, etc.

Question 4.
What is Perfect Competition?
Answer:
Perfect competition market is considered as an ideal market. A market based on perfect competition is only a theoretical aspect. Such market does not exist in reality because the terms and conditions to be a perfect competition market are very stringent.

Question 5.
What is Monopoly?
Answer:
A market structure where in there is only one seller and numerous buyers is called monopoly.

Question 6.
What is Selling Cost?
Answer:
Expense incurred to sell a product is called the selling cost of that product. Selling cost includes expense incurred on packing, making the product attractive, sales tax, transportation, showroom expenses, money spent for selling, prizes, gifts, advertisement cost, etc.

Question 7.
Define: Product differentiation.
Answer:
Product differentiation refers to a concept of differentiating a product from another product in terms of form, quality and nature. For example, two different models of bike but built on same basic structure.

Question 8.
Define Oligopoly.
Answer:
“Oligopoly is the market in which the firm decides its policy, according to the behaviour of competitors.”

Question 9.
What is price taker?
Answer:
In a perfectly competitive market, a firm cannot influence the market price by its own action and thus can sell any amount at a price given by the market. Such a firm is called a price taker firm.

Question 10.
Which market has restriction of entry of new firms?
Answer:
Monopoly market

3. Answer the following questions in short :

Question 1.
With respect to Perfect Competition, explain ‘Transport Cost’.
Answer:
No transportation expense:

• There are numerous buyers and sellers in perfect competition.
• The expenses of transportation are so nominal as compared to the total expense that they are not counted.
• Thus zero transportation expense is an important characteristic of the perfect competition.

Question 2.
Explain, in a monopoly market firm and industry are the same.
Answer:
Firm is industry:

• A firm is an independent unit of production, whereas an industry is the collection of the firms producing same products.
• However in monopoly, the producer and the seller are same. So, the concept of collection of firms does not exist and single firm behaves as a whole industry.

Question 3.
What is Monopolistic Competition?
Answer:
Monopolistic competition:

• A market in which both monopoly and perfect competition co-exists partially is called monopolistic competition.
• In reality, market is neither perfectly competitive nor purely based on monopoly. A mixed form of both exists in the market. In reality, mainly monopolistic types of market are commonly found.

Various definitions:

1. According to Prof. Chamberlin “Perfect competition and perfect monopoly co-exist in a market, known as Monopolistic Market.”
2. According to Mrs. Robinson: “If each firm establishes monopoly and also competes at the same time, the market is called Imperfect Competition.”

Question 4.
Explain: Price Discrimination.
Answer:
Price-discrimination:

• The policy of a monopolist to charge different prices from customers of different categories/types in order to increase his demand is called price discrimination.
• Due to absence of competition, the seller can charge different prices on the same product, depending on its use or form.
• Thus, the seller adopts the concept of price discrimination and earns higher profit. For example, doctor, lawyer, etc. can charge different fees for similar problems

Question 5.
Explain meaning of inter-dependence.
Answer:
Interdependence:

• Under oligopoly the number of setters or producers is very few so they strive to gather information about other setters or producers. Setters compete on the basis of price or product, they decide price or variety based on the actions of their competitors. This is called interdependence In oligopoly market there are very few sellers and producers. So, the sellers or producers can easily gain important information about other sellers or producers.
• The sellers and producers then pay special attention on the quality and type of the product to compete with other similar products and attract consumers. For example, producers and sellers of television, car, etc. follow similar practices of discount, features, etc.
• The firms decide price, quality or type of its product, based on the behaviour of the competitors and so they are interdependent.

4. Answer the following questions in brief points :

Question 1.
Explain any three characteristics of Monopolistic Competition.
Answer:
Characteristics of monopolistic competition:
1. Large number of sellers and numerous buyers:

• There are numerous sellers in Perfect Competition. In monopoly there is only one seller, while in monopolistic competition there are many sellers. This means that there are neither numerous sellers, nor there is only one seller, but there are many sellers.
• There are numerous buyers in monopolistic market and so they cannot individually influence the market. Also they cannot affect the price of the product.

2. Product differentiation:

• Product differentiation is a distinct characteristic of monopolistic competition. Product differentiation refers to the concept of differentiating a product from another product in terms of form, quality and nature. For example, two different models of bike but built on same basic structure.
• A producer may produce a product with minor differences in terms of form, fragrance, taste, shape, weight and quality. These minor differences lead to availability of various products under product differentiation in monopolistic competition market.

3. Free entry and exit of firms:

• In a monopolistic competition it is easy for new firms to enter into an existing firm or to leave the industry.
• When there is normal profit in the market, the free entry and exit of the firm decreases and stops.
• The firms are generally not attracted by the normal profit and so the firms do not enter in such markets. Similarly, the existing firms in the market do not exit as they do not suffer losses.

Question 2.
Explain any three characteristics of Oligopoly.
Answer:
Characteristics of oligopoly:
1. Few sellers and numerous buyers:
Under oligopoly, the number of sellers and producers is less in the market.

• There exists about two to less than ten or twenty firms in the market.
• Owing to these circumstances, a few number of sellers have a monopoly control over the market.
• On the other hand, there are numerous buyers in such market. So, neither these buyers have much influence on the market price nor they are given much importance.

2. Similar or substitutable products:

• Firms sell identical or substitute products in oligopoly. This also means that when the firms in a market, produce and sell identical or substitute products, it is Oligopoly market. For example, products like salt, crude oil, tea, etc.
• When producers produce identical products there exists imperfect oligopoly in the market. For example, oligopoly exists for products like cold drinks, motorcycle, etc.

3. Admittance of firms:

• In the market of oligopoly, the entry and exit of firms is free or regulated according to the type of oligopoly followed.
• If there is free oligopoly in the market, the firms can freely enter or exit the market, whereas if the oligopoly is restricted, then the entry and exit of firms is regulated.

Question 3.
Explain: ‘Price Stickiness’.
Answer:
Price stickiness (Kinked Demand Curve):

• There are a number of theories o Oligopoly. The Kinked-domand theory is one of them.
• Price stickiness is a situation where in the firm would tend to stick to the price of its product and not increase or decrease it even if he wish to.
• In oligopoly market, the number of firms is less and they are interdependent on each other.
• Even if onc of the firm decreases the price of a product, its product
• Even if on of the firm decreases the price of a product, its product will become cheaper than other products. So, according to the law of demand due to comparatively cheaper price of the product its demand will be more compared to the product of other firms. This will result in decroaseing the demand of the products sold by other firms.
• In order to avoid such situation, the competitive firms will also have to decrease ihe price of their product in order to stay in the competition.
• At the end, the price of the product reaches at a nominal level and ¡t becomes impossible to reduce the price lurther.
• Sticky prices, therefore, are prices in an economy which are resistant to change.
• On the other hand, if the firm increases the price of the product then the demand of that product decreases, and the competitive firms are profited. Thus, as the nominal price is resistant to change, the demand curve hecomes kinked.

Kinked demand curve

Question 4.
Classify the market according to competition.
Answer:
Market classification on the basis on competition:

• Normally a market based on competition is classified on the basis of number of sellers and buyers. Here, the market of sellers is more important.
• Classification of market based on competition is shown in the chart below.

Question 5.
Give the difference between Perfect Competition and Monopoly.
Answer:

Perfect Competition	Monopoly
1. There are numerous buyers and sellers.	1. Buyers are numerous but seller or producer is only one.
2. There are several firms In the industry.	2. There is only one firm in the industry. So it is said firm is industry.
3. There is no barrier for entry or exit of firms.	3. Other firms cannot enter the market.
4. Buyers can affect the market price.	4. Buyers cannot affect the market price.
5. The curves of Average Revenue (AR) and Marginal Revenue (MR) are one and the same and parallel to the X-axis.	5. The curves of Average Revenue (AR) and Marginal Revenue (MR) are different and have negative slope.

Question 6.
Give the difference between Monopoly and Monopolistic Competition.
Answer:

Monopoly	Monopolistic competition
1. There are numerous buyers and sellers.	1. There are numerous buyers and also many sellers.
2. Substitute goods are either not available or available rarely.	2. Substitute goods are available easily.
3. Other firms cannot enter the market.	3. Other firms can easily enter or exit the market.
4. The firm can control the price to a very large extent.	4. Firms cannot control the price much.

5. Answer the following questions in detail :

Question 1.
Explain: Market and its characteristics.
Answer:
Market:

• The system through which the buyers and sellers come in contact with each other directly or indirectly for the sale or purchase of goods or services is called market.
• According to Professor Samuel, “Market is the functional system where the buyers and sellers contact each other to decide the price and the quantity of goods or services.”

Characteristics of a market:
1. Numerous sellers and buyers:

• For a market to exist, it is mandatory to have buyers and sellers of goods and services.
• The exchange of goods or services done by them with a specific purpose is called the process of purchase and sale. This process allows the sellers to gain maximum profit and the buyers to gain satisfaction from the product.

2. Goods and services:

• It is essential that market offers goods and services to fulfill the demand and necessity of the market.
• In market, the producers and sellers provide various types of products and services in order to attract the buyers towards them and maximize the profit. On the other hand, the buyers try to buy products and services that they feel are ideal for them.

3. Contact:
The buyers and sellers come in contact through various means. The contact can be either direct or indirect.

In modern times the buyers and sellers come in contact through the following ways:
(a) Tele-shopping:
In Tele-shopping, the buyers themselves order the services or products through a telephone. This means indirect contact takes place via. telephone.

(b) Online shopping:
In online shopping the buyers order the services or products which they select on websites via. internet. This means indirect contact takes place via. online shopping.

4. Price:

• The price of the product or service must be decided in the market at a given time. The price is decided according to the demand and the factors related to its supply.
• The price of products and services depends on the demand made by the buyers and the ability of the producers and sellers to supply them.

5. Information about the market situation:

• It is important that the buyers and sellers are well-informed about the current market situation.
• This helps to take proper decisions related to production, distribution and purchase during the times of recession, inflation, natural and man-made calamities.

Question 2.
Explain Classification of Market – According to location and quantity.
Answer:
1. Markets based on location:
Here, markets are. classified according to their geographical location.
(a) Local market:
A market where the products and services are produced and sold at the same place is called a local market. Local market is limited to the respective city or village.

Example:
Market for clay utensils.

(b) Regional market:

• A market where in selling of the products and services is limited to a. region or a state is called regional market.
• Markets that exist in the various parts of the state fall under the category of regional market.

Example:
Kite market of Ahmedabad, a publisher selling his books only in Gujarat, Regional movies, etc.

(c) National market:
A market wherein selling of the products and services takes place throughout the country is called a national market. This market is spread across various states of nation.

Example:
The shoe company, Saree market, Hindi novels, national newspapers like The Times of India, etc.

(d) International market:

A market where in selling of the products and services takes place among several countries is called an international market or global market.

The sales and purchase in this market is generally referred to as ‘Import- export’.

Example:
Market of mobiles phones, English novels, English movies, cars, etc.

2. Market based on quantity:
(a) Wholesale market:

• Market in which sales and purchase of goods\services is done on a large scale is called a wholesale market.
• The wholesale traders buy the goods in wholesale from the market and sell it to the retail traders. So, the retail traders become buyers while the wholesale traders, sellers.
• Wholesalers are an important link between the buyers and the producers.

Example:
Wholesale grain market, vegetable market, etc.

(b) Retail market:

• Market in which sales and purchase of goods\services takes place at a small scale is called a retail market.
• The retailers buy products\services from the wholesalers and sell them to the consumers. So, the retail traders are an important link between the wholesalers and the consumers.

Question 3.
Explain Characteristics of Perfect Competition.
Answer:
Characteristics of perfect competition:
1. Numerous buyers and sellers:

• A market with perfect competition has numerous a very large indefinite number of buyers and sellers.
• Of these numerous sellers, a single seller is a very small part of the market.
• So, neither he can control or monopolize the wholesale market, nor he can influence the market price.

Example:

• In a wheat farm, the increase or decrease in production of a single farm will not affect the total production of the wheat. This means the owner of the farm is a very small part of the huge market and so he cannot influence the market price.
• In such market, the buyers are also numerous. Hence, even they cannot . influence market price. Thus, in perfect competition market, the market ’ price depends only on the factors like demand and supply.

2. Identical products:

• Products that have similar features, form, shape, colour, taste, weight, quality, etc. are called identical products. Since these products have a lot of similarity they are called as identical or similar products. Identical products can be used as substitutes of each other.
• In perfect competition market, the producers or sellers cannot set different prices for identical products because the buyers are not ready to pay different prices for products having similar characteristics and quality.

3. Free entry and exit of firms:

• In this market, there is no restriction on the entry and exit of the firms. When the firms are gaining abnormal profits, new firms may freely enter the market. Similarly, when the firms are suffering from abnormal losses, they are free to exit the market.
• The free entry and exit of the firms is seen for a temporary time period. The firms get attracted by the profits and enter such markets for a very short period. As soon as they witness loss, they exit from the market.
• In case of a longer time period, if the market is such that it gives normal profits, there is less movement of firms. The reason for this is that when the industry reaches at a normal profit, new firms or sellers do not get attracted as the profits are not high. Similarly the firms also do not exit the markets because they are getting normal profit and are not suffering any losses.

4. Perfect knowledge of the market:

• In such market, the producers, buyers, sellers all have the complete knowledge of the market including product availability, product price, etc.
• The producers or sellers have the knowledge of the price at which the other producers or sellers are selling the product.
• They are also aware about the quality of the identical or substitute products.
• Thus in this market a seller cannot charge different prices for identical products.
• The buyers also know the price of the products and their quality. Hence, the seller cannot demand different prices from the buyers.
• Owing to all these reasons, the perfect competition market has perfectly elastic demand curve.

5. Mobility of factors of production:

• The four factors of production, namely land, capital, labour and entrepreneur are dynamic and mobile in both physical forms as well as in terms of profession and usage.
• The price (compensation) of the factors of production remains same.
• In order to prevent from shifting of compensation from low to high due to dynamic and mobile nature of the factors of production, the firms are uniformly compensated.

6. No transportation expense:

• There are numerous buyers and sellers in perfect competition.
• The expenses of transportation are so nominal as compared to the total expense that they are not counted.
• Thus zero transportation expense is an important characteristic of the perfect competition.

Question 4.
Explain Characteristics of Monopoly.
Answer:
Characteristics of monopoly:
1. Only one producer or seller and numerous buyers:

• In a monopoly, there is only one seller or producer of the product and , goods. He controls the entire supply of the product.
• Since there is only one seller, there is no competition in the market. As a result, the seller or the producer controls the price of the product.
• The producer or seller can decide the price of the product and is known as the ‘Price Maker’ of the market.
• When there are countless buyers in the market, the importance of a single buyer becomes negligible.
• Under such circumstances, customers compete with each other to buy the product. Since buyers have no choice but to buy from the only seller, they cannot affect the price of the product.

2. Absence of substitute goods:

• In monopoly there are no close substitute goods available. However, the way there is imperfect monopoly and not perfect, close substitutes are present but buyers are ignorant about them.
• There may be a very rare possibility for similar product to be available in market. For example, if while buying a railway ticket from a specific company, for a specific time, to a specific location the ticket is unavailable then there is no possibility of having a similar or substitute ticket to the location. However, alternatively one can try by travelling through airplane on the same time to the same location.

3. Restriction over the entry of new firms:

• Monopoly means that there is only one firm in the market owing to several restrictions for new firms to enter. Some of these restrictions could be
  1. Government license
  2. Owning specific natural resource
  3. patents and copyrights
  4. Having specific specialized skills, etc.
• Monopoly can be ended but it is quite difficult and so the seller can sustain his monopoly for a longer duration.
• Due to absence of competition, the seller controls the price and gains super normal profits. In spite of the super normal profits earned in monopoly, other firms cannot easily enter the market due to reasons mentioned above.
• Thus monopoly restricts entry of newer firms with factors such as nature, laws, skills and experience.

4. Control over the price or sales:

• In order to gain maximum profits, the seller controls the supply of the products.
• On the other hand, the seller cannot control both the price and the sales of the products.
• In order to sell less products, the firm sets higher prices. At the same time, the firm must set lower price of product in order to sell them in large number.
• Moreover, it is not possible to sell a large number of units with high price.

5. Super normal profit:

• In a market, when a firm’s average cost is less than it’s average revenue, i.e. (AC < AR) it is a situation of supernormal profits.
• In a monopoly market, the producer and seller are the same.
• So, the seller can charge high price and earn super normal profits without any competition in both short and long time periods.

6. Price-discrimination:

• The policy of a monopolist to charge different prices from customers of different categories/types in order to increase his demand is called price discrimination.
• Due to absence of competition, the seller can charge different prices on the same product, depending on its use or form.
• Thus, the seller adopts the concept of price discrimination and earns higher profit. For example, doctor, lawyer, etc. can charge different fees for similar problems.

7. Firm is industry:

• A firm is an independent unit of production, whereas an industry is the collection of the firms producing same products.
• However in monopoly, the producer and the seller are same. So, the concept of collection of firms does not exist and single firm behaves as a whole industry.

Question 5.
Explain: Characteristics of Oligopoly.
Answer:
Characteristics of oligopoly:
1. Few sellers and numerous buyers:
Under oligopoly, the number of sellers and producers is less in the market.

• There exists about two to less than ten or twenty firms in the market.
• Owing to these circumstances, a few number of sellers have a monopoly control over the market.
• On the other hand, there are numerous buyers in such market. So, neither these buyers have much influence on the market price nor they are given much importance.

2. Similar or substitutable products:

• Firms sell identical or substitute products in oligopoly. This also means that when the firms in a market, produce and sell identical or substitute products, it is Oligopoly market. For example, products like salt, crude oil, tea, etc.
• When producers produce identical products there exists imperfect oligopoly in the market. For example, oligopoly exists for products like cold drinks, motorcycle, etc.

3. Admittance of firms:

• In the market of oligopoly, the entry and exit of firms is free or regulated according to the type of oligopoly followed.
• If there is free oligopoly in the market, the firms can freely enter or exit the market, whereas if the oligopoly is restricted, then the entry and exit of firms is regulated.

4. Selling cost:

• Expense incurred to sell a product is called the selling cost of that product.
• Selling cost includes expense incurred on packing, making the product attractive, sales tax, transportation, showroom expenses, money spent for selling, prizes, gifts, advertisement cost, etc.
• There is extreme competition in oligopoly. So, the selling cost becomes an important factor of the market.
• The seller tries to attract the consumers by incurring various selling expenses.
• Selling cost creates product difference in the market which then gives a particular identity to a product.
• For example, companies manufacturing mobile phones, television, cars, soaps, etc. try to create unique identity through selling costs.

5. Interdependence:

• Under oligopoly the number of setters or producers is very few so they strive to gather information about other setters or producers. Setters compete on the basis of price or product, they decide price or variety based on the actions of their competitors. This is called interdependence In oligopoly market there are very few sellers and producers. So, the sellers or producers can easily gain important information about other sellers or producers.
• The sellers and producers then pay special attention on the quality and type of the product to compete with other similar products and attract consumers. For example, producers and sellers of television, car, etc. follow similar practices of discount, features, etc.
• The firms decide price, quality or type of its product, based on the behaviour of the competitors and so they are interdependent.

6. Price stickiness (Kinked Demand Curve):

• There are a number of theories o Oligopoly. The Kinked-domand theory is one of them.
• Price stickiness is a situation where in the firm would tend to stick to the price of its product and not increase or decrease it even if he wish to.
• In oligopoly market, the number of firms is less and they are interdependent on each other.
• Even if onc of the firm decreases the price of a product, its product
• Even if on of the firm decreases the price of a product, its product will become cheaper than other products. So, according to the law of demand due to comparatively cheaper price of the product its demand will be more compared to the product of other firms. This will result in decroaseing the demand of the products sold by other firms.
• In order to avoid such situation, the competitive firms will also have to decrease ihe price of their product in order to stay in the competition.
• At the end, the price of the product reaches at a nominal level and ¡t becomes impossible to reduce the price lurther.
• Sticky prices, therefore, are prices in an economy which are resistant to change.
• On the other hand, if the firm increases the price of the product then the demand of that product decreases, and the competitive firms are profited. Thus, as the nominal price is resistant to change, the demand curve hecomes kinked.

Kinked demand curve