Gujarat Board GSEB Class 11 Commerce Economics Important Questions Chapter 6 Market Important Questions and Answers.

GSEB Class 11 Economics Important Questions Chapter 6 Market

Short Answer Type Questions

Question 1.
Give Samuel’s definition of market.
Answer:
“Market is the functional system where the buyers and sellers contact each other to decide the price and the quantity of goods or services.”

Question 2.
What is local market?
Answer:
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.

Question 3.
What is international market?
Answer:
A market where in selling of the products and services takes place among several countries is called an international market or global market. Example: Market of mobiles phones, English novels, English movies, cars, etc.

Question 4.
What is wholesale market?
Answer:
Market in which sales and purchase of goodsservices is done on a large scale is called a wholesale market. Example: Wholesale grain market, vegetable market, etc.

Question 5.
What is retail market?
Answer:
Market in which sales and purchase of goodsservices takes place at a small scale is called a retail market. The retailers buy productsservices from the wholesalers and sell them to the consumers

Question 6.
State Robinson’s perfect competition definition.
Answer:
‘Perfect competition exists where the demand of product of the producer totally depends on its price.’

Question 7.
State Leftwich’s perfect competition definition.
Answer:
‘Perfect competition is a market system where there are many firms that sell identical products, with no firm large enough
to influence the market price.’

Question 8.
What do you mean by identical products?
Answer:
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 product can be used as substitutes of each other.

Question 9.
Explain free entry and exit of firms in perfect competition.
Answer:
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.

Question 10.
State the mobility of factors of production in perfect competition.
Answer:
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.

Question 11.
What is expense of transportation in perfect competition?
Answer:
Negligible i.e. zero.

Question 12.
Explain the origin of the word monopoly?
Answer:
Monopoly has originated from the Greek words, ‘Monos’ which means ‘Single’ and ‘Polein’ means ‘Seller’. So, the term ‘Monopoly’ means a market having only one seller.

Question 13.
State Prof Chamberlin’s definition of monopoly.
Answer:
“When the product supply is controlled only by a single enterprise, it is Monopoly.”

Question 14.
State Prof Stigler’s definition of monopoly.
Answer:
“Only one enterprise is the seller of the goods or products.”

Question 15.
State few factors that restrict entry of a firm in monopoly market?
Answer:

1. Government license
2. Owning specific natural resource
3. patents and copyrights
4. Having specific specialized skills, etc.

Thus monopoly restricts entry of newer firms with factors such as nature, laws, skills and experience.

Question 16.
What is super normal profit?
Answer:
In a market, when a firm’s average cost is less than it’s average revenue, i.e. it is a situation of supernormal profits. (AC < AR)

Question 17.
What do you mean by firm is industry?
Answer:
A market where there is only one firm in the entire industry then such a firm is treated as a whole industry and called firm is industry.

Question 18.
Define monopolistic competition.
Answer:
A market in which both monopoly and perfect competition co-exists partially is called monopolistic competition.

Question 19.
State Chamberlin’s definition of monopolistic competition.
Answer:
“Perfect competition and perfect monopoly coexist in a market, known as Monopolistic Market.”

Question 20.
State Robinson’s definition of monopolistic competition.
Answer:
“If each firm establishes monopoly and also competes at the same time, the market is called Imperfect Competition.”

Question 21.
State Stigler’s definition of oligopoly.
Answer:
“Oligopoly is the market in which the firm decides its policy, according to the behavior of competitors.”

Question 22.
State Baumol’s definition of oligopoly.
Answer:
“Oligopoly is the market in which even a small number of sellers out of the total less sellers are effect enough to affect the price of the product.”

Question 23.
Generally how many firms are there in oligopoly market?
Answer:
About 2 to less than 20 firms

Question 24.
What is independence with respect to oligopoly?
Answer:
Under Oligopoly the number of sellers or producers is very few so they strive to gather information about other sellers or producers. Sellers compete on the basis of price or product. They decide price or variety based on the actions of the competitor. This is called interdependence.

Question 25.
What is price stickiness?
Answer:
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 wishes to.

Question 26.
How does the demand curve become kinked?
Answer:
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 becomes kinked.

Long Answer Type Questions

Question 1.
State and explain the ways a modern consumer contacts the seller.
Answer:
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.

Question 2.
What do you mean by perfect competition? State its various definitions.
Answer:
Perfect competition:
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.

Example:

• Perfect competition market is seen in agricultural sector.
• In economics, the study of perfect competition is very important because it helps to understand the characteristics and behaviour of other markets based on monopoly, monopolistic competition and oligopoly.

Important definitions of perfect competition:
(a) According to Mrs. Robinson ‘Perfect competition exists where the demand of product of the producer totally depends on its price.’

(b) According to Prof. Leftwich, ‘Perfect competition is a market system where there are many firms that sell identical products, with no firm large enough to influence the market price.’

Question 3.
State the two important definitions of perfect competition as given by two economists.
Answer:
Important definitions of perfect competition:
(a) According to Mrs. Robinson ‘Perfect competition exists where the demand of product of the producer totally depends on its price.’

(b) According to Prof. Leftwich, ‘Perfect competition is a market system where there are many firms that sell identical products, with no firm large enough to influence the market price.’

Question 4.
What do you mean by identical products in perfect competition?
Answer:
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.

Question 5.
How firms are free to enter and exit in perfect competition?
Answer:
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.

Question 6.
State and explain the level of knowledge that producers, sellers and buyers have in perfect competition market.
Answer:
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.

Question 7.
Explain the meaning of monopoly and state its various definitions.
Answer:
Monopoly:

• A market structure where in there is only one seller and numerous buyers is called monopoly. .
• ‘Perfect Market’ and ‘Monopoly’ are two completely opposite theories. Just like perfect market, monopoly is also an imaginary concept. The monopoly observed is actually imperfect monopoly.
• Monopoly has originated from the Greek words, ‘Monos’ which means ‘Single’ and ‘Polein’ means ‘Seller’. So, the term ‘Monopoly’ means a market having only one seller.

Definition:

• According to Prof. Chamberlin, “When the product supply is controlled only by a single enterprise, it is Monopoly.”
• According to Prof. Stigler, “Only one enterprise is the seller of the goods or products.”

Question 8.
State the two important definitions of monopoly in words of economists.
Answer:
Monopoly:

• A market structure where in there is only one seller and numerous buyers is called monopoly. .
• ‘Perfect Market’ and ‘Monopoly’ are two completely opposite theories. Just like perfect market, monopoly is also an imaginary concept. The monopoly observed is actually imperfect monopoly.
• Monopoly has originated from the Greek words, ‘Monos’ which means ‘Single’ and ‘Polein’ means ‘Seller’. So, the term ‘Monopoly’ means a market having only one seller.

Definition:

• According to Prof. Chamberlin, “When the product supply is controlled only by a single enterprise, it is Monopoly.”
• According to Prof. Stigler, “Only one enterprise is the seller of the goods or products.”

Question 9.
What do you mean by ‘Only one producer or seller and numerous buyers’? Explain with reference to a market situation.
Answer:
Only one producer or seller and numerous buyers:

• In 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.

Question 10.
Explain with the help of an example to justify the statement ‘Substitute goods are not present in monopoly’.
Answer:
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.

Question 11.
Restriction of firms to enter in monopoly market is an evil of monopoly. Give reason.
Answer:
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.

Question 12.
Explain in detail the 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.

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, trahsportation, showroom expenses, money spent for selling, prizes, gifts, advertisement cost, etc.
• In monopolistic markets, selling cost creates product difference in the market which then gives a particular identity to a product. For example, companies.manufacturing mobile phones, soaps, etc. try to create unique identity through selling costs.
• Selling cost is a distinguished characteristic of monopolistic market.

5. Competition other than price:

• In monopolistic market, there exists competition of price as well as competition other than price.
• The sellers of various firms keep the price fixed i.e. do not compete for price and then try to attract the consumers by advertisement and compete by modifying the qualify i.e. they compete on factors other than price.

6. Imperfect knowledge regarding the market:

• The buyers and sellers do not have complete knowledge related to the market. They are not aware of identical and substitute products.
• The price of identical or substitute products are either high or low which results in variation in price of substitute products.
• There are many firms in monopolistic competitive market that produce identical or substitute products. These firms compete by creating a new identity of the product and this way try to establish monopoly like situation. This creates a monopolistic competition.

Question 13.
What is product differentiation? In which market is it observed?
Answer:
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.

Question 14.
How is the entry and exit of firms in monopolistic competition?
Answer:
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 15.
What is selling cost? Explain.
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.
• The concept of selling cost exists in both monopolistic and oligopoly markets.
• Through selling cost, 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.

Question 16.
The selling cost is a typical characteristic of monopolistic market. Give reason.
Answer:

• The concept of selling cost is not seen in monopoly or perfect competition.
• In monopolistic competitive market, the sellers try to attract the consumers by spending on advertisement, discounts, commission, attractive packaging, etc. All these form a part of 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, soaps, etc. try to create unique identity through selling costs.
• Such a concept does not exist in perfect competition or monopoly. Hence, selling cost is a typical characteristic of monopolistic market.

Question 17.
What is oligopoly? Explain and state its various definitions.
Answer:
Oligopoly:

• The term ‘Oligopoly’ has originated from the Greek words ‘Oligos’ which means ‘Few’ and ‘Pollein’ which means ‘Sellers’. So, Oligopoly means a market that has only few producers.
• In oligopoly these small number of producers or sellers dominate the market. They sell identical or substitute products and there is extreme competition among them in this market.

Various definitions:

• According to Prof. Stigler “Oligopoly is the market in which the firm decides its policy, according to the behaviour of competitors.”
• According to Prof. Baumol “Oligopoly is the market in which even a small number of sellers out of the total less sellers are effect enough to affect the price of the product.”

Question 18.
State the two important definitions of Oligopoly as given by economists.
Answer:
Oligopoly:

• The term ‘Oligopoly’ has originated from the Greek words ‘Oligos’ which means ‘Few’ and ‘Pollein’ which means ‘Sellers’. So, Oligopoly means a market that has only few producers.
• In oligopoly these small number of producers or sellers dominate the market. They sell identical or substitute products and there is extreme competition among them in this market.

Various definitions:

• According to Prof. Stigler “Oligopoly is the market in which the firm decides its policy, according to the behaviour of competitors.”
• According to Prof. Baumol “Oligopoly is the market in which even a small number of sellers out of the total less sellers are effect enough to affect the price of the product.”

Question 19.
In oligopoly, buyers neither have much influence on the market price nor , are they given much importance. Give reason.
Answer:
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.

Question 20.
A product or a service can belong to regional as well as national market simultaneously. Give reason.
Answer:
Numerous inventions have taken place which has led to better transportation and communication facilities, cold-storage facilities, etc.

• Using these facilities and technologies a person sitting at one corner of room can sell his products in his city or region or even at national level.
• Previously only those firms that had a good presence at national or global level could buy and sell at such scale.
• Owing to these changes, the way a market is classified on the basis of location and geographical area has largely changed.
• As a result, same items and services can be available at both regional and national market simultaneously and hence it can belong to both regional market as well as national market.

Multiple Choice Questions

Question 1.
In modern times, buyers come in contact of sellers via
(A) Tele-shopping
(B) Website
(C) Online shopping
(D) Both (A) and (C)
Answer:
(D) Both (A) and (C)

Question 2.
Into how many types can a market be classified broadly?
(A) 2
(B) 3
(C) 4
(D) 8
Answer:
(B) 3

Question 3.
Based on quantity, market is of types.
(A) 2
(B) 3
(C) 4
(D) 6
Answer:
(A) 2

Question 4.
Which of the following is not a type of market on the basis of quantity?
(A) Wholesale market
(B) Bulk market
(C) Retail market
(D) Both (A) and (C)
Answer:
(B) Bulk market

Question 5.
Which of the following is a market based on competition?
(A) Imperfect competition market
(B) Perfect competition market
(C) Semi-perfect competition market
(D) Both (A) and (B)
Answer:
(D) Both (A) and (B)

Question 6.
Imperfect competition is of types.
(A) 2
(B) 3
(C) 4
(D) 5
Answer:
(B) 3

Question 7.
Which of the following is not a market based on imperfect competition?
(A) Monopoly
(B) Monopolistic
(C) Oligopoly
(D) None of these
Answer:
(D) None of these

Question 8.
Which of the following is an ideal market?
(A) Oligopoly
(B) Monopolistic
(C) Perfect competition
(D) Monopoly
Answer:
(C) Perfect competition

Question 9.
Which of the following market systems actually do not exist?
(A) Oligopoly
(B) Perfect competition
(C) Monopoly
(D) Both (B) and (C)
Answer:
(D) Both (B) and (C)

Question 10.
One can find perfect competition in
(A) Power sector
(B) Service sector
(C) Agriculture sector
(D) All of these
Answer:
(C) Agriculture sector

Question 11.
One needs to thoroughly understand the characteristic of _______ market In order to study the behavior of other market.
(A) Oligopoly
(B) Monopoly
(C) Imperfect competition
(D) Perfect competition
Answer:
(D) Perfect competition

Question 12.
Which of the following is perfect for true competition?
(A) Large numbers of sellers and numerous buyers
(B) One sellers and numerous buyers
(C) Numerous buyers and sellers
(D) Few sellers and numerous buyers
Answer:
(C) Numerous buyers and sellers

Question 13.
Free entry and exit of firms is possible in
(A) Monopolistic competition
(B) Monopoly
(C) Perfect competition
(D) Both (A) and (C)
Answer:
(D) Both (A) and (C)

Question 14.
In perfect competition, free entry and exit of firms can be seen _______
(A) All the time
(B) For a temporary period
(C) For a very long time
(D) Both (B) and (C) are possible
Answer:
(B) For a temporary period

Question 15.
The demand curve of perfect competition is
(A) Perfectly elastic
(B) Smooth and positive
(C) Very rigid
(D) Partially elastic and smooth
Answer:
(A) Perfectly elastic

Question 16.
How many producers and sellers are there in monopoly?
(A) Numerous
(B) Few
(C) Large
(D) Only one
Answer:
(D) Only one

Question 17.
In monopoly producer/seller is also called
(A) Price maker
(B) Trend setter
(C) Market shifter
(D) Market cheater
Answer:
(A) Price maker

Question 18.
Absence of substitute products is a characteristic of _______
(A) Perfect competition
(B) Monopolistic competition
(C) Monopoly
(D) Both (B) and (C)
Answer:
(C) Monopoly

Question 19.
Firm ‘XYZ’ = Industry refers to _______
(A) Oligopoly
(B) Monopoly
(C) Perfect competition
(D) Monopolistic competition
Answer:
(B) Monopoly

Question 20.
What is true for monopolistic competition market?
(A) Free entry and exit
(B) Free entry but not exit
(C) Restricted entry
(D) Barriers on entry and exit
Answer:
(A) Free entry and exit

Question 21.
The words ‘Oligos’ and ‘Pollein’ means
(A) ‘One’ and ‘Seller’
(B) ‘Many’ and ‘Sellers’
(C) ‘Many’ and ‘Buyers’
(D) ‘Few’ and ‘Sellers’
Answer:
(D) ‘Few’ and ‘Sellers’

Question 22.
In oligopoly, entry/exit of firms is
(A) Free
(B) Restricted
(C) Regulated
(D) Can be both (A) and (C)
Answer:
(D) Can be both (A) and (C)

Question 23.
The demand curve becomes kinked because
(A) Price fluctuates heavily
(B) Price is resistant to charge
(C) Price stability is an issue
(D) Prices suddenly goes up
Answer:
(B) Price is resistant to charge