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Market Equilibrium — Economics STD 11 Commerce — Question

CBSE BoardEnglish MediumSTD 11 CommerceEconomicsMarket Equilibrium3 Marks
Question
A shift in demand curve has a larger effect on price and smaller effect on quantity when the number of firms is fixed compared to the situation when free entry and exit is permitted. Explain.
✓

Answer

Under the long run, when free entry and exit is permitted, there is total changes in quantity but no change in equilibrium price. It happens when the demand curve intersects tile supply curve at equilibrium point. Then Price = minimum Average cost. As a result demand curve shift upward,
It effect, there is no change in price but quantity rises When the number of firms is fixed, the supply curve is upward and demand curve is downward sloping. It results the demand effect more in price than quantity.

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