SELECT * FROM question_mgmt as q WHERE id=10293 AND status=1 SELECT id,question_no,question,chapter FROM question_mgmt as q WHERE courseId=3 AND subId=60 AND chapterId=612 and ex_no='1' AND status=1 ORDER BY CAST(question_no AS UNSIGNED) CBSE Free NCERT Solution of 12th micro-economics Market Equilibrium explain how price is determined in a perfectly com

Question:

Explain how price is determined in a perfectly competitive market with a fixed number of firms.

Answer:

When the number of firms in a perfectly competitive market is fixed, the firms are operating in the short-run. The equilibrium price is determined by the intersection of market demand curve and supply curve. It is the price at which the market demand equals market supply. If at any price below Pe, let us say Rs 12, there will be an excees supply, which will increases the competition among the sellers and they will reduce the price in order to sell more output. This causes a fall in them price, finally to Rs (Pe), where the demand equals supply. If at any price
lower than Pe, let us say RS 2, there will be an excees demand that will raise the competition among the buyers or consumers and they will be ready to pay higher price for the given output. This will increase the price to Rs 8 (equilibrium price), where the market will reach the equilibrium thus, the invisible hands of market operate automatically whenever there exist excees demand and excees supply; ensuring equilibrium in the market.


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