Consider the following statements regarding the determination of equilibrium with a fixed number of firms: 1. If the prevailing price is lower than the equilibrium price, there will be excess supply in the market. 2. In a situation of excess demand, the market price tends to increase. 3. As price rises, quantity demanded falls and quantity supplied increases, moving the market towards equilibrium. Which of the statements given above is/are correct?

Correct Option The correct option is 2 and 3 only. Explanation Market equilibrium is determined where the quantity demanded by consumers equals the quantity supplied by producers. In a perfectly competitive market with a fixed number of firms, the price mechanism acts as an invisible hand to correct imbalances (excess demand or excess supply) and restore equilibrium. Statement-wise Analysis - Statement 1 is Incorrect. If the prevailing market price is lower than the equilibrium price, the quantity demanded by consumers will exceed the quantity supplied by producers (due to the Law of Demand and Law of Supply). This situation creates excess demand (shortage), not excess supply. Excess supply occurs when the price is higher than the equilibrium price. - Statement 2 is Correct. In a situation of excess demand, consumers compete for the limited available quantity of goods. This competition drives the price upward. As buyers bid higher prices to secure the good, the market price tends to increase. - Statement 3 is Correct. This statement describes the adjustment mechanism following excess demand. As the market price rises: - Quantity demanded falls (movement up along the demand curve). - Quantity supplied increases (movement up along the supply curve). This process continues until the quantity demanded equals the quantity supplied, thereby restoring market equilibrium. Key Takeaway Key Takeaway: When price is below equilibrium, excess demand occurs, causing prices to rise. When price is above equilibrium, excess supply occurs, causing prices to fall. These adjustments move the market toward the equilibrium price where quantity demanded equals quantity supplied.

NCERT Class 12 Economics — Chapter 2: Market Equilibrium

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Consider the following statements regarding the determination of equilibrium with a fixed number of firms:

If the prevailing price is lower than the equilibrium price, there will be excess supply in the market.
In a situation of excess demand, the market price tends to increase.
As price rises, quantity demanded falls and quantity supplied increases, moving the market towards equilibrium.

Which of the statements given above is/are correct?

Official previous-year question

Verified 1 Aug 2026.

Options

A2 only
B2 and 3 only
C1 and 2 only
D1, 2 and 3

Did you get this right?

Solution

Correct Option

The correct option is 2 and 3 only.

Explanation

Market equilibrium is determined where the quantity demanded by consumers equals the quantity supplied by producers. In a perfectly competitive market with a fixed number of firms, the price mechanism acts as an invisible hand to correct imbalances (excess demand or excess supply) and restore equilibrium.

Statement-wise Analysis

Statement 1 is Incorrect.
If the prevailing market price is lower than the equilibrium price, the quantity demanded by consumers will exceed the quantity supplied by producers (due to the Law of Demand and Law of Supply). This situation creates excess demand (shortage), not excess supply. Excess supply occurs when the price is higher than the equilibrium price.
Statement 2 is Correct.
In a situation of excess demand, consumers compete for the limited available quantity of goods. This competition drives the price upward. As buyers bid higher prices to secure the good, the market price tends to increase.
Statement 3 is Correct.
This statement describes the adjustment mechanism following excess demand. As the market price rises:
- Quantity demanded falls (movement up along the demand curve).
- Quantity supplied increases (movement up along the supply curve).
This process continues until the quantity demanded equals the quantity supplied, thereby restoring market equilibrium.

Key Takeaway

Key Takeaway: When price is below equilibrium, excess demand occurs, causing prices to rise. When price is above equilibrium, excess supply occurs, causing prices to fall. These adjustments move the market toward the equilibrium price where quantity demanded equals quantity supplied.

Your note

More from Chapter 2: Market Equilibrium

With reference to the demand for a normal good, consider the following statements: 1. An increase in consumers' income leads to a rightward shift in the market demand curve. 2. An increase in the number of consumers leads to a rightward shift in the market demand curve. 3. A rightward shift in demand, with supply constant, leads to a decrease in equilibrium price. Which of the statements given above is/are correct?

easy

Consider the following statements regarding Market Equilibrium in a perfectly competitive market: 1. An equilibrium is defined as a situation where the plans of all consumers and firms in the market match. 2. In equilibrium, the aggregate quantity that all firms wish to sell equals the quantity that all consumers wish to buy. 3. If the market supply is greater than market demand at a specific price, the market is said to be in a state of excess demand. Which of the statements given above is/are correct?

easy

With reference to the Labour Market, consider the following statements: 1. Households are the suppliers of labour, while the demand for labour comes from firms. 2. The demand curve for labour by a profit-maximising firm is upward sloping. 3. The wage rate is determined at the intersection of the demand and supply curves of labour. Which of the statements given above is/are correct?

medium

Consider the following statements regarding the Marginal Revenue Product of Labour (MRPL): 1. It is the extra cost incurred for employing the last unit of labour. 2. It is calculated as the product of Marginal Revenue and Marginal Product of labour. 3. For a perfectly competitive firm, the Marginal Revenue Product of Labour is equal to the Value of Marginal Product of Labour. Which of the statements given above is/are correct?

hard

With reference to the supply of labour by an individual, consider the following statements: 1. An increase in wage rate always leads to an increase in the supply of labour hours by an individual. 2. At high wage rates, the income effect may dominate the substitution effect, leading to a decrease in labour supply. 3. The individual labour supply curve can be backward bending. Which of the statements given above is/are correct?

hard

Keep practising Chapter 2: Market Equilibrium

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Correct Option

The correct option is 2 and 3 only.

Explanation

Statement-wise Analysis

Statement 1 is Incorrect.
If the prevailing market price is lower than the equilibrium price, the quantity demanded by consumers will exceed the quantity supplied by producers (due to the Law of Demand and Law of Supply). This situation creates excess demand (shortage), not excess supply. Excess supply occurs when the price is higher than the equilibrium price.
Statement 2 is Correct.
In a situation of excess demand, consumers compete for the limited available quantity of goods. This competition drives the price upward. As buyers bid higher prices to secure the good, the market price tends to increase.
Statement 3 is Correct.
This statement describes the adjustment mechanism following excess demand. As the market price rises:
- Quantity demanded falls (movement up along the demand curve).
- Quantity supplied increases (movement up along the supply curve).
This process continues until the quantity demanded equals the quantity supplied, thereby restoring market equilibrium.