In the context of a perfectly competitive market, if the number of firms increases: Statements: 1. The market supply curve shifts to the right. 2. The market demand curve shifts to the right. 3. The equilibrium price decreases and equilibrium quantity increases. Which of the statements given above is/are correct?

Correct Option The correct option is 1 and 3 only. Explanation In a perfectly competitive market, the market supply curve is derived from the horizontal summation of the individual supply curves of all firms in the industry. Changes in the number of firms directly impact the aggregate supply, which subsequently alters the market equilibrium. Statement-wise Analysis - Statement 1 is Correct: When the number of firms in a market increases, the total quantity of goods supplied at any given price increases. This expansion in production capacity causes the aggregate market supply curve to shift to the right (outward). - Statement 2 is Incorrect: The market demand curve is determined by factors such as consumer income, preferences, prices of related goods, and the number of consumers. An increase in the number of firms (suppliers) does not shift the demand curve; rather, it causes a movement along the existing demand curve due to price changes. - Statement 3 is Correct: According to the laws of supply and demand, a rightward shift in the supply curve (with the demand curve remaining constant) creates excess supply at the original price. This puts downward pressure on the price until a new equilibrium is reached at a lower price and a higher quantity. Key Takeaway Key Takeaway: The entry of new firms into a perfectly competitive market increases market supply (rightward shift), which lowers the equilibrium price and increases the equilibrium quantity, provided demand remains constant.

NCERT Class 12 Economics — Chapter 2: Market Equilibrium

mcqeasy

In the context of a perfectly competitive market, if the number of firms increases:

Statements:

The market supply curve shifts to the right.
The market demand curve shifts to the right.
The equilibrium price decreases and equilibrium quantity increases.

Which of the statements given above is/are correct?

Official previous-year question

Verified 1 Aug 2026.

Options

A1 and 3 only
B1 only
C1, 2 and 3
D2 only

Did you get this right?

Solution

Correct Option

The correct option is 1 and 3 only.

Explanation

In a perfectly competitive market, the market supply curve is derived from the horizontal summation of the individual supply curves of all firms in the industry. Changes in the number of firms directly impact the aggregate supply, which subsequently alters the market equilibrium.

Statement-wise Analysis

Statement 1 is Correct: When the number of firms in a market increases, the total quantity of goods supplied at any given price increases. This expansion in production capacity causes the aggregate market supply curve to shift to the right (outward).
Statement 2 is Incorrect: The market demand curve is determined by factors such as consumer income, preferences, prices of related goods, and the number of consumers. An increase in the number of firms (suppliers) does not shift the demand curve; rather, it causes a movement along the existing demand curve due to price changes.
Statement 3 is Correct: According to the laws of supply and demand, a rightward shift in the supply curve (with the demand curve remaining constant) creates excess supply at the original price. This puts downward pressure on the price until a new equilibrium is reached at a lower price and a higher quantity.

Key Takeaway

Key Takeaway: The entry of new firms into a perfectly competitive market increases market supply (rightward shift), which lowers the equilibrium price and increases the equilibrium quantity, provided demand remains constant.

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?

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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?

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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?

medium

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

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Correct Option

The correct option is 1 and 3 only.

Explanation

Statement-wise Analysis

Statement 1 is Correct: When the number of firms in a market increases, the total quantity of goods supplied at any given price increases. This expansion in production capacity causes the aggregate market supply curve to shift to the right (outward).
Statement 2 is Incorrect: The market demand curve is determined by factors such as consumer income, preferences, prices of related goods, and the number of consumers. An increase in the number of firms (suppliers) does not shift the demand curve; rather, it causes a movement along the existing demand curve due to price changes.
Statement 3 is Correct: According to the laws of supply and demand, a rightward shift in the supply curve (with the demand curve remaining constant) creates excess supply at the original price. This puts downward pressure on the price until a new equilibrium is reached at a lower price and a higher quantity.