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.

In the context of a perfectly… - NCERT Class 12 Economics MCQ

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?

NCERT textbook question

From NCERT Introductory Microeconomics · Page 79

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

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