Which of the following is a key difference between the labour market and the goods market? Statements: 1. In the labour market, households are suppliers and firms are demanders. 2. In the goods market, households are suppliers and firms are demanders. 3. The wage rate is determined by the interaction of demand and supply, similar to goods prices.

The correct option is 1 and 3 only. Explanation In a simplified market economy, the interaction between economic agents (households and firms) occurs in two distinct markets: the Product Market (Goods Market) and the Factor Market (Labour Market). The roles of supply and demand reverse between these two markets based on who owns the resources and who consumes the output. Statement-wise Analysis: - Statement 1 is Correct: In the labour market (a type of factor market), households are the owners of the factors of production. They offer their labour services to earn income. Therefore, households are the suppliers of labour, and firms (which need labour to produce goods) are the demanders. - Statement 2 is Incorrect: In the goods market (product market), firms produce goods and services to sell to consumers. Therefore, firms are the suppliers, and households (consumers) are the demanders. The statement incorrectly suggests that households supply goods. - Statement 3 is Correct: In a competitive market economy, the price of labour (wage rate) is determined by the equilibrium point where the demand for labour matches the supply of labour, just as the price of commodities is determined in the goods market. Key Takeaway: In the circular flow of the economy, the roles of households and firms are inverted: Households supply factors of production (labour, capital) and demand goods, whereas firms demand factors of production and supply goods.

Which of the following is a key… - NCERT Class 12 Economics MCQ

NCERT Class 12 Economics — Chapter 2: Market Equilibrium

mcqeasy

Which of the following is a key difference between the labour market and the goods market?

Statements:

In the labour market, households are suppliers and firms are demanders.
In the goods market, households are suppliers and firms are demanders.
The wage rate is determined by the interaction of demand and supply, similar to goods prices.

NCERT textbook question

From NCERT Introductory Microeconomics · Page 74

Options

A2 only
B1 and 3 only
C1, 2 and 3
D1 and 2 only

Did you get this right?

Solution

The correct option is 1 and 3 only.

Explanation

In a simplified market economy, the interaction between economic agents (households and firms) occurs in two distinct markets: the Product Market (Goods Market) and the Factor Market (Labour Market). The roles of supply and demand reverse between these two markets based on who owns the resources and who consumes the output.

Statement-wise Analysis:

Statement 1 is Correct: In the labour market (a type of factor market), households are the owners of the factors of production. They offer their labour services to earn income. Therefore, households are the suppliers of labour, and firms (which need labour to produce goods) are the demanders.
Statement 2 is Incorrect: In the goods market (product market), firms produce goods and services to sell to consumers. Therefore, firms are the suppliers, and households (consumers) are the demanders. The statement incorrectly suggests that households supply goods.
Statement 3 is Correct: In a competitive market economy, the price of labour (wage rate) is determined by the equilibrium point where the demand for labour matches the supply of labour, just as the price of commodities is determined in the goods market.

Key Takeaway:
In the circular flow of the economy, the roles of households and firms are inverted: Households supply factors of production (labour, capital) and demand goods, whereas firms demand factors of production and supply goods.

Your note

More from Chapter 2: Market Equilibrium

In the context of market equilibrium, what happens when the market demand curve shifts rightward while the supply curve remains unchanged ?

easy

In a market with free entry and exit, if the demand curve shifts to the left: Statements: 1. Firms will enter the market to capture the lower price. 2. The market price will temporarily fall below the minimum average cost. 3. The supply will increase until the price returns to the minimum average cost. Which of the statements given above is/are correct?

hard

What is the primary consequence of a price ceiling accompanied by rationing?

easy

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

In a perfectly competitive market, if the market price is above the equilibrium price, there will be:

easy

Keep practising Chapter 2: Market Equilibrium

Work through every question from this NCERT chapter.

Browse all NCERT Class 12 Economics chapters