Read the following statements about a perfectly competitive market:
(A) In equilibrium, market demand equals market supply.
(B) In equilibrium, excess demand and excess supply are both zero.
(C) In equilibrium, the plans of all consumers and firms in the market match.
(D) In equilibrium, the price tends to rise because buyers compete for the good.
(E) In equilibrium, some firms are unable to sell the quantity they want at the prevailing price.
How many of the above statements are correct?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Three
In equilibrium the market clears: buyers and sellers both get what they planned at that price.
(A) In equilibrium, market demand equals market supply. — Correct. At the equilibrium price, the quantity firms wish to sell equals the quantity consumers wish to buy.
(B) In equilibrium, excess demand and excess supply are both zero. — Correct. Since demand equals supply, there is zero excess demand and zero excess supply.
(C) In equilibrium, the plans of all consumers and firms in the market match. — Correct. Equilibrium is the situation where the plans of all consumers and firms match.
(D) In equilibrium, the price tends to rise because buyers compete for the good. — Incorrect. The price tends to rise only when there is excess demand, that is, at a price below equilibrium.
(E) In equilibrium, some firms are unable to sell the quantity they want at the prevailing price. — Incorrect. Firms fail to sell what they want only when there is excess supply, at a price above equilibrium.
So three statements are correct.
NCERT (2026-27): “5.1 Equilibrium, Excess Demand, Excess Supply A perfectly competitive market consists of buyers and sellers who are driven by their self-interested objectives. Recall from Chapters 2 and 4 that objectives of the consumers are to maximise their respective preference and that of the firms are to maximise their respective profits. Both the consumers’ and firms’ objectives are compatible in the equilibrium. An equilibrium is defined as a situation where the plans of all consumers and firms in the market match and the market clears. In equilibrium, the aggregate quantity that all firms wish to sell equals the quantity that all the consumers in the market wish to buy; in other words, market supply equals market demand. The price at which equilibrium is reached is called equilibrium price and the quantity bought and sold at this price is called equilibrium quantity.” “5.1 Equilibrium, Excess Demand, Excess Supply … If at a price, market supply is greater than market demand, we say that there is an excess supply in the market at that price and if market demand exceeds market supply at a price, it is said that excess demand exists in the market at that price. Therefore, equilibrium in a perfectly competitive market can be defined alternatively as zero excess demand-zero excess supply situation.” |