Q2 of 14 Page 6

Which market has characteristics of product differentiation?

Product differentiation is the main characteristic feature of monopolistic competition. Under monopolistic competition firms produce differentiated products. These products are differentiated on the basis of physical characteristics of the product like quality, size, design, and colour and also differentiated on the basis of conditions in which products are sold like location of the shop, behaviour of the seller, credit facility etc.


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1

Explain the effect of a ‘price ceiling’.

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A Market for a good is in equilibrium. Demand for good ‘increases’. Explain the chain effects of this change.

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Market for a necessary good is competitive in which the existing firms are earning supernormal profits. How can policy of liberalisation by government help in making the market more competitive in the interest of consumers? Explain.

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Explain the effect of price floor.