Q11 of 36 Page 1

Explain ‘‘perfect knowledge about the markets’’ feature of perfect competition.

Under perfect competition all the buyers and sellers have perfect knowledge of the market condition which means that they are fully informed about the market price. The products are homogeneous in nature and no buyer is ready to pay higher price for the commodity. Thus, the firms are the price takers. This means that each firm has an equal access to the technology and the inputs used in the production process and thus they all produce at the same cost structure.


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10

Define market supply. Explain the factor ‘input prices’ that can cause a change in supply.

 10

Give the behaviour of marginal product and total product as more and more units of only one input are employed while keeping other inputs as constant.

 12

When the price of a good rises from < 10 per unit to < 12 per unit, its quantity demanded falls by 20 percent. Calculate its price elasticity of demand. How much would be the percentage change in its quantity demanded, if the price rises from < 10 per unit to < 13 per unit?

 13

Complete the following table: