Class 9 SST Chapter 9 The Price Puzzle What Drives the Market Question Answer
The Big Questions (Page-195)
Question 1.
What are the factors that influence the demand and supply of goods and services in a market?
Answer:
The demand and supply of goods and services in a market are influenced by several factors, including:
- Consumers’ income and purchasing power.
- Prices of goods and services.
- Consumer preferences, tastes and changing lifestyles.
- Cost and availability of resources (land, labour, capital and technology).
- Production costs and technology.
- Government policies, taxes, subsidies and regulations.
- Seasonal conditions and market expectations.
Question 2.
How are prices of goods and services determined through demand and supply interactions?
Answer:
Prices are determined through the interaction of demand and supply in the market.
- When demand is greater than supply, prices tend to rise.
- When supply is greater than demand, prices tend to fall.
- The price at which the quantity demanded equals the quantity supplied is called the equilibrium price.
Question 3.
What is market equilibrium, and does it exist in the real world?
Answer:
Market equilibrium is the situation in which the quantity demanded by consumers is equal to the quantity supplied by producers, resulting in a stable market price.
In the real world, equilibrium is generally temporary because changes in demand, supply, consumer prefer-ences, production costs, technology and government policies continuously affect market conditions.
Question 4.
How and why does the government intervene in the market?
Answer:
The government intervenes in the market to ensure the fair and efficient functioning of the economy. It does so by:
- Regulating prices in certain situations.
- Imposing taxes and providing subsidies.
- Protecting consumers and producers.
- Preventing unfair trade practices and promoting competition.
- Providing public goods and essential services.
- Correcting market failures and promoting social welfare.
Let’s Explore (Page-200)
Question 1.
Create your own demand schedule for buying notebooks at different prices. At what price would you buy the most? At what price would you stop buying altogether? What could be the reason behind your choices?
Answer:
| Price of One Notebook (₹) | Quantity Demanded (Notebooks) |
| 20 | 8 |
| 30 | 6 |
| 40 | 4 |
| 50 | 2 |
| 60 | 0 |
- I would stop buying at ?60 because the price is too high compared with my budget.
- This shows that as the price increases, the quantity demanded decreases, which is the law of demand.
(Answer may vary)
Question 2.
Ask your family members if they postponed or preponed buying any product because of future expectations of price changes?
Answer:
Yes. My family preponed the purchase of a refrigerator because they expected its price to increase during the festive season. Buying it earlier helped them save money.
Another example is postponing the purchase of a mobile phone because they expected prices to fall after the launch of a newer model.
Note: Students may write examples based on their own family’s experiences.
Let’s Explore (Page-203)
Question 1.
What happens to the supply of a product in case of a change in the cost of inputs for production, discovery or depletion of resources, weather, disaster, etc.? Discuss in class using examples of diverse goods and services.
Answer:
The supply of a product changes when factors affecting production change.
- Increase in the cost of inputs: Supply decreases because production becomes more expensive.
Example: An increase in the price of cotton raises the cost of producing clothes, so fewer clothes may be supplied. - Decrease in the cost of inputs: Supply increases because production becomes cheaper.
Example: A fall in the price of steel may increase the supply of automobiles. - Discovery of new resources: Supply increases as more raw materials become available.
Example: Discovery of new oil reserves increases the supply of petroleum products. - Depletion of resources: Supply decreases because raw materials become scarce.
Example: Depletion of coal reserves may reduce the supply of coal. - Favourable weather: Supply increases, especially for agricultural products.
Example: Good monsoon rainfall increases the supply of rice and wheat. - Natural disasters: Supply decreases because production and transport are disrupted.
Example: Floods or cyclones may reduce the supply of vegetables and fruits.
Let’s Analyse (Page-204)
Question 1.
Using data from Table, plot the demand and supply curve’s at the three prices, i.e., ₹40, ₹100 and ₹150. Identify and mark excess demand and supply on the graph. Think about how equilibrium could be reached in these scenarios.
| Price (₹) | Quantity demanded (Qd) of Mangoes (in kg) | Quantity supplied (Qs) of Mangoes (in kg) | Quantity Supplied and Quantity Demanded | Outcome |
| 40 | 38 | 6 | Qs<Qd | Excess Demand |
| 100 | 12 | 12 | Qs=Qd | Market Equilibrium |
| 150 | 8 | 43 | Qs>Qd | Excess Supply |
| Equilibrium Price = ₹100 | Equilibrium Quantity = 12 kg | |||
Answer:

Think About It (Page-205)
Question 1.
Can you think of another real-life example (other than hotels) where prices change frequently? Explain why the prices keep changing.
Answer:
One common example is airline tickets. Their prices change frequently depending on demand, availability of seats, time of booking, festivals, holidays, fuel prices and seasonal travel. When demand is high and seats are limited, prices increase. When demand is low, airlines reduce prices to attract more passengers.
Question 2.
Our choices today affect future resources. For example, high demand for fast fashion, overfishing and overuse of groundwater can harm future supply. So, should we focus only on short-term gains or also think about long-term sustainability? How could this affect the market equilibrium?
Answer:
We should think about long-term sustainability rather than only short-term gains. Excessive use of natural resources can reduce future supply and create shortages. Conserving resources, using them efficiently, and promoting sustainable production help maintain a steady supply of goods.
If resources are overused, supply may decrease while demand remains high, causing prices to rise and disturbing market equilibrium. Sustainable use of resources helps maintain a balance between demand and supply, supporting a stable market equilibrium in the long run.
Think About It (Page-206)
Question 1.
Have you ever seen or heard of the government fixing prices or wages (for example, bus fares, medicines or minimum wages)? Share an example and why you think it was done.
Answer:
Yes. The government fixes the Minimum Support Price (MSP) for certain crops such as wheat and rice. , This is done to ensure that farmers receive a fair price for their produce and are protected from sudden falls in market prices.
Another example is the minimum wage, which is fixed to ensure that workers receive fair wages and are protected from exploitation.
Note: Students may write any other suitable example, such as government-regulated bus fares, electricity tariffs or the price of essential medicines.
Let’s Explore (Page-207)
Question 1.
From your surroundings, list two goods or services that are provided by the government.
Answer:
- Public roads
- Street lights
Question 2.
Choose one of the goods you listed and answer: Who benefits from it?
Answer:
(Example: Public Roads)
Everyone in the community benefits from public roads, including pedestrians, cyclists, motorists, public transport users, businesses and emergency services.
Question 3.
Why would it be difficult for a private company to provide this service on its own?
Answer:
It would be difficult because public roads are used by everyone, and it is not practical to charge every person who uses them. Building and maintaining roads also require huge investments, so the government usually provides this service.
Question 4.
Imagine the government stops providing this good or service. What problems might people in your area face?
Answer:
If the government stops providing public roads:
- People would face difficulty in travelling to schools, workplaces and hospitals.
- Transport of goods would become difficult and expensive.
- Traffic congestion and accidents could increase.
- Overall economic and social activities would be affected.
Let’s Recall (Page-208)
In the chapter ‘Democracy’, you have read that a democratic government is accountable to the people and is expected to act in their interest.
Question 1.
According to you, how should a democratic government decide when and how much it should intervene in markets to protect people’s welfare?
Answer:
A democratic government should intervene in markets when it is necessary to protect people’s welfare and ensure fair competition. It should:
- Prevent unfair trade practices and exploitation.
- Protect consumers and workers.
- Provide essential public goods and services.
- Regulate prices of essential goods when required.
- Balance the interests of consumers, producers and society while allowing markets to function efficiently.
Question 2.
Whose voices should a democratic government consider while making such decisions—consumers, producers, workers or others? Why?
Answer:
A democratic government should consider the views of consumers, producers, workers and other stakeholders because each group is affected by market decisions. Considering all viewpoints helps ensure that policies are fair, promote economic growth, protect people’s welfare and maintain a balance between efficiency and social justice.
Questions and Activities (Pages-211-213)
Question 1.
An increase in income always leads to a rise in demand for goods. Defend or refute, giving reasons for the same.
Answer:
Refute.
An increase in income generally leads to a rise in the demand for several goods because consumers can afford to buy more or choose higher-quality products. However, it does not always increase the demand for every good. Demand also depends on:
- Consumers’ tastes and preferences.
- Prices of related goods.
- Seasonality.
- Future price expectations.
Therefore, income is only one of the determinants of demand, and an increase in income does not always lead to higher demand for all goods.
Question 2.
If petrol prices double, what happens to—
(a) Demand for diesel cars
Answer:
The demand for diesel cars may increase because diesel cars become a relatively cheaper alternative for people looking to reduce fuel costs. Diesel cars act as a substitute for petrol cars.
(b) Demand for electric cars
Answer:
The demand for electric cars is likely to increase because they become an alternative to petrol cars when petrol becomes more expensive.
(c) Demand for car accessories
Answer:
The demand for car accessories may decrease because they are complementary goods. If people buy fewer petrol cars or use them less, the demand for related products such as car accessories may also fall.
(d) Demand for public transport
Answer:
The demand for public transport is likely to increase because people may switch from using private petrol vehicles to a relatively cheaper mode of travel.
Question 3.
A farmer traditionally irrigates fields manually (labour¬intensive). He installs drip irrigation (a technology upgrade) that reduces water use by 40% and increases yield by 30%. How does this affect—
(a) His cost of production
Answer:
The farmer’s cost of production decreases because improved technology makes production more efficient by reducing the use of inputs such as water and labour.
(b) His willingness to supply at different prices
Answer:
The farmer becomes more willing to supply at different prices because improved technology reduces production costs and enables him to produce more efficiently.
(c) The overall market supply if many farmers adopt this technology
Answer:
If many farmers adopt drip irrigation, the overall market supply increases. The chapter explains that improvement in technology allows producers to produce more and supply more. Higher production by many farmers increases the total market supply.
Question 4.
During online festival sales, the prices of many products are very low. Use the concept of demand and supply to explain why the sellers sell at such a low price. What happens to the equilibrium when the price is lowered? Does this benefit only consumers or sellers as well? Explain.
Answer:
During online”festival sales, sellers reduce prices to increase demand and attract more buyers. Lower prices encourage consumers to purchase larger quantities, helping sellers clear their stock and increase sales.
When the price is lowered:
- Demand increases.
- If the lower price creates excess demand, the market adjusts as sellers increase supply or prices gradually move towards a new equilibrium.
- Equilibrium is restored when quantity demanded equals quantity supplied.
The lower price benefits both consumers and sellers: - Consumers get products at lower prices.
- Sellers increase sales, clear inventory and earn higher overall revenue through larger volumes of sales.
Question 5.
Suppose the government sets a maximum sale price for an essential vaccine below the market-driven price. What is likely to happen? Choose from the options below and elucidate your point.
(a) Surplus
(b) Shortage
(c) No effect
(d) Fall in demand
Answer:
(b) Shortage
When the government fixes the maximum price below the market price, consumers demand more vaccines because they are cheaper, while producers may supply less due to lower profitability. As a result, quantity demanded exceeds quantity supplied, leading to a shortage (excess demand).
Question 6.
The government levies higher taxes on products such as tobacco and alcohol to promote healthier choices among citizens. Can you find out other goods where price controls have been set in place? What are the reasons for the same?
Answer:
Some other goods for which the government has set price controls include:
- Essential medicines – To make healthcare affordable.
- Fertilisers – To support farmers and agricultural production.
- Electricity and public transport fares – To ensure essential services remain affordable.
- Liquefied Petroleum Gas (LPG) – To make cooking fuel accessible to households.
These price controls are introduced to:
- Protect consumers from very high prices.
- Ensure essential goods and services remain affordable,
- Promote public welfare.
- Prevent exploitation and ensure fair access to essential commodities. (Answer may vary)
Question 7.
Can excessive government regulation hurt markets? Explain with suitable examples.
Answer:
Yes. Excessive government regulation can affect the efficient functioning of markets. If prices are controlled too strictly or producers face excessive restrictions, they may reduce production because profits become lower. This can lead to shortages, discourage new producers from entering the market and reduce competition. Example: If the government fixes the price of an essential product much below the market price, producers may supply less, resulting in excess demand and shortages. Therefore, government intervention should protect public welfare while allowing markets to function efficiently.
Question 8.
In the table below, different prices of guava are given.

(a) Think and write how much guava you will buy at each price.
Answer:
| Price | You (kg) | Friend 1 (kg) | Friend 2 (kg) | Friend 3 (kg) |
Total (kg) |
| ₹100/kg | 1 | 1 | 1 | 2 | 5 |
| ₹80/kg | 2 | 2 | 2 | 2 | 8 |
| ₹50/kg | 3 | 3 | 4 | 3 | 13 |
| ₹20/kg | 5 | 5 | 6 | 5 | 21 |
(Answer may vary)
(b) Ask the same question to th ree of your friends and fill in the table.
Answer:
Students should complete this activity by collecting responses from three frienos. The above table is a sample.
(c) Also make a graph for each one of you and a final graph showing the total quantity.
Answer:


Question 9.
Visit the nearby vegetable market and try to find answers to the following questions.
(a) Who decides the prices of different vegetables in the vegetable market?
Answer:
The prices are mainly decided by the interaction of demand and supply in the market. However, individual sellers may slightly adjust prices depending on quality, competition and local market conditions.
(b) Sometimes the prices of a few vegetables are too high, and sometimes too low. Why is this?
Answer:
Prices change because demand and supply change. Factors such as weather, seasonal production, transport costs, festivals and consumer demand affect the quantity supplied and demanded, leading to price fluctuations.
(c) The price of tomatoes is high in the morning and eventually gets lower by the evening. Have you ever noticed this? Comment.
Answer:
(Sample Answer)
Yes. Vegetable sellers often reduce prices in the evening to sell their remaining stock rather than carry unsold vegetables back. Lower prices encourage more customers to buy, helping sellers avoid losses.
Question 10.
Categorise the following combination of goods as substitute goods and complementary goods.
a. Movie ticket in the cinema hall and popcorn
b. Eraser and pencil
c. Laptop and computer
d. Air Conditioner and cooler
e. Notebook and pen
f. Apple and banana
g. Mobile and earphones
| Combination | Category |
| i. Movie ticket in the cinema hall and popcorn | Complementary goods |
| ii. Eraser and pencil | Complementary goods |
| iii. Laptop and Desktop | Substitute goods |
| iv. Air conditioner and cooler | Substitute goods |
| v. Notebook and pen | Complementary goods |
| vi. Apple and banana | Substitute goods |
| vii. Mobile phone and earphones | Complementary goods |
Question 11.
Figure 9.8 shows the demand curve DD’ and supply curve SS’. Based on the figure, answer the following questions:

i) What does point E represent in this market?
Answer:
Point E represents the market equilibrium, where the quantity demanded is equal to the quantity supplied. At this point, there is neither excess demand nor excess supply.
(ii) What is the equilibrium price and equilibrium quantity at point E?
Answer:
- Equilibrium Price = ₹250
- Equilibrium Quantity = 30 kg
(iii) Point A lies on DD’. Point B lies on SS’. What do the points A and B indicate about demand and supply? What does the gap between A and B (both on the upper dashed price line) represent?
Answer:
At the higher price of ₹300:
- Point A on the demand curve shows that consumers demand 25 kg.
- Point B on the supply curve shows that producers are willing to supply 35 kg.
The gap between A and B represents an excess supply (surplus) of 10 kg, as the quantity supplied exceeds the quantity demanded.
(iv) Point F lies on DD’. Point C lies on SS’. What do the points F and C indicate about demand and supply? What does the gap between C and F (both on the lower dashed price line) represent?
Answer:
At the lower price of ₹150:
- Point F on the demand curve shows that consumers demand 40 kg.
- Point C on the supply curve shows that producers are willing to supply 20 kg.
The gap between C and F represents an excess demand (shortage) of 20 kg, as the quantity demanded exceeds the quantity supplied.
(v) If the price stays at the lower dashed line, what could happen next in a free market?
Answer:
If the price remains at ₹150, there will be excess demand (shortage). Buyers will compete to purchase the available goods, creating upward pressure on the price. Producers will also be encouraged to supply more. As a result, the price will gradually rise towards the equilibrium price of ₹250, where demand and supply become equal.
Question 12.
Draw a market equilibrium graph using the following demand schedule.

(a) Plot the demand and supply curves using the above data.
(b) Identify the equilibrium price and quantity.
(c) Observe the above data and analyse what happens if the price is set at ₹20 or ₹40.
(a) Plot the demand and supply curves using the above data.
Answer:

(b) Identify the equilibrium price and quantity.
Answer:
Equilibrium Price: ₹30
Equilibrium Quantity: 15 kg
(c) Observe the above data and analyse what happens if the price is set at ?20 or ?40.
Answer:
At ₹20: Quantity Demanded = 10 kg, Quantity Supplied = 20 kg. Since supply is greater than demand, there is a surplus (excess supply) of 10 kg.
At ₹40: Quantity Demanded = 20 kg, Quantity Supplied = 10 kg. Since demand is greater than supply, there is a shortage (excess demand) of 10 kg.
Conclusion: The market is in equilibrium only at ₹30, where Quantity Demanded = Quantity Supplied = 15 kg. At ?20, there is a surplus, while at ₹40, there is a shortage.
The Price Puzzle What Drives the Market Class 9 Extra Questions and Answers
The Price Puzzle What Drives the Market Class 9 Very Short Question Answer
Question 1.
A shopkeeper notices that when he raises the price of notebooks from ₹ 20 to₹ 40, his sales fall by half. Which law of economics is at work? Explain how this law applies here.
Answer:
- The Law of Demand is at work: it states that there is an inverse relationship between price and quantity demanded.
- When price doubled from ₹ 20 to ₹ 40, demand fell because consumers either reduced purchases or switched to cheaper substitutes.
Question 2.
When the price of wheat rises, farmers across the country start growing more wheat. Which economic principle explains this behaviour?
Answer:
- This illustrates the Law of Supply which states that there is a direct relationship between price and quantity supplied.
- As the price of wheat rises, profit margins increase, encouraging farmers to expand production.
Question 3.
Rohan buys tea instead of coffee when the price of coffee increases. What economic effect does this show? How does this affect demand for coffee?
Answer:
- This situation shows the substitution effect, where consumers switch from a more expensive good to a cheaper alternative.
- As a result, the demand for coffee decreases while demand for tea (the substitute) increases.
Question 4.
Distinguish between individual demand and market demand with one example each.
Answer:
- Individual demand is the quantity of a good that a single consumer is willing and able to buy at various prices. Example: One student may buy 2 notebooks at ₹ 30 each.
- Market demand is the total demand of all consumers in the market for a good at a given price. Example: All students in a school together may demand 500 notebooks at ₹ 30 each.
Question 5.
Name any four factors, other than price, that affect the demand for a good.
Answer:
The four factors affecting demand other than price are:
- Income of consumers: higher income generally increases demand.
- Tastes and preferences: if a product becomes fashionable, demand rises.
- Prices of related goods: a rise in the price of a substitute increases demand for the original good.
- Size of population: a larger population leads to higher market demand.
Question 6.
A vegetable market has 500 kg of tomatoes for sale, but buyers only want to purchase 300 kg at today’s price. Identify the market situation and explain what will happen to the price.
Answer:
- This is a Surplus situation—quantity supplied (500 kg) exceeds quantity demanded (300 kg).
- Sellers will reduce prices to clear the unsold tomatoes, pushing the market back towards equilibrium.
Question 7.
During a heatwave, demand for cold drinks surges while production stays the same. Identify the market situation and state its effect on price.
Answer:
- This is a shortage situation — demand exceeds supply at the current price.
- Sellers will raise prices due to competition among buyers, moving towards a new higher equilibrium.
Question 8.
At a price of ₹ 30, a market has 60 units demanded and 60 units supplied. A government report raises consumer incomes significantly. What will immediately happen to the equilibrium price? Justify your answer.
Answer:
- Higher income will increase demand—the demand curve shifts rightward.
- At the old price of ₹ 30, demand now exceeds supply, creating excess demand.
- Competition among buyers pushes the equilibrium price upward to a new higher level.
Question 9.
The government of a country fixes the maximum price of onions at ₹ 20/kg when the market price is ₹ 35/kg. What type of price control is this and what will likely happen in the onion market?
Answer:
- This is a Price Ceiling, where the government fixes a maximum price below the equilibrium price.
- At ₹ 20/kg (below ₹ 35), quantity demanded exceeds quantity supplied, leading to a shortage.
- As a result, some consumers may not get onions, and black marketing or illegal selling at higher prices may occur.
Question 10.
A factory near a river dumps chemical waste, polluting the drinking water of a village downstream. Identify the market failure and explain why the free market cannot solve this problem on its own.
Answer:
(i) This is a Negative Externality which is a type of market failure where production harms a third party (the village) not involved in the transaction.
(ii) The free market fails because the factory does not bear the cost of pollution; it is passed on to the villagers, so market prices do not reflect the true social cost.
Question 11.
Street lighting is available to all residents of a city and no one can be stopped from using it. Identify the type of good and explain why private firms would not provide it.
Answer:
(i) Street lighting is a Public Good—it is non-excludable (no one can be stopped from using it) and non-rival (one person’s use doesn’t reduce it for others),
(ii) Private firms will not provide it because of the free rider problem where people can benefit without paying, making it unprofitable.
Question 12.
What is a price floor? Give one Indian example.
Answer:
A price floor is the minimum price fixed by the government below which sellers are not allowed to sell a good or service. It is introduced to protect producers from falling market prices.
Indian example: The Minimum Support Price (MSP) fixed by the government for agricultural crops like wheat and rice ensures that farmers receive at least a guaranteed minimum price, even if market prices fall below it.
The Price Puzzle What Drives the Market Class 9 Short Question Answer
Question 1.
Explain how income effect influences demand.
Answer:
- When the price of a good rises, consumers can buy fewer goods with the same income.
- This reduces their ability to purchase the good.
- As a result, demand for the good decreases.
Question 2.
Explain the role of profit motive in the law of supply.
Answer:
- Higher prices increase profit margins for producers.
- Producers are encouraged to increase production levels.
- New firms may enter the market to take advantage of higher profits.
Question 3.
Why is the assumption of “ceteris paribus” important in economic analysis?
Answer:
- The assumption of ceteris paribus means “other factors remain constant.”
- It helps us study the effect of price on demand and supply without the influence of other factors like income, tastes, or technology.
- This makes the relationship between price and quantity clearer and easier to understand.
Question 4.
Explain the difference between a change in quantity demanded and a change in demand. Give one example of each.
Answer:
(i) A change in quantity demanded occurs when the price of the good itself changes. The consumer movesalong the same demand curve. Example: When the price of apples falls from ₹ 100 to ₹ 60 per kg, a consumer buys more apples. This is a movement along the demand curve.
(ii) A change in demand occurs when a factor other than price changes — such as income, tastes, or prices of related goods. The entire demand curve shifts. Example: When consumer incomes rise, people buy more of a good at every price level. The demand curve shifts to the right. The key distinction is: price changes cause movement along the curve; non-price factors cause a shift of the curve.
Question 5.
Explain how surplus leads to adjustment in market price.
Answer:
- Surplus means excess supply in the market.
- Unsold goods accumulate with sellers as unsold stock.
- Sellers reduce prices to increase demand and restore equilibrium.
Question 6.
Explain how shortage affects market price.
Answer:
- Shortage indicates excess demand in the market.
- Consumers compete to buy limited goods.
- Sellers increase prices, moving towards equilibrium.
Question 7.
Explain the effect of increase in demand on equilibrium.
Answer:
- Increase in demand creates excess demand at existing price.
- Prices rise due to competition among buyers.
- Higher prices encourage an increase in supply.
Question 8.
Explain the effects of price ceiling on the market.
Answer:
- A price ceiling is the maximum price fixed below the equilibrium level.
- At this lower price, consumers demand more while producers supply less.
- This creates a shortage, and goods may be sold illegally at higher prices in the black market.
Question 9.
The Chief Minister, A. Revanth Reddy, stated that black-market activities have reduced due to the effective distribution of fine rice to the people. He added that this improvement was made possible through continuous supervision by the Civil Supplies Minister, N. Uttam Kumar Reddy, along with the efforts of the department staff.
Identify the likely economic reason and explain.
Answer:
The likely reason is a price ceiling set by the government on rice.
- A price ceiling below equilibrium creates a shortage, as demand is more than supply.
- Earlier, some sellers sold rice in the black market at higher prices, but better monitoring has reduced such activities and improved distribution.
Question 10.
Explain the concept of market failure with an example.
Answer:
- Market failure occurs when resources are not allocated efficiently and fail to give the best outcome for society.
- This may happen due to externalities, public goods or lack of information.
Example: Pollution harms people who are not involved. Public goods like street lighting are under-provided or lack of proper information may lead consumers to make poor decisions.
Question 11.
Distinguish between positive and negative externalities with one example of each. Why do both lead to market failure?
Answer:
A negative externality occurs when a production or consumption activity imposes costs on third parties not involved in the transaction. Example: A factory discharging chemical waste into a river harms fishermen and residents downstream. Since the factory does not bear this cost, it overproduces — more than what is socially desirable.
A positive externality occurs when an activity provides benefits to third parties not involved in the transaction. Example: When individuals get vaccinated, people around them also benefit because the disease is less likely to spread. Since these wider benefits are not reflected in market prices, vaccination is underproduced relative to what society needs.
Both lead to market failure because the price signal is incomplete — it does not reflect the true social cost or benefit of the activity, so the market produces too much or too little of the good.
Question 12.
Explain the role of government in correcting market failures. Give any three measures.
Answer:
When markets fail to allocate resources efficiently, the government intervenes to correct these failures. Three key measures are:
Taxes on harmful activities: The government imposes taxes on activities that generate negative externalities, such as pollution and tobacco use. This raises the cost of production for firms and reduces overproduction, making them bear the true social cost.
Subsidies for beneficial activities: For goods with positive externalities — such as education and healthcare — the government provides subsidies to encourage more consumption and production than the market would naturally provide.
Public provision of public goods: Since private firms will not supply non-excludable and non-rival goods such as street lighting, national defence, and public parks, the government provides these directly and funds them through taxation.
Government intervention complements markets by making them more efficient, fair, and socially responsible.
The Price Puzzle What Drives the Market Class 9 Long Question Answer
Question 1.
Explain the law of demand and analyse the factors responsible for it.
Answer:
The law of demand states that, other factors remaining constant, price and quantity demanded are inversely related.
- Substitution effect: Consumers switch to relatively cheaper substitutes when the price rises.
- Income effect: Increase in price reduces real income and purchasing power, as consumers can buy fewer goods with the same income.
- Consumer behaviour: Consumers tend to avoid expensive goods and prefer affordable options.
- Utility maximisation: Consumers aim to maximise satisfaction by adjusting consumption.
Thus, demand decreases when the price increases.
Question 2.
Explain the law of supply and examine the factors influencing it.
Answer:
The law of supply states that, other factors remaining constant, price and quantity supplied are directly related.
- Profit motive: Higher prices increase profit margins for producers.
- Expansion of production: Firms increase output to earn a higher revenue.
- Entry of new firms: Higher prices attract new producers into the market.
- Efficient resource allocation: Producers utilise resources more effectively when prices are favourable. Thus, supply increases when the price rises.
Question 3.
You are an economist advising a state government. Onion prices have doubled in the last month due to crop failure. Suggest two measures the government can take to reduce prices and justify your suggestions using demand- supply analysis.
Answer:
A crop failure reduces supply, shifting the supply curve leftward and raising the equilibrium price.
Measures
(i) Import onions: The government can import onions from other states or countries to increase the supply in the market. More supply helps bring down the price.
(ii) Release buffer stocks: The government can release onions from its buffer stocks into the market. This increases the available supply and helps reduce prices.
(iii) Take action against hoarding: The government should prevent hoarding and black marketing so that enough onions are available in the market. This helps maintain supply and keeps prices under control.
(iv) Support farmers for the next crop: The government can provide quality seeds, irrigation, and financial assistance to farmers to increase onion production in the next season. A higher supply in the future helps stabilise ‘prices. (Any two)
Question 4.
Analyse how a market amoves towards equilibrium when there is a surplus.
Answer:
A surplus occurs when quantity supplied exceeds quantity demanded.
- Excess supply: Producers supply more than the consumers demand at higher prices.
- Stock accumulation: Unsold goods accumulate in the market.
- Price reduction: Sellers lower prices to clear the excess stock.
- Restoration of equilibrium: Demand increases and supply decreases until equilibrium is reached.
Thus, the price mechanism restores equilibrium automatically.
Question 5.
Analyse how a market adjusts when there is a shortage.
Answer:
A shortage occurs when the quantity demanded exceeds the quantity supplied.
- Excess demand: Consumers demand more goods than available.
- Competition among buyers: Buyers compete to purchase limited goods.
- Increase in price: Sellers raise prices due to high demand.
- Restoration of equilibrium: Higher prices reduce demand and increase supply.
Thus, equilibrium is restored through price adjustments.
Question 6.
A rise in income increases demand for a normal good. Analyse its effect on equilibrium.
Answer:
An increase in income leads to an increase in demand for normal goods.
- Increase in demand: Demand curve shifts rightward.
- Excess demand: At existing price, demand exceeds supply.
- Rise in price: Sellers increase prices due to a higher demand.
Increase in supply: Higher prices encourage producers to supply more.
Thus, equilibrium price and quantity both increase.
Question 7.
In March 2026, geopolitical tensions in West Asia have reduced the supply of imported fertilisers (such as urea and DAP) to India. Analyse how this decrease in supply will affect the equilibrium price and quantity in the fertiliser market.
Answer:
Decrease in supply: The reduction in imports leads to a reduced supply.
- Shortage at old price: At the existing price, demand exceeds supply, creating a shortage.
- Rise in price: Due to limited availability, prices of fertilisers increase.
- Decrease in quantity: Higher prices lead to a fall in quantity demanded.
Thus, equilibrium price increases while equilibrium
Question 8.
Analyse how price ceilings lead to shortage and black markets.
Answer:
Price ceiling is the maximum price fixed by the government below equilibrium.
- Increase in demand: Lower prices encourage more consumers to buy goods.
- Decrease in supply: Producers reduce supply due to lower profitability.
- Creation of shortage: Demand exceeds supply, leading to scarcity.
- Emergence of black markets: Goods are sold illegally at higher prices.
Thus, price ceilings create distortions in market functioning.
Question 9.
Analyse the consequences of market failure in an economy.
Answer:
Market failure occurs when resources are net efficiently allocated and fail to give the best outcome for the society.
- Inefficient allocation: Goods and services are not distributed optimally.
- Negative externalities: Activities like pollution harm third parties who are not directly involved.
- Information asymmetry: Unequal information leads to poor decisions.
- Reduced welfare: The overall social welfare of the society decreases.
Thus, market failure leads to inefficiency and justifies government intervention.
Question 10.
Evaluate why public goods are not efficiently provided by private markets.
Answer:
Public goods have unique characteristics that limit private provision.
- Non-excludability: People cannot be excluded from using the good.
- Free rider problem: People can benefit without paying for the good.
- Lack of profit incentive: Firms cannot recover costs or earn profits as many users do not pay.
- Under-provision: Markets fail to supply adequate quantity.
Thus, government intervention is required to provide public goods.
Question 11.
Analyse how government intervention helps correct market failure.
Answer:
Government plays an important role in correcting market failures.
- Regulation: Laws are imposed to control harmful activities like pollution.
- Provision of public goods: Government supplies goods like defence and street lighting which private firms may not supply.
Subsidies and taxes: These are used to reduce negative effects (like pollution) and encourage positive activities.
Improved information: The government ensures that buyers and sellers have proper information for better decision-making. Thus, government intervention helps improve efficiency and welfare.
The Price Puzzle What Drives the Market Class 9 Competency Based Questions
Question 1.
Explain how demand and supply interact to determine the price of a commodity.
Answer:
Demand and supply are the key forces that determine price in a market. When demand exceeds supply, excess demand pushes prices upward. When supply exceeds demand, excess supply leads to a fall in prices. The price at which quantity demanded equals quantity supplied is called the equilibrium price, where the market is in balance.
Question 2.
Distinguish between surplus and shortage in a market.
Answer:
Surplus occurs when quantity supplied is greater than quantity demanded at a given price, leading to unsold goods and downward pressure on prices. Shortage occurs when quantity demanded exceeds quantity supplied, resulting in scarcity and upward pressure on prices. Both situations are temporary and lead the market towards equilibrium.
Question 3.
Explain the concept of market failure and state any two causes.
Answer:
Market failure is a situation where markets fail to allocate resources efficiently, resulting in loss of social welfare.
- Externalities: Where third parties who are not involved are affected by economic activities
- Information asymmetry: Where one party has more or better information than the other
Question 4.
Explain the features of public goods with an example.
Answer:
Public goods are characterised by non-excludability and non-rivalry. Non-excludability means that individuals cannot be prevented from using the good, while non-rivalry means that one person’s use does not reduce its availability for others. For example, street lighting is available to all and its use by one person does not affect others.
Question 5.
A rise in demand for a product leads to higher prices. Explain how this affects producers and consumers.
Answer:
An increase in demand creates excess demand at the existing price, leading to a rise in price. Producers benefit as higher prices increase profits, encouraging them to expand the production. Consumers, however, face higher prices, which reduce their purchasing power and may lead them to reduce consumption or switch to substitutes.
Question 6.
The government fixes the price of LPG below its equilibrium price.
(a) What will be the immediate effect on demand and supply?
(b) What problem may arise in the market?
(c) Government intervention to impose a price ceiling has good intentions, but it may backfire. Explain how.
Answer:
(a) Demand will increase because LPG becomes cheaper for consumers. Supply will decrease because producers are not willing to sell at a lower price.
(b) A shortage will arise in the market as quantity demanded exceeds quantity supplied.
(c) Although the price ceiling is intended to make LPG affordable, it creates a shortage as demand rises and supply falls.
This encourages sellers to engage in hoarding and illegal selling at higher prices, leading to the emergence of black markets.
Question 7.
Refer to the market schedule and answer the following:
| Price (₹) | Market Supply | Market Demand |
| 60 | 1000 | 200 |
| 55 | 800 | 400 |
| 50 | 600 | 600 |
| 45 | 400 | 800 |
| 40 | 200 | 1000 |
(a) Identify the equilibrium price and quantity.
(b) At ₹ 55, what type of market situation exists? Calculate its size.
(c) At ₹45, what problem arises? How will the market respond?
Answer:
(a) Equilibrium occurs at ₹ 50, where demand = supply = 600 units.
(b) At ₹ 55: Supply = 800, Demand = 400. There is a Surplus of 400 units
(c) At ₹ 45: Demand = 800, Supply = 400 There is a Shortage of 400 units
Price will rise as buyers compete for limited goods.
Question 8.
A country experiences rapid economic growth, leading to a rise in income levels. As a result, the demand for consumer goods increases significantly, while supply adjusts slowly.
(a) What type of change has occurred in the market?
Answer:
There is an increase in demand, indicating a rightward shift of the demand curve.
(b) What is the immediate effect on equilibrium price?
Answer:
The immediate effect is an increase in equilibrium price due to excess demand.
(c) If supply takes a long time to increase while demand has risen sharply, what problems might arise in the economy? Suggest one policy measure the government can take.
Answer:
When supply is slow to respond, prices will stay high for a prolonged period creating inflation in consumer goods, reducing the purchasing power, especially for lower-income households who cannot afford the higher prices.
One policy measure: The government can temporarily import goods from abroad or release buffer stocks to quickly boost supply and stabilise prices, preventing the shortage from deepening and protecting consumer welfare.
Question 9.
Analyse situations where the law of demand may not hold true.
Answer:
The law of demand may not apply in certain situations:
- In case of necessities, demand remains relatively stable even when prices rise.
- Due to expectations of future price increase, consumers may buy more even at higher prices.
- Status or luxury goods may have higher demand at higher prices due to prestige value.
Thus, real-life situations may lead to deviations from the law of demand.
Question 10.
Analyse how price ceilings can create inefficiencies in a market system. [2]
Answer:
Price ceilings, when set below equilibrium, disrupt the natural functioning of the market. They increase demand while reducing supply, leading to shortages, causing inefficient allocation of goods, as they may not reach those who value them most. It also encourages black markets. Thus, price ceilings lead to inefficiency despite their objective of consumer protection.
Question 11.
Evaluate the role of government in correcting market failure.
Answer:
Government plays a vital role in correcting market failures by intervening in the economy. It regulates harmful activities such as pollution, provides public goods like defence and infrastructure, and uses taxes and subsidies to influence economic behaviour. It also ensures availability of information to reduce asymmetry. These measures help improve efficiency and promote social welfare.
Question 12.
You are the economic adviser to the government. Petrol prices have risen sharply due to global supply cuts. Citizens are demanding price control. Would you recommend a price ceiling on petrol? Justify your answer by analysing both its benefits and drawbacks using demand-supply theory.
Answer:
(i) Initial analysis: A global supply cut shifts the supply curve leftward, raising the equilibrium price of petrol.
(ii) Case FOR price ceiling: It prevents immediate hardship for consumers by keeping prices affordable, especially for lower-income groups who depend on petrol for livelihood.
(iii) Case AGAINST price ceiling: Setting the ceiling below the new equilibrium will create a shortage — domestic producers will reduce supply at the controlled low price. This may lead to long queues, rationing, and black markets.
(iv) My recommendation: Rather than a price ceiling, I would recommend targeted subsidies to low-income households directly, while allowing the market price to adjust. This avoids a shortage while protecting vulnerable groups.
Conclusion: Price ceilings solve one problem (high prices) but create another (shortage). Evidence-based, targeted policy is more efficient than broad price control.
Question 13.
What will be the long-term impact on a country’s economy if market failures are left uncorrected by the government? Suggest two specific policy measures to address these failures.
Answer:
Impact 1: Environmental degradation: If negative externalities like pollution are not regulated, environmental damage accumulates, reducing the quality of life and long-term productivity.
Impact 2: Under-provision of public goods: Without government action, essential services like defence, public health, and education will be under-provided, as private firms cannot profit from non-excludable goods.
Impact 3: Inequality and information failure: Information asymmetry leads to poor consumer decisions (e.g., buying unsafe products), deepening inequality and reducing market efficiency.
Policy Measure 1: Pollution tax (Pigouvian Tax): A tax on polluting firms equal to the cost of harm caused forces producers to bear the true social cost of production, reducing negative externalities.
Policy Measure 2: Government provision & subsidies: Direct provision of public goods (schools, hospitals, street lighting) and subsidies for merit goods correct under-provision and ensure equitable access.
Conclusion: Uncorrected market failures lead to systemic inefficiency; active, well-designed government intervention is essential for sustainable economic welfare.
Question 14.
In a city, the government provides free street lighting and maintains public parks. These facilities are used by all citizens without direct payment.
(a) Identify the type of goods mentioned.
Answer:
These are public goods.
(b) Why are private firms not interested in providing such goods?
Answer:
Private firms cannot exclude non-paying users and cannot earn profits due to the free rider problem.
(c) Why is government intervention necessary in this case?
Answer:
Government intervention ensures that such goods are provided to all, promoting social welfare and efficient allocation of resources.









































