Price | Class 12 Economics Notes
By ConceptScroll Team · Published on 17 July 2026 · 3 min read
Price – this guide gives you a concise, exam-ready overview of Price from Class 12 Economics, written by ConceptScroll editors and reviewed against the latest NCERT textbook.
Wage Determination in Labour Market
This section applies demand-supply analysis to the labour market, where households supply labour and firms demand labour. Labour is measured in hours worked rather than number of workers. The wage rate is determined where labour demand equals labour supply.
Labour demand by a firm is derived assuming labour is the only variable input and the firm is a price taker aiming to maximize profit. The firm hires labour up to the point where the wage rate (ω) equals the Marginal Revenue Product of Labour (MRP_L), which is the additional revenue generated by one more unit of labour. MRP_L is calculated as Marginal Revenue (MR) times Marginal Product of Labour (MP_L). In perfect competition, MR equals the price of output, so MRP_L equals the Value of Marginal Product of Labour (VMP_L).
Because of diminishing marginal product, the demand curve for labour slopes downward: as wage rises, firms demand less labour. The market demand curve is the horizontal sum of all firms' demand curves.
Labour supply comes from households choosing between leisure and work. An increase in wage has two effects: substitution effect (leisure becomes costlier, so work hours increase) and income effect (higher income allows more leisure, so work hours decrease). At low wages, substitution dominates, so labour supply increases with wage; at high wages, income effect dominates, leading to a backward-bending individual labour supply curve. However, the market labour supply curve is generally upward sloping because aggregation over many workers smooths individual backward bends.
Equilibrium wage is where labour demand and supply curves intersect. This wage balances the quantity of labour firms want to hire with the quantity households want to supply.
📊 Diagram: Diagram shows downward sloping labour demand curve and upward sloping labour supply curve intersecting at equilibrium wage and labour quantity.
🧪 Activity: No specific activity mentioned.
🔗 Connection: Leads to analysis of shifts in demand and supply curves and their impact on equilibrium.
Frequently asked questions
Explain market equilibrium.
Market equilibrium is a situation in which the quantity demanded of a commodity equals the quantity supplied at a particular price. At this price, there is no tendency for the price to change, as the market clears with no excess demand or supply.
When do we say there is excess demand for a commodity in the market?
Excess demand occurs when the quantity demanded of a commodity exceeds the quantity supplied at a given price. This usually happens when the price is below the equilibrium price, causing more consumers to want the product than producers are willing to supply.
When do we say there is excess supply for a commodity in the market?
Excess supply occurs when the quantity supplied of a commodity exceeds the quantity demanded at a given price. This usually happens when the price is above the equilibrium price, causing producers to supply more than consumers want to buy.
What will happen if the price prevailing in the market is - (i) above the equilibrium price? - (ii) below the equilibrium price?
(i) If the price is above the equilibrium price, there will be excess supply (surplus) because producers want to sell more than consumers want to buy. This surplus will put downward pressure on the price, causing it to fall towards equilibrium.
(ii) If the price is below the equilibrium price, there will be excess demand (shortage) because consumers want to buy more than producers are willing to sell. This shortage will put upward pressure on the price, causing it to rise towards equilibrium.
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- बाज़ार संतुलन | Class 12 Economics Notes
Clear NCERT-aligned notes on बाज़ार संतुलन for Class 12 Economics.
- बाज़ार संतुलन | Class 12 Economics Notes
Clear NCERT-aligned notes on बाज़ार संतुलन for Class 12 Economics.
- बाज़ार संतुलन | Class 12 Economics Notes
Clear NCERT-aligned notes on बाज़ार संतुलन for Class 12 Economics.