Syllabus T. Y. B. A. Paper : IV advanced economic theory with effect from academic year 2010-11 in idol

 
2) Short Period - Short period refers to that functional time during 
which a firm cannot change its fixed factors of production but 
variable factors can be changed. Hence, in this period supply of a 
commodity becomes little more elastic. Thus, short period price is 
determined by the intersection of the demand and supply. It is 
shown in the figure. Here the supply curve is not vertical but 
steeper 

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Figure 3.2 
 
 
3) 
The long period - During long period, a firm can change its 
scale of production and fully adjust the supply in the response to a 
given change in demand. So in the long run supply becomes more 
elastic. 
Long period price is determined by the intersection of the 
long run demand and supply curves as shown in the figure. 
Here, the supply curve is a flatter curve showing more 
elastic supply. 
 
Figure 3.3 
5) Very long period (Secular period) - If refers to a very long 
period during which all the factors affecting demand and supply 
may change. As a result, there is complete change in the 
conditions of demand and supply. The price which prevails in this 
period is called normal price. 
Check Your Progress: 

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1. How do you explain perfect competition? 
2. State the four time periods described by Marshall. 
3.3 PRICE DETERMINATION UNDER PERFECT 
COMPETITION 
 
The forces underlying the determination of price under 
perfect competition are demand and supply. As there is a single 
price ruling in a perfectly competitive market the equilibrium price 
is determined by the forces of demand and supply in the market. 
The actions of individual buyers and sellers cannot influence the 
market price. Though individuals cannot change the price, the 
aggregate force of demand and supply can change the price. The 
demand side is governed by the law of demand based on marginal 
utility of the commodity to the buyers. The supply side is governed 
by the law of supply and by the cost of production. 
The price determined by the interaction of demand and 
supply is called the equilibrium price. Literally, equilibrium means 
balance. Thus, equilibrium price is a state from which there is not 
tendency to move. At equilibrium price quantity demanded is 
equal to the quantity supplied and it is at this price that the buyers 
as well as sellers are satisfied. 
The following hypothetical schedule (Table 3.1) and graph
Fig. 3.4 explains how price is determined under perfect 
competition: