Question 1
Price DeterminationSuppose that the equilibrium price of an article is N5.00 but the government fixes the price by law at N4.00, the supply will be
- A.the same as the equilibrium supply
- B.greater than the equilibrium supply
- C.less than the equilibrium supply
- D.determined later by government
- E.none of these.
Show the answer and explanation
Answer: C (less than the equilibrium supply)
Explanation
A legal maximum price below equilibrium lowers the price sellers receive, so they offer less than the equilibrium quantity.