Question 7
Price DeterminationThe control price for a carton of beer in Nigeria is N7.20. But a carton of beer is sold in parts of the country for as much as N15.00 The cause of this exorbitant price is that
- A.there is a Government ban on the importation of beer
- B.beer distributors want more profit
- C.Nigeria is a large country
- D.middlemen hoard beer
- E.the demand for beer exceeds the supply.
Show the answer and explanation
Answer: E (the demand for beer exceeds the supply.)
Explanation
A control price set below equilibrium creates a shortage: demand exceeds supply, so buyers bid the price up on the black market.