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JAMB Economics 1992 Question 17

Question 17

Price Determination

If in the graph above, it is assumed that the price is initially P1, it can be deduced that price will

Diagram for this question
  1. A.fall because there is a surplus
  2. B.remain constant because it is the equilibrium price
  3. C.rise because there is a shortage
  4. D.double
Show the answer and explanation

Answer: A (fall because there is a surplus)

Explanation

P1 is above the equilibrium price Pc, so quantity supplied exceeds quantity demanded; the surplus pushes price down.