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JAMB Economics 1993 Question 15

Question 15

Price Determination

If the equilibrium price of a certain commodity is N120.00 and the government fixes its price at N110.00, the supply will be

  1. A.greater than the equilibrium supply
  2. B.smaller than the equilibrium supply
  3. C.the same as the equilibrium supply
  4. D.a determinant of the market forces of equilibrium
Show the answer and explanation

Answer: B (smaller than the equilibrium supply)

Explanation

At a price below equilibrium producers offer less, so quantity supplied falls below the equilibrium quantity.