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JAMB Economics 2011 Question 14

Question 14

Price Determination

Minimum price legislation by government will

  1. A.reduce supply
  2. B.increase supply
  3. C.reduce demand and create surplus
  4. D.increase demand and create scarcity.
Show the answer and explanation

Answer: C (reduce demand and create surplus)

Explanation

A minimum price is fixed above equilibrium, so quantity demanded falls while quantity supplied rises, leaving a surplus.