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Suppose that the equilibrium price of an article is N5.00 but the government fixes the...

Economics
JAMB 1978

Suppose 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 equilibrium supply
  • B. Greater than equilibrium supply
  • C. Less than the equilibrium supply
  • D. Determined later by government
  • E. None of these
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Correct Answer: Option C
Explanation

If the market price is below the equilibrium price, quantity supplied is less than quantity demanded, creating a shortage. The market is not clear. It is in shortage. Market price will rise because of this shortage.


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