Question on: JAMB Economics - 2012
Fixing price above equilibrium will cause
A
demand and supply to remain constant
B
an increase in quantity supplied
C
an increase in supply
D
a decrease in quantity supplied
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Correct Option: B
When the price is fixed above the equilibrium, the following will occur:
- Quantity supplied increases: Suppliers are incentivized to produce more because the price is higher than the market-clearing price.
- Quantity demanded decreases: Consumers will buy less because the price is higher than the market-clearing price.
- This creates a surplus (excess supply) in the market.
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