Question on: JAMB Economics - 2024
The following will occur when maximum price is fixed below the free market price EXCEPT that
A
black market will be encouraged
B
excess demand will occur
C
excess supply will occur
D
rationing of commodities will occur
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Correct Option: C
When a maximum price (price ceiling) is set below the equilibrium (free market) price:
- A black market will be encouraged: Since the official price is below the equilibrium, demand exceeds supply. Some consumers are willing to pay more than the controlled price. This creates an incentive for suppliers to sell their goods illegally at a higher price in a black market.
- B. Excess demand will occur: The quantity demanded will exceed the quantity supplied because the price is artificially low.
- C. Excess supply will occur: This is incorrect. A price ceiling set below the equilibrium price leads to a shortage (excess demand), not a surplus (excess supply).
- D. Rationing of commodities will occur: Because there is more demand than supply, there is a need to distribute the limited available goods. This usually involves methods like queuing, favoritism, or other non-price mechanisms.
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