Question on: JAMB Economics - 2024

Minimum price legislation, also known as a price floor, is a government-imposed price control or limit on how low a price can be charged for a product or service. It is usually set above the equilibrium price. The effects of a minimum price include:

• Excess supply: When the minimum price is set above the equilibrium price, the quantity supplied will exceed the quantity demanded, leading to an excess supply or surplus.
• Wastage of resources: Excess supply can lead to wastages if the surplus goods cannot be stored or sold.
• Unemployment: A minimum wage, a type of price floor, can lead to unemployment as businesses might reduce their workforce to cope with higher labor costs.
• Excess demand: Excess demand occurs when the minimum price is set below the equilibrium price. A minimum price set above the equilibrium price will cause the quantity supplied to exceed the quantity demanded.