The following will occur when maximum price is fixed below the free market price EXCEPT that

Source: JAMB · 2024

The following will occur when maximum price is fixed below the free market price EXCEPT that

  1. black market will be encouraged
  2. excess demand will occur
  3. excess supply will occur ✓
  4. rationing of commodities will occur
Explanation

A maximum price below equilibrium makes goods cheap. More people want to buy, but sellers reduce supply.

This creates excess demand, not excess supply. Black markets and rationing follow because there is not enough.

Price ceilings create shortages. People want more than sellers are willing to provide at the low price.

Was this explanation helpful?