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
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.