The market demand and supply functions for maize in a agricultural region are given by Q_d… — JAMB UTME

The market demand and supply functions for maize in a agricultural region are given by $Q_d = 400 - 10P$ and $Q_s = 100 + 5P$ , where $P$ is the price per bag in Naira, and $Q$ is the quantity in thousands of bags. If the government enforces a guaranteed minimum price (price floor) of ₦30 per bag, what will be the resulting market outcome?

An excess supply (surplus) of 150,000 bagsAnswer
B
An excess demand (shortage) of 150,000 bags
C
An excess supply (surplus) of 50,000 bags
D
An excess demand (shortage) of 50,000 bags

Answer

An excess supply (surplus) of 150,000 bags

Substituting the regulated price floor of ₦30 into the demand equation yields a quantity demanded of 100,000 bags (

Q_d = 400 - 10(30) = 100

). Substituting

P = 30

into the supply equation yields a quantity supplied of 250,000 bags (

Q_s = 100 + 5(30) = 250

). Because the quantity supplied exceeds the quantity demanded by 150,000 bags (

250 - 100 = 150

), the price floor results in an excess supply (surplus) of 150,000 bags.

Step-by-Step Solution

Calculate quantity demanded (

Q_d

) at the regulated price floor (

P = 30

)

Q_d = 400 - 10(30) = 400 - 300 = 100

thousand bags

Evaluates the quantity consumers are willing to purchase at the minimum price.

Calculate quantity supplied (

Q_s

) at the regulated price floor (

P = 30

)

Q_s = 100 + 5(30) = 100 + 150 = 250

thousand bags

Evaluates the quantity producers are willing to supply at the minimum price.

Determine the market imbalance by calculating

Q_s - Q_d

250 - 100 = 150

thousand bags (

150,000

bags) of excess supply

Since

Q_s > Q_d

, setting a price floor above the equilibrium price (

P_e = 20

) creates a market surplus.

Key Concept

Price Floor and Market Surplus Calculation

Question

Answer

Step-by-Step Solution

Key Concept

Common Mistakes

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