Demand, Supply and Price Determination Practice Questions — JAMB UTME — Page 5

Question 81Question →

The market demand and supply functions for locally produced rice in a region are given as $Q_d = 1500 - 20P$ and $Q_s = 300 + 10P$ , where $P$ is price per bag (in hundreds of Naira) and $Q$ is quantity (in thousands of bags). If the government enforces a maximum price ceiling of 25 hundred Naira per bag and an informal black market emerges that absorbs all supplied output, what is the resulting black market price per bag?

47.50 hundred Naira

40.00 hundred Naira

70.00 hundred Naira

22.50 hundred Naira

Show answer & explanation

Answer: 47.50 hundred Naira

Answer

The black market price per bag is 47.50 hundred Naira.

At the government-imposed price ceiling of

P_c = 25

hundred Naira, producers only supply

Q_s = 300 + 10(25) = 550

thousand bags. In an un-rationed black market, consumers compete for these 550 thousand bags. Substituting

Q_d = 550

into the demand function

550 = 1500 - 20P

gives

20P = 950

, resulting in a black market price of

47.50

hundred Naira.

Step-by-Step Solution

1

Calculate the quantity supplied at the official price ceiling.

Substitute

P_c = 25

into the supply equation:

Q_s = 300 + 10(25) = 550

thousand bags.

Because the price ceiling is set below equilibrium (

P_e = 40

), suppliers restrict output to 550 thousand bags.

2

Determine the black market price along the demand curve for the restricted quantity.

Set

Q_d = 550

in the demand equation:

550 = 1500 - 20P_{bm} \implies 20P_{bm} = 950 \implies P_{bm} = 47.50

hundred Naira.

In an un-rationed black market, consumers compete for the limited quantity supplied (550), bidding the price up to the maximum willingness-to-pay on the demand curve.

Key Concept

Black Market Price Determination under Price Ceilings

Question 82Question →

In a local agricultural market, the daily demand function for inorganic fertilizer is given by $Q_d = 600 - 15P$ and the supply function is given by $Q_s = -150 + 10P$ , where $P$ represents the price per bag in Naira ( $\text{N}$ ). What is the market equilibrium price in Naira?

Show answer & explanation

Answer: 30

Answer

The market equilibrium price is 30 Naira.

At market equilibrium, quantity demanded equals quantity supplied (

Q_d = Q_s

). Equating

600 - 15P

and

-150 + 10P

gives

750 = 25P

, which solves to an equilibrium price of 30 Naira.

Step-by-Step Solution

1

Equate the demand function and the supply function to set the market equilibrium condition.

Q_d = Q_s \implies 600 - 15P = -150 + 10P

Market equilibrium occurs precisely where the quantity buyers wish to purchase equals the quantity sellers wish to supply.

2

Collect constants on one side and terms with the variable

P

on the other side.

600 + 150 = 10P + 15P \implies 750 = 25P

Transposing

-150

and

-15P

across the equals sign changes their signs to positive.

3

Solve for the equilibrium price

P

by dividing the total constant by the coefficient of

P

.

P = \frac{750}{25} = 30

Dividing 750 by 25 yields the price per bag at which the market clears.

Key Concept

Market Equilibrium Price

Estimated Time:1m 30s

Question 83Question →

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 bags

An excess demand (shortage) of 150,000 bags

An excess supply (surplus) of 50,000 bags

An excess demand (shortage) of 50,000 bags

Show answer & explanation

Answer: An excess supply (surplus) of 150,000 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

1

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.

2

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.

3

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 84Question →

The market demand for soya beans in a regional market is given by $Q_d = 350 - 5P$ , and the initial market supply function is $Q_s = -70 + 9P$ , where $P$ is the price per bag in Naira ( $\text{N}$ ). If an increase in fuel costs shifts the supply function to $Q_s = -140 + 9P$ , by how much will the equilibrium price change?

Increase by

\text{N}5

Decrease by

\text{N}5

Increase by

\text{N}10

Increase by

\text{N}35

Show answer & explanation

Answer: Increase by $\text{N}5$

Answer

The equilibrium price increases by

\text{N}5

.

Equating the demand function

Q_d = 350 - 5P

to the initial supply function

Q_s = -70 + 9P

gives

14P = 420

, yielding

P_1^* = \text{N}30

. After the supply shift to

Q_s = -140 + 9P

, setting

350 - 5P = -140 + 9P

gives

14P = 490

, yielding

P_2^* = \text{N}35

. The net change in equilibrium price is

\text{N}35 - \text{N}30 = \text{N}5

increase.

Step-by-Step Solution

1

Calculate the initial equilibrium price (

P_1^*

) by equating initial demand and supply functions.

350 - 5P = -70 + 9P \implies 14P = 420 \implies P_1^* = 30

Market equilibrium occurs where quantity demanded equals quantity supplied (

Q_d = Q_s

).

2

Calculate the new equilibrium price (

P_2^*

) using the shifted supply function.

350 - 5P = -140 + 9P \implies 14P = 490 \implies P_2^* = 35

The shift in the supply function establishes a new market clearing price point.

3

Determine the magnitude of change in the equilibrium price (

\Delta P^*

).

\Delta P^* = P_2^* - P_1^* = 35 - 30 = 5

Subtracting the initial equilibrium price from the new equilibrium price gives the net price change.

Key Concept

Market Equilibrium Response to Supply Shifts

Question 85Question →

The market demand and supply equations for cassava in a regional economy are given as $Q_d = 800 - 10P$ and $Q_s = 200 + 15P$ , where $P$ is the price per kilogram in Naira ( $\text{N}$ ) and $Q$ is the quantity in metric tonnes. If the government imposes a price floor of $\text{N}32$ per kilogram to support cassava farmers and guarantees to purchase all unsold produce, what is the total monetary outlay required by the government to buy the surplus cassava?

N6,400

N4,800

N15,360

N2,560

Show answer & explanation

Answer: N6,400

Answer

The total monetary outlay required by the government to buy the surplus cassava is N6,400.

The correct answer is obtained by first calculating the market equilibrium price (

\text{N}24

) to confirm that the price floor of

\text{N}32

is binding. Substituting

P = 32

into the demand and supply equations gives a quantity demanded of

480\text{ metric tonnes}

and a quantity supplied of

680\text{ metric tonnes}

. This creates a market surplus of

680 - 480 = 200\text{ metric tonnes}

. Since the government guarantees to buy all unsold produce at the floor price of

\text{N}32

per kg, the total expenditure is

200 \times 32 = \text{N}6,400

.

Step-by-Step Solution

1

Determine the equilibrium price to verify that the price floor is binding.

Set

Q_d = Q_s \implies 800 - 10P = 200 + 15P \implies 25P = 600 \implies P = \text{N}24

.

A price floor is binding (effective) only when set above the market equilibrium price of

\text{N}24

.

2

Calculate quantity demanded (

Q_d

) and quantity supplied (

Q_s

) at the price floor of

\text{N}32

.

Q_d = 800 - 10(32) = 480\text{ metric tonnes}

, and

Q_s = 200 + 15(32) = 680\text{ metric tonnes}

.

Evaluating demand and supply functions at the imposed floor price determines the resulting disequilibrium.

3

Calculate the excess supply (surplus) resulting from the price floor.

\text{Surplus} = Q_s - Q_d = 680 - 480 = 200\text{ metric tonnes}

.

At the price floor, producers supply more cassava than consumers demand, creating a surplus.

4

Calculate total government financial outlay to absorb the surplus.

\text{Total Outlay} = \text{Surplus} \times P_f = 200 \times \text{N}32 = \text{N}6,400

.

The government must purchase the entire unsold surplus of 200 metric tonnes at the official floor price of

\text{N}32

per kilogram.

Key Concept

Price Floor Surplus and Government Subsidy Absorption

Estimated Time:2m 0s

Question 86Question →

An increase in government subsidies granted to palm oil processors in Nigeria causes an outward shift of the supply curve for palm oil, whereas a rise in the market price of palm oil results in an upward movement along the existing supply curve.

True

False

Show answer & explanation

Answer: True

Answer

True. Government subsidies act as a non-price determinant that shifts the supply curve outward (rightward), while a change in the market price of the good causes movement along the existing supply curve.

The statement is true because non-price factors such as government subsidies decrease unit production costs, shifting the supply curve outward (increase in supply), whereas changes in the market price of the commodity alter the quantity supplied, resulting in movement along the existing curve.

Step-by-Step Solution

1

Identify the impact of government subsidies on the supply of palm oil.

Subsidies lower cost of production for processors, shifting the supply curve rightward (increase in supply).

Subsidies are a non-price determinant affecting total production capacity and willingness to sell at all price points.

2

Identify the impact of a market price increase on the supply of palm oil.

An increase in price leads to an upward movement along the existing supply curve (increase in quantity supplied).

According to the law of supply, price changes affect the quantity supplied along a given curve, rather than shifting the curve itself.

3

Evaluate the combined statement for economic validity.

The statement correctly distinguishes between a shift in the supply curve and a movement along the supply curve.

Both clauses accurately reflect standard microeconomic principles.

Key Concept

Distinguishing between a change in supply (shift of the curve due to non-price factors) and a change in quantity supplied (movement along the curve due to price changes).

Question 87Question →

Match each price regulation mechanism or outcome on the left with its appropriate economic definition or market result on the right.

Click a left item, then click its matching right item

Show answer & explanation

Answer

Effective Price Ceiling matches with a maximum legal price set below market equilibrium resulting in a market shortage; Effective Price Floor matches with a minimum legal price set above market equilibrium resulting in a market surplus; Black Market Price matches with an unofficial price higher than the maximum price cap paid by consumers under severe shortages; Buffer Stock Purchases matches with government buying of excess agricultural goods to maintain price supports above market equilibrium.

Each price control policy maps directly to its statutory definition and market outcome: effective price ceilings are binding below equilibrium creating shortages, effective price floors are binding above equilibrium creating surpluses, black markets develop due to price cap shortages, and buffer stock schemes clear surpluses created by agricultural price supports.

Step-by-Step Solution

1

Identify the placement and consequence of a price ceiling.

Effective Price Ceiling is set below market equilibrium price, causing demand to exceed supply and creating a market shortage.

By definition, price ceilings are designed to protect consumers by enforcing a maximum legal price.

2

Identify the placement and consequence of a price floor.

Effective Price Floor is set above market equilibrium price, causing supply to exceed demand and creating a market surplus.

Price floors are designed to protect producer income by setting a legal minimum price.

3

Determine the economic outcome of illegal market trading under price ceilings.

Black Market Price corresponds to illegal trading above the legal cap due to unmet excess demand.

When shortages occur at legal maximum prices, unsatisfied buyers are willing to pay a higher black market rate.

4

Determine government market intervention to support price floors.

Buffer Stock Purchases match government buy-ups of excess market supply generated by price floors.

Without government buying of excess supply, a price floor cannot be sustained in agricultural markets.

Key Concept

Market equilibrium distortions created by government price controls (ceilings and floors)

Question 88Question →

In a regional market for poultry feed, the daily quantity demanded is expressed as $Q_d = 480 - 12P$ and the daily quantity supplied is expressed as $Q_s = -120 + 18P$ , where $P$ represents the price per bag in hundreds of Naira and $Q$ represents quantity in bags. What is the market equilibrium price per bag in hundreds of Naira?

Show answer & explanation

Answer: 20

Answer

The market equilibrium price is 20 (in hundreds of Naira).

Equilibrium price is established when quantity demanded equals quantity supplied (

Q_d = Q_s

). Setting

480 - 12P = -120 + 18P

yields

30P = 600

, resulting in an equilibrium price of 20 (in hundreds of Naira).

Step-by-Step Solution

1

Equate the demand and supply equations to find market equilibrium.

480 - 12P = -120 + 18P

Market equilibrium occurs at the price level where the quantity buyers wish to purchase equals the quantity sellers wish to supply.

2

Rearrange the equation by grouping constant terms on one side and price variables on the other.

30P = 600

Adding

12P

to both sides eliminates

-12P

on the left, and adding

120

to both sides eliminates

-120

on the right.

3

Divide the total value by the coefficient of price to determine equilibrium price.

P = 20

Dividing

600

by

30

isolates

P

to give the equilibrium price.

Key Concept

Market Equilibrium Price Determination

Question 89Question →

In a domestic agricultural market, the weekly demand function for palm oil is given by $Q_d = 800 - 20P$ and the supply function is given by $Q_s = -100 + 10P$ , where $P$ is the price per litre in Naira and $Q$ is the quantity in litres. What is the equilibrium quantity in litres?

Show answer & explanation

Answer: 200

Answer

The equilibrium quantity is 200 litres.

Market equilibrium occurs where quantity demanded equals quantity supplied (

Q_d = Q_s

). Setting

800 - 20P = -100 + 10P

yields

30P = 900

, which gives an equilibrium price of

P = 30

Naira. Substituting

P = 30

into the demand function

Q_d = 800 - 20(30)

gives an equilibrium quantity of

200

litres.

Step-by-Step Solution

1

Equate the demand function

Q_d

and the supply function

Q_s

to find the market equilibrium condition.

800 - 20P = -100 + 10P

At market equilibrium, quantity demanded equals quantity supplied.

2

Rearrange the equation to isolate

P

and calculate the equilibrium price.

30P = 900 \implies P = 30

Adding

20P

and

100

to both sides groups variable terms and constant terms together.

3

Substitute the equilibrium price (

P = 30

) into the demand equation to determine the equilibrium quantity.

Q^* = 800 - 20(30) = 200

Evaluating

Q_d

at

P = 30

gives the total quantity traded at equilibrium.

Key Concept

Market Equilibrium Price and Quantity

Question 90Question →

The market demand and supply equations for fertilizer in an agricultural district are given by $Q_d = 1,800 - 40P$ and $Q_s = 200 + 40P$ , where $P$ is the price per bag in Naira ( $\text{N}$ ) and $Q$ is the quantity in bags. The government introduces a price ceiling of $\text{N} 12$ per bag to lower farming input costs. By how many bags does the quantity of fertilizer actually traded in the market decrease as a result of this price control policy?

Show answer & explanation

Answer: 320

Answer

The quantity of fertilizer actually traded in the market decreases by 320 bags.

Prior to government regulation, free market equilibrium is established where quantity demanded equals quantity supplied (

1,800 - 40P = 200 + 40P

), yielding an equilibrium price of

20

Naira and an equilibrium volume of

1,000

bags. When a maximum price ceiling of

12

Naira is imposed, quantity demanded expands to

1,320

bags while quantity supplied shrinks to

680

bags. Because trade is voluntary, the quantity exchanged is constrained by the short side of the market (quantity supplied =

680

bags). Comparing this volume to the initial equilibrium (

1,000 - 680

), the actual quantity of fertilizer traded decreases by

320

bags.

Step-by-Step Solution

1

Determine the initial free-market equilibrium price and quantity

P_e = 20

Naira and

Q_e = 1,000

bags

Equilibrium occurs where quantity demanded equals quantity supplied (

Q_d = Q_s

).

2

Calculate quantity demanded and quantity supplied at the price ceiling of

P = 12

Q_d = 1,320

bags and

Q_s = 680

bags

Lowering the price below equilibrium increases buyer demand but disincentivizes supplier production.

3

Determine actual traded quantity using the short-side principle and calculate the volume change

Actual quantity traded

= 680

bags; Reduction

= 1,000 - 680 = 320

bags

In a market economy, trade requires voluntary exchange; buyers cannot purchase more than suppliers offer at the regulated price ceiling.

Key Concept

Short-Side Rule and Contraction of Market Traded Volume under Price Ceilings

Question 91Question →

In a regional commodity market, the monthly demand function for cocoa beans is given by $Q_d = 250 - 4P$ and the supply function is given by $Q_s = -50 + 6P$ , where $P$ represents the price per bag in thousands of Naira (₦), $Q_d$ is the quantity demanded in bags, and $Q_s$ is the quantity supplied in bags. What is the equilibrium quantity of cocoa beans traded in this market?

Show answer & explanation

Answer: 130

Answer

The equilibrium quantity of cocoa beans is 130 bags.

Market equilibrium occurs at the price where quantity demanded equals quantity supplied (

Q_d = Q_s

). Setting

250 - 4P = -50 + 6P

yields

10P = 300

, so the equilibrium price

P^* = 30

. Substituting

P^* = 30

into the demand function gives

Q^* = 250 - 4(30) = 130

bags.

Step-by-Step Solution

1

Equate the demand function and supply function

250 - 4P = -50 + 6P

Market equilibrium occurs at the price level where quantity demanded equals quantity supplied.

2

Solve for equilibrium price (

P^*

)

P^* = 30

Rearranging

300 = 10P

yields the equilibrium price of ₦30 thousand per bag.

3

Calculate equilibrium quantity (

Q^*

)

Q^* = 130

Substituting

P = 30

into

Q_d = 250 - 4(30)

gives 130 bags.

Key Concept

Market Equilibrium Price and Quantity

Question 92Question →

The domestic market demand and supply equations for premium motor spirit (PMS) in a region are given by $Q_d = 600 - P$ and $Q_s = 150 + 0.5P$ , where $P$ is the price per litre in Naira (₦) and $Q$ is the quantity in millions of litres. If the government enforces a maximum price ceiling of ₦200 per litre, which of the following best describes the resulting market outcome?

A market shortage of 150 million litres

A market surplus of 150 million litres

An outward shift of the demand curve by 150 million litres

A market surplus of 400 million litres

Show answer & explanation

Answer: A market shortage of 150 million litres

Answer

The maximum price ceiling of ₦200 per litre creates a market shortage of 150 million litres.

Substituting the price ceiling of ₦200 into the market equations yields a quantity demanded of 400 million litres and a quantity supplied of 250 million litres. Because quantity demanded exceeds quantity supplied by 150 million litres, the legal maximum price ceiling results in an excess demand (shortage) of 150 million litres.

Step-by-Step Solution

1

Calculate quantity demanded (

Q_d

) at the price ceiling of

P = 200

Q_d = 600 - 200 = 400

million litres

Substitute the price ceiling value into the demand function.

2

Calculate quantity supplied (

Q_s

) at the price ceiling of

P = 200

Q_s = 150 + 0.5(200) = 150 + 100 = 250

million litres

Substitute the price ceiling value into the supply function.

3

Determine the market balance by evaluating

Q_d - Q_s

400 - 250 = 150

million litres excess demand

Because

Q_d > Q_s

at a price below equilibrium (

P_e = 300

), a binding price ceiling creates an economic shortage.

Key Concept

Price Ceiling and Market Shortage Calculation

Question 93Question →

A competitive market for yam tubers consists of 40 identical buyers and 10 identical sellers. The demand function for each individual buyer is given by $q_d = 15 - 0.5P$ , and the supply function for each individual seller is given by $q_s = -4 + 2P$ , where $P$ represents the price per tuber in Naira ( $\text{N}$ ). What is the market equilibrium quantity of yam tubers (in units)?

Show answer & explanation

Answer: 280

Answer

The market equilibrium quantity is 280 units.

To find the market equilibrium quantity, first aggregate individual demand and supply: total market demand is

Q_d = 40(15 - 0.5P) = 600 - 20P

and total market supply is

Q_s = 10(-4 + 2P) = -40 + 20P

. Equating

Q_d = Q_s

gives

600 - 20P = -40 + 20P

, which simplifies to

640 = 40P

and yields an equilibrium price

P^* = 16

. Substituting

P^* = 16

into the market demand equation yields

Q^* = 600 - 20(16) = 280

units.

Step-by-Step Solution

1

Calculate market demand function (

Q_d

)

Q_d = 40 \times (15 - 0.5P) = 600 - 20P

Market demand is obtained by multiplying the individual demand function by the total number of buyers.

2

Calculate market supply function (

Q_s

)

Q_s = 10 \times (-4 + 2P) = -40 + 20P

Market supply is obtained by multiplying the individual supply function by the total number of sellers.

3

Set market demand equal to market supply to solve for equilibrium price (

P^*

)

600 - 20P = -40 + 20P \implies 640 = 40P \implies P^* = 16

Market equilibrium occurs at the price level where quantity demanded equals quantity supplied.

4

Substitute equilibrium price into the market demand function to find equilibrium quantity (

Q^*

)

Q^* = 600 - 20(16) = 280

units

Evaluating market demand at the equilibrium price determines the total equilibrium quantity traded.

Key Concept

Market Equilibrium Price and Quantity via Aggregated Demand and Supply Functions

Question 94Question →

The market demand and supply functions for a staple agricultural commodity in a local market are given by $Q_d = 250 - 5P$ and $Q_s = 50 + 5P$ , where $P$ is the price in Naira (₦) per bag and $Q$ is the quantity in bags. If the government imposes a price floor of ₦25 per bag, what will be the resulting market outcome?

A market surplus of 50 bags

A market shortage of 50 bags

An outward shift in market demand to 175 bags

A consumer surplus of 175 bags

Show answer & explanation

Answer: A market surplus of 50 bags

Answer

The resulting market outcome is a market surplus of 50 bags.

Equilibrium price is

P_e = ₦20

. A price floor enforced at

P = ₦25

is legally binding because it is above equilibrium. Substituting

P = 25

into the demand and supply equations yields

Q_d = 125

bags and

Q_s = 175

bags. Excess supply (surplus) is

175 - 125 = 50

bags.

Step-by-Step Solution

1

Determine the equilibrium price to check if the price floor is binding

Setting

Q_d = Q_s \implies 250 - 5P = 50 + 5P \implies 10P = 200 \implies P_e = ₦20

. Since the price floor of ₦25 is above equilibrium (₦20), it is effective/binding.

A price floor must be set above the equilibrium price to have a binding market effect.

2

Calculate quantity demanded at the floor price of ₦25

Q_d = 250 - 5(25) = 250 - 125 = 125

bags.

Higher prices reduce the quantity demanded by buyers according to the law of demand.

3

Calculate quantity supplied at the floor price of ₦25

Q_s = 50 + 5(25) = 50 + 125 = 175

bags.

Higher prices incentivize producers to increase quantity supplied according to the law of supply.

4

Calculate the market surplus

\text{Surplus} = Q_s - Q_d = 175 - 125 = 50

bags.

Market surplus occurs when quantity supplied exceeds quantity demanded at the enforced price floor.

Key Concept

Price Floor and Excess Supply (Surplus)

Estimated Time:1m 30s

Question 95Question →

In microeconomic analysis of government interventions, price control policies intentionally alter market-clearing equilibrium outcomes. Match each price policy concept on the left with its corresponding economic mechanism or market outcome on the right.

Click a left item, then click its matching right item

Show answer & explanation

Answer

Binding Price Ceiling pairs with statutory maximum price below equilibrium creating shortages; Binding Price Floor pairs with statutory minimum price above equilibrium creating surpluses; Black Market Formation pairs with unlawful trading above official price limits; and Government Buffer Stock Purchase pairs with state procurement of unsold output to sustain guaranteed minimum prices.

Matching each policy term to its precise mechanism shows that binding price ceilings lie below equilibrium causing shortages, binding price floors lie above equilibrium causing surpluses, black markets develop from unsatisfied price-ceiling demand, and government buffer stock purchases clear market surpluses generated by price floors.

Step-by-Step Solution

1

Identify the economic definition and market effect of a price ceiling.

A price ceiling is a legal maximum price. It is binding when set below equilibrium, leading to

Q_d > Q_s

(shortage).

Lower prices encourage buyers while discouraging suppliers, leaving a market deficit.

2

Identify the economic definition and market effect of a price floor.

A price floor is a legal minimum price. It is binding when set above equilibrium, leading to

Q_s > Q_d

(surplus).

Higher guaranteed prices stimulate production while reducing consumer purchases.

3

Examine informal market responses to severe price ceiling shortages.

Black markets emerge where commodities trade informally at prices exceeding the statutory ceiling.

Consumers willing to pay higher shadow prices compensate for formal market non-price rationing.

4

Determine government stabilization measures required under minimum support prices.

Governments buy up surplus produce via buffer stock schemes.

Without government purchase of excess supply, market pressure would force prices below the minimum floor.

Key Concept

Market Mechanics of Price Ceilings, Price Floors, and Related Interventions

Question 96Question →

A furniture manufacturer expands its output of wooden tables, resulting in an increased requirement for skilled carpenters. What type of demand is demonstrated by the demand for carpenters?

Derived demand

Joint demand

Competitive demand

Composite demand

Show answer & explanation

Answer: Derived demand

Answer

Derived demand

Derived demand arises when the demand for a good or service (such as skilled labour) is determined by the demand for the final commodity it produces. In this scenario, carpenters are hired because there is demand for wooden tables.

Step-by-Step Solution

1

Analyze the economic relationship between wooden tables and carpenters.

Carpenters provide factor labour required for manufacturing wooden tables.

Classifying the demand type requires establishing whether demand for the input is dependent on demand for the final output.

2

Apply the definition of derived demand.

Demand for carpenters increases as a direct consequence of the rise in production of wooden tables.

Derived demand occurs when a resource or factor of production is wanted solely because it helps produce another commodity.

Key Concept

Derived Demand

Estimated Time:1m 0s

Question 97Question →

Electricity is used simultaneously for home lighting, cooking, powering factory machines, and operating electric trains. Which type of demand does electricity exhibit?

Composite demand

Joint demand

Derived demand

Competitive demand

Show answer & explanation

Answer: Composite demand

Answer

Composite demand

Composite demand refers to the demand for a single commodity that has several alternative uses. Because electricity is required for domestic lighting, cooking, industrial machinery, and transport, its overall demand is composite.

Step-by-Step Solution

1

Examine the usage scenario of electricity given in the question.

Electricity is required to fulfill several distinct functions: domestic lighting, cooking, powering industrial equipment, and transportation.

Understanding how the product is utilized across different activities helps determine its demand classification.

2

Match the multi-use characteristic to the standard economic definition of demand types.

When a single item is demanded for multiple alternative uses, its aggregate demand is classified as composite demand.

By definition, composite demand represents the total demand for a good that serves several separate purposes.

Key Concept

Types of Demand - Composite Demand

Estimated Time:45s

Question 98Question →

Which of the following non-price factors will cause an outward (rightward) shift in the demand curve for a normal economic good?

An increase in consumer income levels

A reduction in the market price of the good itself

A fall in the price of a close substitute product

An increase in the market price of a complementary product

Show answer & explanation

Answer: An increase in consumer income levels

Answer

An increase in consumer income levels cause an outward (rightward) shift in the demand curve for a normal good.

For a normal good, an increase in consumer disposable income expands purchasing power, prompting consumers to buy more of the commodity at every existing price level. Graphically, an increase in demand is represented by an outward (rightward) shift of the demand curve.

Step-by-Step Solution

1

Distinguish between non-price determinants (which shift the curve) and own-price changes (which cause movement along the curve).

Identified that income, substitute prices, and complement prices shift the demand curve, whereas own-price changes do not shift the curve.

Non-price determinants alter the overall demand at all price levels.

2

Analyze the impact of an increase in consumer income on a normal good.

Higher income increases purchasing power for normal goods, leading to higher demand at every price point.

By definition, a normal good has a positive income elasticity of demand.

3

Determine the direction of the shift.

An increase in demand is represented graphically as an outward (rightward) shift of the demand curve.

Rightward shifts denote greater quantity demanded at every given price.

Key Concept

Determinants of Demand vs Movement Along Demand Curve

Estimated Time:45s

Question 99Question →

An increase in the market price of palm oil causes a corresponding rise in the demand for groundnut oil as households seek alternative cooking media. Which type of demand is demonstrated by groundnut oil in relation to palm oil?

Competitive demand

Joint demand

Composite demand

Derived demand

Show answer & explanation

Answer: Competitive demand

Answer

Competitive demand, as palm oil and groundnut oil serve as substitutes satisfying the same household need.

Competitive demand occurs when two or more commodities serve as substitutes to satisfy a single want. Because palm oil and groundnut oil are substitutes, a price increase in palm oil shifts consumer demand toward groundnut oil.

Step-by-Step Solution

1

Identify the relationship between the two commodities

Palm oil and groundnut oil are alternative goods used for cooking, fulfilling the same basic purpose for consumers.

Determining whether two goods are substitutes or complements is necessary to classify the type of interrelated demand.

2

Analyze the impact of a price change in palm oil on the demand for groundnut oil

As palm oil becomes more expensive, consumers switch to groundnut oil, causing the demand for groundnut oil to increase.

A positive relationship between the price of one commodity and the demand for another defines competitive (substitute) demand.

Key Concept

Competitive Demand (Substitute Goods)

Estimated Time:1m 0s

Question 100Question →

A sharp rise in the market price of gas cookers causes a decrease in the demand for liquefied petroleum gas (LPG) and an increase in the demand for electric hobs. Which of the following correctly classifies the demand for LPG and electric hobs relative to gas cookers?

Joint demand and competitive demand

Competitive demand and joint demand

Derived demand and composite demand

Composite demand and derived demand

Show answer & explanation

Answer: Joint demand and competitive demand

Answer

Joint demand and competitive demand

Liquefied petroleum gas (LPG) is required to operate a gas cooker, so they are consumed jointly to satisfy one economic want (cooking). When gas cookers become more expensive, fewer are demanded, leading to a decrease in the demand for LPG (joint demand). Conversely, electric hobs serve as a direct substitute for gas cookers. An increase in the price of gas cookers causes consumers to shift towards electric hobs, increasing their demand (competitive demand).

Step-by-Step Solution

1

Analyze the relationship between gas cookers and LPG

Since a price increase in gas cookers reduces the demand for LPG, the two goods are consumed together.

Goods that are used jointly to satisfy a single want exhibit complementary or joint demand.

2

Analyze the relationship between gas cookers and electric hobs

Since a price increase in gas cookers increases the demand for electric hobs, consumers are substituting gas cookers with electric hobs.

Goods that serve as direct alternatives to one another exhibit competitive demand.

3

Synthesize the classifications

LPG exhibits joint demand, while electric hobs exhibit competitive demand relative to gas cookers.

Combining the results yields the correct ordered classification pair.

Key Concept

Interrelated Types of Demand (Joint vs Competitive Demand)

Estimated Time:1m 30s

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