The table below shows the supply and demand for kilograms of maize per month in thousands. Use the information in the table to answer the questions that follow.
Quantity supplied (000)
Price per thousand kilogram ($)
Quantity Demanded (000)
16
3.00
3
13
2.50
5
9
2.00
9
6
1.50
14
3
1.00
19
1
0.50
26
(a) (i) If the government fixed the price of maize at $1.50 per thousand kilogram, what will be the excess demand for maize (ii) If the government fails to enforce the fixed price, what will happen to the price of maize (b) How can the government maintain a fixed price of $3.00 per thousand kilogram for maize? (c) In relation to the equilibrium price, what will be the effects on the quantities demanded and supplied if the government enforced a fixed price of $1.00?
Explanation
(a)(i) The excess demand for maize will be 14,000kg - 6,000kg = 8,000kg, i.e., Quantity demanded - Quantity supplied= Excess Demand. (ii) Since there is excess demand of 8,000kg, competition among buyers will force up the price to the equilibrium price of $2.00. (b) To maintain the fixed price of $ 3.00. per thousand kilogram, the government must buy up the excess supply of 13,000kg. (c) The effects on the quantities demanded and supplied are that producers will reduce supply from the equilibrium quantity of 9,000 kg to 3,000kg. Also there will be excess demand of 16,000 kg.
