JAMB Economics 2011 Paper

Concept:Minimum price legislation is a price floor set above the equilibrium price.Explanation:The government sets a minimum price, meaning the price cannot fall below $P_{\min}$.If $P_{\min}$ is above the equilibrium price $P_e$, the market price becomes artificially high.At this higher price, consumers demand less of the commodity.At the same time, producers are willing to supply more because they receive a higher price.This creates excess supply, which is also called a surplus.Therefore, minimum price legislation reduces demand and creates a surplus.Answer:C. reduce demand and create surplus.