JAMB Economics 2012 Paper

Concept:Setting a price above equilibrium creates a surplus because the higher price moves quantity supplied along the supply curve.Explanation:At the equilibrium price $P_e$, the quantity supplied equals the quantity demanded.When the price is fixed above equilibrium at $P_f$, the condition is $P_f > P_e$.A higher price makes it more profitable for producers to supply more units to the market.So the quantity supplied moves upward along the existing supply curve.Because the price change is the cause, this is an increase in quantity supplied, not an increase in supply.An increase in supply would mean the whole curve shifts right, which is caused by non-price factors like improved technology.At this higher price, quantity demanded falls below quantity supplied, leaving a surplus in the market.Answer:B. an increase in quantity supplied