Paper 2 · price controls
The diagram shows the market demand and supply of a commodity. Where price is set by government,
A indicates an effective maximum price.
B indicates an effective minimum price.
C causes a surplus of the commodity.
D results in increased utilisation of factor inputs.
Explanation: At P1 (above equilibrium PE), supply is greater than demand, creating a surplus of the commodity.
ZIMSEC Economics Paper 2, November 2010, Q6
