WAEC Economics 2015 Theory — Question 10

Model answer

(i) It usually fixes the price below the equilibrium level, and this will lead to excess demand in the economy. (ii) It will lead to hoarding of goods by the producer, as sellers withhold goods hoping for higher (black market) prices. (iii) It may lead to a fall in quality, since producers cut corners to keep costs down at the fixed low price. (iv) It will discourage producers from producing more output, since profitability is reduced, potentially leading to shortages.