Answer to Question #81401 in Economics of Enterprise for Millicent

Question

Assume that the market price for a 5kg bag of rice is R80 and the government has announced that 5kg bag of rice cannot be sold for less than R100 with the aid of a well labelled diagram , explain the effect the above government decision will have in the market for rice

Answer 1

Currently demand of the market support price at level - 80R, suppose that it’s equilibrium of demand and supply. If price will rise to 100R, there will be surplus supply, which will not meet demand. As a result, less customers will buy rice bag for R100.