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Cameroon GCE O-Level Economics study materials
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Cameroon GCE O-Level Economics practice questions

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Question 1Basic economic concepts and the economic problem

In economics, the fundamental problem of scarcity arises because

  1. people do not know which goods and services they actually prefer
  2. human wants are unlimited while the resources available to satisfy them are limited Correct answer.
  3. some countries are poorer than others and must borrow from richer ones
  4. governments refuse to print enough money to satisfy all citizens

Explanation

Scarcity is the mismatch between unlimited human wants and the finite resources (land, labour, capital, enterprise) available to produce goods and services. It exists in every society, rich or poor, because resources can never satisfy all wants at once. This is why choice and opportunity cost are unavoidable in any economy.

Question 2Basic economic concepts and the economic problem

A student has 2,000 FCFA and must choose between buying a textbook or a pair of sandals. The opportunity cost of buying the textbook is

  1. nothing, because the student chose freely
  2. the pair of sandals given up Correct answer.
  3. the 2,000 FCFA spent on the textbook
  4. the textbook plus the sandals

Explanation

Opportunity cost is the value of the next best alternative forgone when a choice is made. Since the student spends the money on the textbook, the sacrificed alternative is the sandals. The money itself is only the means of payment, not the real cost in forgone satisfaction.

Question 3Basic economic concepts and the economic problem

Which of the following is classified as a factor of production in economics?

  1. The price of cocoa on the world market
  2. A share certificate held by an investor
  3. Money used to buy machinery
  4. A tractor used on a plantation Correct answer.

Explanation

The factors of production are land, labour, capital and enterprise. A tractor is a produced good used to produce other goods, so it is capital. Money, financial assets and prices are not factors of production because they do not themselves produce output.

Question 4Basic economic concepts and the economic problem

A production possibility curve that is concave to the origin illustrates

  1. that resources are equally suited to producing both goods
  2. that an economy can produce unlimited quantities of both goods
  3. increasing opportunity cost as more of one good is produced Correct answer.
  4. constant opportunity cost as production switches between goods

Explanation

A bowed-out (concave) production possibility curve shows that resources are not perfectly transferable between uses. As more of one good is produced, successively less suitable resources must be diverted, so each extra unit costs more of the other good to produce. This is the law of increasing opportunity cost.

Question 5Basic economic concepts and the economic problem

A point lying inside a country's production possibility curve indicates that

  1. the country is using its resources efficiently
  2. the country has achieved economic growth
  3. some resources are unemployed or used inefficiently Correct answer.
  4. the country is producing beyond its capacity

Explanation

Any point inside the curve means the economy could produce more of at least one good without sacrificing the other, so resources are idle or misallocated. Points on the curve represent full and efficient use, while points outside are unattainable. Moving outward from an interior point involves no opportunity cost until the curve is reached.

Question 6Basic economic concepts and the economic problem

The three basic questions every economy must answer are

  1. how much to save, how much to invest, and how to borrow
  2. when to tax, how to tax, and who should collect the tax
  3. what to import, how to export, and where to sell
  4. what to produce, how to produce it, and for whom to produce it Correct answer.

Explanation

Because resources are scarce, every society must decide which goods and services to produce, which techniques and inputs to use, and how the output is distributed among its members. These allocation questions are answered differently by market, planned and mixed economies. Taxation, trade and saving are policy matters that follow from these basic decisions.

Question 7Basic economic concepts and the economic problem

In a pure market economy, the allocation of resources is determined mainly by

  1. a central planning committee
  2. the directives of trade unions
  3. customs and traditions handed down over generations
  4. the relative prices established by demand and supply Correct answer.

Explanation

A pure market economy relies on the price mechanism: changing prices signal scarcity and profitability, guiding producers and consumers to allocate resources. No central body sets output targets. Tradition dominates in a subsistence economy and planning dominates in a command economy.

Question 8Basic economic concepts and the economic problem

A mixed economy is best described as one in which

  1. both the private sector and the public sector take part in allocating resources Correct answer.
  2. only private firms own and operate all productive resources
  3. all prices are fixed by government decree
  4. households produce only for their own consumption

Explanation

In a mixed economy, markets coordinate much production and consumption while the state owns or regulates key sectors and provides public goods. Most real economies, including Cameroon, are mixed. The balance between private initiative and public control varies from country to country.

Question 9Basic economic concepts and the economic problem

Which of the following is an example of a free good rather than an economic good?

  1. A loaf of bread bought at a bakery
  2. Air for breathing in an open field Correct answer.
  3. A bus ride to school
  4. Bottled mineral water sold in a shop

Explanation

A free good is available in unlimited quantity relative to demand and has no opportunity cost, such as air in an open field. Economic goods are scarce relative to wants and must be produced using resources, so they command a price. Bottled water, bread and transport all use scarce inputs and are therefore economic goods.

Question 10Basic economic concepts and the economic problem

A farmer who gives up growing maize on one hectare in order to plant beans is responding to

  1. a government ban on maize production
  2. the basic economic problem of choice under scarcity Correct answer.
  3. a fall in the demand for beans
  4. the absence of any opportunity cost

Explanation

Deciding which crop to grow on a fixed piece of land is a direct application of choice under scarcity: the land can serve only one use at a time. The farmer forgoes the maize output, which is the opportunity cost of planting beans. Such decisions are made in every economy because resources have alternative uses.

Question 11Basic economic concepts and the economic problem

Which pair of concepts best explains why even a very rich country must make choices?

  1. Specialisation and exchange
  2. Taxation and public spending
  3. Inflation and unemployment
  4. Scarcity and unlimited wants Correct answer.

Explanation

Choices are necessary because wants are unlimited while the resources available to satisfy them are finite, however wealthy a country is. Scarcity therefore applies at all income levels; greater wealth changes the range of options but never removes the need to choose. The other pairs are consequences or policy areas rather than the root cause.

Question 12Basic economic concepts and the economic problem

A country's production possibility curve shifts outward when

  1. consumers change their tastes in favour of imported goods
  2. the government raises income tax rates
  3. some workers become unemployed
  4. there is an improvement in technology and an increase in the labour force Correct answer.

Explanation

The frontier shifts outward only when the productive capacity of the economy grows, for example through better technology, more capital, a larger or better-trained labour force, or newly discovered resources. Such growth allows more of both goods to be produced. Demand-side changes and unemployment move the economy towards or away from the existing frontier rather than shifting it.

Question 13Basic economic concepts and the economic problem

The reward received by the factor of production called 'enterprise' is

  1. profit Correct answer.
  2. rent
  3. wages
  4. interest

Explanation

Each factor of production earns a distinct reward: land earns rent, labour earns wages, capital earns interest, and enterprise earns profit. The entrepreneur bears risk and organises the other factors, so profit is the residual reward for that risk-taking. Confusing these rewards is a common error in factor-market questions.

Question 14Basic economic concepts and the economic problem

A government decides to build a new hydroelectric dam instead of a new stadium with the same funds. The opportunity cost of the dam is

  1. the stadium that could have been built Correct answer.
  2. the money spent on the dam
  3. the cost of maintaining the dam in future years
  4. the electricity the dam will generate

Explanation

Opportunity cost is measured by the best alternative forgone, which in this case is the stadium. The expenditure figure is the money cost, and future maintenance is a separate cost of the chosen project. Electricity generated is a benefit of the dam, not a cost.

Question 15Basic economic concepts and the economic problem

Which statement about a command economy is correct?

  1. Resources are allocated entirely by custom and tradition
  2. Producers compete for profit and consumers decide what is made
  3. Prices are freely determined by the interaction of demand and supply
  4. The state decides what is produced and how output is distributed Correct answer.

Explanation

In a command or planned economy, a central authority sets output targets, fixes prices and decides how goods are shared out. Market forces and profit competition play little or no role. Such systems can mobilise resources for priority projects but often suffer from poor information and weak incentives.

Question 16Basic economic concepts and the economic problem

A student argues that because a country's production possibility curve shows it can produce either 100 tonnes of maize or 50 tonnes of rice, producing 60 tonnes of maize and 40 tonnes of rice must be inefficient. Is the student right?

  1. No, because opportunity cost does not apply to agricultural goods
  2. No, because a combination on or inside the curve may still be attainable and the curve itself shows the maximum combinations Correct answer.
  3. Yes, because any combination not at the two end points is wasteful
  4. Yes, because maize and rice cannot be produced in the same year

Explanation

The two end points are only the intercepts of the curve; every point along the curve represents an efficient combination of both goods. A combination is inefficient only if it lies strictly inside the frontier, meaning more of one good could be produced without less of the other. Without the full shape of the curve, 60 tonnes of maize and 40 tonnes of rice cannot be declared inefficient simply because it is not an end point.

Question 17Basic economic concepts and the economic problem

The main function of the price mechanism in a market economy is to

  1. replace the need for any government provision of public goods
  2. ensure that firms never make losses
  3. signal scarcity and coordinate the decisions of buyers and sellers Correct answer.
  4. guarantee that every citizen receives an equal share of output

Explanation

Prices act as signals and incentives: a rising price indicates scarcity and encourages producers to supply more while discouraging some consumers, thereby rationing the good. In this way decentralised decisions are coordinated without central direction. Prices do not equalise incomes, remove the need for public goods, or protect firms from losses.

Question 18Basic economic concepts and the economic problem

Which of the following best illustrates the division of labour?

  1. Workers in a garment factory each performing one specialised task on a production line Correct answer.
  2. A family consuming only the food it produces
  3. A farmer growing both maize and cassava on the same plot
  4. A tailor making a complete shirt from start to finish alone

Explanation

Division of labour means splitting a production process into separate tasks, each carried out by a different worker or group. This raises output per worker through repetition, skill and time saved. One person completing every task, mixed cropping and self-sufficiency all describe the opposite of specialisation.

Question 19Basic economic concepts and the economic problem

An economy that moves from a point inside its production possibility curve to a point on the curve will experience

  1. a fall in the total quantity of resources available
  2. increased output without any change in productive capacity Correct answer.
  3. a reduction in the maximum attainable output
  4. an outward shift of the curve itself

Explanation

Moving from an interior point to the frontier means existing idle or misused resources are now fully employed, so output rises while the economy's capacity is unchanged. The curve itself has not moved; only the economy's position relative to it has changed. An outward shift would require growth in resources or technology.

Question 20Basic economic concepts and the economic problem

Which situation is most consistent with the existence of an economic good?

  1. Sunlight in an open field on a clear day
  2. Breathing air in a forest
  3. Sea water in the open ocean
  4. A rare medicinal plant that must be searched for and harvested Correct answer.

Explanation

An economic good is scarce relative to demand and requires resources to obtain, so it has an opportunity cost and a price. The medicinal plant must be found, harvested and processed, using labour and capital. Sunlight, forest air and open-ocean sea water are normally available in quantities far exceeding demand and are treated as free goods.

Question 21Price theory: demand, supply and market equilibrium

In economics, the demand for a good refers to the quantity that buyers are willing and able to purchase at a given price, holding constant which of the following?

  1. The government's tax revenue from the good
  2. The price of the good itself
  3. All other determinants of demand, such as income and tastes Correct answer.
  4. The quantity supplied by producers

Explanation

A demand schedule isolates the relationship between price and quantity demanded, so every other influence on demand (income, tastes, prices of related goods) is held constant. The price of the good is the variable being varied along the schedule, not held constant.

Question 22Price theory: demand, supply and market equilibrium

A movement along a given demand curve for plantains is caused by a change in which factor?

  1. Population size
  2. The price of cassava
  3. Consumers' income
  4. The price of plantains Correct answer.

Explanation

A change in the good's own price changes quantity demanded and is shown as a movement along the existing demand curve. Changes in income, prices of substitutes or population shift the whole curve instead.

Question 23Price theory: demand, supply and market equilibrium

According to the law of demand, other things being equal, what happens as the price of a good falls?

  1. Quantity demanded falls
  2. Demand shifts to the left
  3. Quantity demanded rises Correct answer.
  4. Quantity supplied rises

Explanation

The law of demand states an inverse relationship between price and quantity demanded, so a price fall raises quantity demanded. A leftward shift of demand results from non-price factors, and supply behaviour is a separate relationship.

Question 24Price theory: demand, supply and market equilibrium

Which pair of goods is the best example of substitutes?

  1. Shoes and shoe polish
  2. Petrol and motor cars
  3. Bread and butter
  4. Rice and maize Correct answer.

Explanation

Substitutes are alternative goods satisfying the same want, so a rise in the price of rice raises demand for maize. The other pairs are complements consumed together.

Question 25Price theory: demand, supply and market equilibrium

The supply of a good is defined as the quantity producers are willing and able to offer for sale at a particular price, provided that which condition holds?

  1. Other factors affecting supply remain unchanged Correct answer.
  2. The government fixes a maximum price
  3. Consumers' income is rising
  4. The good is a luxury

Explanation

Supply expresses a price-quantity relationship only when all other supply determinants, such as cost of inputs and technology, are held constant. Income affects demand, and price controls distort rather than define supply.

Question 26Price theory: demand, supply and market equilibrium

What is the effect on the supply curve for cocoa of an increase in the price of fertiliser used by cocoa farmers?

  1. The supply curve shifts to the left Correct answer.
  2. There is a movement down along the supply curve
  3. There is a movement up along the supply curve
  4. The supply curve shifts to the right

Explanation

Fertiliser is an input, and higher input costs reduce the quantity supplied at every price, shifting the supply curve leftward. A price change of cocoa itself would cause movement along the curve instead.

Question 27Price theory: demand, supply and market equilibrium

At a price above the equilibrium price in a competitive market, what situation arises?

  1. Excess demand, putting upward pressure on price
  2. Equilibrium, with no pressure on price
  3. Excess supply, putting downward pressure on price Correct answer.
  4. Excess demand, putting downward pressure on price

Explanation

Above equilibrium, quantity supplied exceeds quantity demanded, creating a surplus. Unsold stock pushes sellers to cut prices toward equilibrium.

Question 28Price theory: demand, supply and market equilibrium

A market has demand Qd = 100 - 2P and supply Qs = 20 + 2P. What is the equilibrium price?

  1. 30
  2. 40
  3. 20 Correct answer.
  4. 10

Explanation

Set quantity demanded equal to quantity supplied: 100 - 2P = 20 + 2P, so 80 = 4P and P = 20. At this price both quantities equal 60.

Question 29Price theory: demand, supply and market equilibrium

A fall in the price of a substitute for a good will cause which change in the market for that good?

  1. Demand shifts left and both equilibrium price and quantity fall Correct answer.
  2. Demand shifts left while supply shifts right
  3. Supply shifts right and equilibrium price falls
  4. Demand shifts right and both equilibrium price and quantity rise

Explanation

A cheaper substitute draws buyers away, reducing demand for the good, so the demand curve shifts left. With supply unchanged, both equilibrium price and quantity fall.

Question 30Price theory: demand, supply and market equilibrium

Price elasticity of demand measures the responsiveness of quantity demanded to a change in which variable?

  1. The price of the good Correct answer.
  2. The quantity supplied
  3. The price of a related good
  4. Consumer income

Explanation

Price elasticity of demand compares the percentage change in quantity demanded with the percentage change in the good's own price. Income and cross-price elasticities are separate measures.

Question 31Price theory: demand, supply and market equilibrium

The price of a good rises from 200 to 220 francs, and quantity demanded falls from 500 to 450 units. Using the simple percentage method, price elasticity of demand is approximately which value?

  1. 2.0
  2. 5.0
  3. 0.1
  4. 1.0 Correct answer.

Explanation

Percentage change in quantity is 50/500 = 10%, and percentage change in price is 20/200 = 10%. Dividing gives an elasticity of 1.0, which is unit elastic.

Question 32Price theory: demand, supply and market equilibrium

Which characteristic would most likely make the demand for a good price inelastic?

  1. The good is a basic necessity with few substitutes Correct answer.
  2. Many close substitutes are available
  3. The good takes a large share of the consumer's budget
  4. Buyers can easily postpone purchase

Explanation

Necessities with few substitutes have inelastic demand because buyers cannot easily switch or cut consumption. Many substitutes, a large budget share and easy postponement all raise elasticity.

Question 33Price theory: demand, supply and market equilibrium

A firm faces inelastic demand for its product. If it raises the price, what happens to total revenue?

  1. Total revenue rises Correct answer.
  2. Total revenue falls
  3. Total revenue stays unchanged
  4. Total revenue falls to zero

Explanation

With inelastic demand, quantity falls proportionately less than price rises, so total revenue increases. Revenue falls with a price rise only when demand is elastic.

Question 34Price theory: demand, supply and market equilibrium

A price ceiling set below the equilibrium price will normally produce which outcome?

  1. A shortage because quantity demanded exceeds quantity supplied Correct answer.
  2. Equilibrium because the market clears itself
  3. A surplus because supply exceeds demand
  4. A fall in demand with supply unchanged

Explanation

A binding maximum price below equilibrium keeps price artificially low, so quantity demanded exceeds quantity supplied, creating a shortage. It is a legal maximum, not a demand shift.

Question 35Price theory: demand, supply and market equilibrium

A minimum price (price floor) set above equilibrium, with no government purchase of the surplus, is likely to cause which result?

  1. A rightward shift of the supply curve
  2. An immediate return to equilibrium price
  3. Surplus output that may be wasted or stockpiled Correct answer.
  4. A shortage of the good

Explanation

A floor above equilibrium holds price high, so quantity supplied exceeds quantity demanded and a surplus develops. Without official buying, the excess may be stored or wasted.

Question 36Price theory: demand, supply and market equilibrium

Which of the following is a non-price determinant of supply?

  1. The state of technology Correct answer.
  2. The market price of the good
  3. The slope of the demand curve
  4. The quantity demanded by consumers

Explanation

Technology changes production costs and shifts the supply curve, making it a non-price determinant. The good's own price causes movement along the supply curve rather than shifting it.

Question 37Price theory: demand, supply and market equilibrium

If both demand and supply increase simultaneously, what can be said with certainty about the new equilibrium?

  1. Equilibrium quantity rises and price is indeterminate Correct answer.
  2. Both equilibrium price and quantity fall
  3. Both equilibrium price and quantity rise
  4. Equilibrium price rises and quantity is indeterminate

Explanation

Both shifts push quantity upward, so quantity definitely rises. Demand raises price while supply lowers it, so the price change depends on the relative sizes of the shifts.

Question 38Price theory: demand, supply and market equilibrium

The demand for salt is highly inelastic while the demand for a particular brand of soft drink is highly elastic. Which explanation best fits this contrast?

  1. Salt is produced by many firms while the drink is produced by one firm
  2. Salt has few substitutes while the branded drink has many close substitutes Correct answer.
  3. Salt is expensive while soft drinks are cheap
  4. Consumers spend more on salt than on soft drinks

Explanation

Availability of close substitutes is a key determinant of elasticity: salt has no real substitute, whereas rival brands easily replace one branded drink. Price level and number of producers are not the deciding factors here.

Question 39Price theory: demand, supply and market equilibrium

A consumer's demand curve for a normal good slopes downward partly because of the income effect. What does the income effect describe?

  1. A fall in price makes the good relatively cheaper than substitutes
  2. A fall in price raises real income, allowing more of the good to be bought Correct answer.
  3. Consumers save more when their nominal income rises
  4. Producers earn more income when prices rise

Explanation

The income effect works through purchasing power: a lower price leaves the buyer with more real income, so more can be purchased. The substitution effect concerns relative prices instead.

Question 40Price theory: demand, supply and market equilibrium

Two goods have a positive cross elasticity of demand. What does this indicate about their relationship?

  1. They are inferior goods
  2. They are substitutes Correct answer.
  3. They are independent goods
  4. They are complements

Explanation

A positive cross elasticity means a rise in the price of one good increases demand for the other, which is the substitute relationship. Complements show negative cross elasticity.

Question 41Price theory: demand, supply and market equilibrium

A good has an income elasticity of demand of -0.8. How is this good best classified?

  1. An inferior good Correct answer.
  2. A Giffen good with certainty
  3. A normal luxury
  4. A normal necessity

Explanation

A negative income elasticity means demand falls as income rises, which defines an inferior good. Normal goods have positive income elasticity, with luxuries above one.

Question 42Price theory: demand, supply and market equilibrium

Why does the supply curve normally slope upward from left to right?

  1. Government always fixes higher prices for larger outputs
  2. Producers can sell more only at higher prices because costs generally rise with output Correct answer.
  3. Consumers buy less at higher prices
  4. Technology improves as output expands

Explanation

Higher prices are needed to cover the rising marginal costs that appear as output expands, so more is supplied at higher prices. Consumer behaviour explains the demand curve, not supply.

Question 43Price theory: demand, supply and market equilibrium

In a free market, what is the main function of the equilibrium price?

  1. To guarantee producers a profit
  2. To equalise incomes among consumers
  3. To eliminate all government taxes
  4. To ration scarce goods and signal buyers and sellers Correct answer.

Explanation

Equilibrium price clears the market by rationing available goods and signalling scarcity to both buyers and sellers. It does not guarantee profit or redistribute income.

Question 44Price theory: demand, supply and market equilibrium

A rise in consumers' income shifts the demand curve for a normal good to the right. With supply unchanged, what happens to equilibrium?

  1. Price falls and quantity falls
  2. Price rises and quantity falls
  3. Price falls and quantity rises
  4. Price rises and quantity rises Correct answer.

Explanation

A rightward demand shift moves the equilibrium intersection up and to the right, raising both price and quantity. Supply is unchanged, so the adjustment occurs along the supply curve.

Question 45Price theory: demand, supply and market equilibrium

A firm currently sells 1,000 units at 500 francs each. It estimates price elasticity of demand of 2.0 and raises price by 10%. What is the approximate new total revenue?

  1. 450,000 francs Correct answer.
  2. 550,000 francs
  3. 400,000 francs
  4. 600,000 francs

Explanation

A 10% price rise with elasticity 2.0 cuts quantity by about 20%, leaving 800 units at 550 francs, giving 440,000 francs, closest to 450,000. Because demand is elastic, revenue falls overall.

Question 46Price theory: demand, supply and market equilibrium

Which statement best describes the relationship between an individual consumer's demand curve and the market demand curve for the same good?

  1. The market demand curve is identical in shape to the demand curve of the largest single buyer.
  2. The market demand curve is the vertical sum of all individual demand curves at each quantity.
  3. The market demand curve is the horizontal sum of all individual demand curves at each price. Correct answer.
  4. The market demand curve is derived only from the demand of consumers whose income is above average.

Explanation

Market demand shows the total quantity all buyers wish to purchase at each price, so at every price the quantities demanded by each individual are added together. This is a horizontal summation because the addition takes place along the quantity axis. Adding prices vertically would instead describe a public good or a value concept, not ordinary market demand.

Question 47Price theory: demand, supply and market equilibrium

A shopkeeper observes that when the price of bread falls from 500 to 450 francs per loaf, weekly sales rise from 200 to 240 loaves. Using the simple (proportional) formula, the price elasticity of demand is approximately:

  1. 4.0
  2. 2.0 Correct answer.
  3. 0.25
  4. 0.5

Explanation

The proportional formula divides the percentage change in quantity demanded by the percentage change in price. Quantity rises by 40/200 = 20% while price falls by 50/500 = 10%, giving 20/10 = 2.0. Demand is therefore elastic, since the value exceeds one.

Question 48Price theory: demand, supply and market equilibrium

Which change would shift the demand curve for a good to the left while its own price stays the same?

  1. A rise in the price of a complement that consumers buy with the good Correct answer.
  2. A technological improvement in the production of the good
  3. A fall in the cost of the raw materials used to make the good
  4. An increase in the number of firms selling the good

Explanation

A rise in the price of a complement reduces the quantity of the joint purchase consumers can afford, so fewer units of the good are wanted at every price and the demand curve shifts left. The good's own price is unchanged, so this is a shift of the curve rather than a movement along it. The other options act on producers and affect supply.

Question 49Price theory: demand, supply and market equilibrium

In a competitive market the supply curve shifts to the right while the demand curve stays unchanged. Compared with the original equilibrium, the new equilibrium will most likely show:

  1. a higher price and an unchanged quantity traded
  2. a higher price and a larger quantity traded
  3. a lower price and a smaller quantity traded
  4. a lower price and a larger quantity traded Correct answer.

Explanation

A rightward shift of supply means more is offered at every price, so the supply curve cuts the unchanged demand curve at a lower price and a greater quantity. The movement is along the demand curve to a new equilibrium point. Only a demand shift could raise the equilibrium price in this situation.

Question 50Price theory: demand, supply and market equilibrium

A government fixes a maximum price for a staple food below the free-market equilibrium. Which combination of effects is most consistent with price theory?

  1. The market clears at a lower quantity with no need for rationing or any other measure.
  2. The supply curve shifts right because producers expect more buyers at the lower price.
  3. A surplus develops, so the government must buy up the excess stock.
  4. Quantity demanded exceeds quantity supplied, creating a shortage and encouraging black-market selling. Correct answer.

Explanation

A maximum price below equilibrium holds the price down, so the quantity demanded rises along the demand curve while the quantity supplied falls along the supply curve. The gap is a shortage, and buyers unable to obtain the good at the legal price may pay more in unofficial markets. The price control does not shift either curve, it only prevents the price from clearing the market.