What is the incentive to create a black market when a binding price ceiling exists?

a. A black market emerges because sellers have a surplus that they need to sell.

b. A black market emerges because sellers want a market where they can sell lower-quality products.

c. A black market emerges because sellers want a market where they can sell higher-quality products at higher prices.

d. A black market does not emerge because sellers are content to sell at the lower price.

e. A black market emerges because buyers who have a low opportunity cost are seeking out the product.

Question

Business

Elvis Henry

29 October, 23:31

What is the incentive to create a black market when a binding price ceiling exists?

a. A black market emerges because sellers have a surplus that they need to sell.

b. A black market emerges because sellers want a market where they can sell lower-quality products.

c. A black market emerges because sellers want a market where they can sell higher-quality products at higher prices.

d. A black market does not emerge because sellers are content to sell at the lower price.

e. A black market emerges because buyers who have a low opportunity cost are seeking out the product.

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Answers (1)

Know the Answer?

Kiersten Fry · Answer 1

The correct answer is option c.

Explanation:

A price ceiling shows the maximum price that a firm or supplier ca charge for its product in the market. The government generally imposes price ceilings to keep necessities affordable for the common people. A binding price ceiling is a situation where the price ceiling is fixed below the market equilibrium price.

At the binding price, there is excess demand. This is because at a lower price the consumers will demand more but the producers will supply less, because of the law of demand and law of supply.

In this situation, a black market emerges because the firms or sellers want to sell their high-quality goods at a higher price than that fixed by the government.