Black markets result from:
A. price floors
B. price ceilings
C. shifts in demand
D. competitive price outs
I think it's C?
or it might be B ?
C is the best answer. Black markets occur when goods are rationed or overly expensive -- as during war time.
thanks!
You're welcome.
Actually, the correct answer is B. Black markets typically result from price ceilings.
To understand why this is the case, let me explain how price ceilings work. A price ceiling is a legally imposed maximum price that can be charged for a good or service. When the government sets a price ceiling below the equilibrium market price, it creates a shortage of the product. This shortage occurs because the quantity demanded exceeds the quantity supplied at the artificially low price.
In response to the shortage, black markets can emerge. Black markets refer to illegal or unofficial markets where goods or services are bought and sold at prices above the legally established maximum price. In these markets, sellers and buyers engage in transactions at prices that are higher than the price ceiling, thus bypassing the legal restrictions.
The reason black markets arise from price ceilings is that when the legal price is below the equilibrium level, there is an incentive for suppliers to sell goods at a higher price in the underground market. Likewise, buyers who are willing to pay more than the legal price find it advantageous to purchase goods through illegal channels. This leads to the creation of a parallel market where prices are determined by supply and demand forces rather than government regulations.
Therefore, the correct answer is B. Price ceilings lead to the emergence of black markets.