If the Government Imposes a Price Ceiling for Some Product

question 81

Multiple Choice

If the government imposes a price ceiling for some product, and a black market subsequently develops that gains control of all of the reduced output of the product, then

• A) the quantity demanded will exceed quantity supplied at the black market price.
• B) the black market price will be lower than the ceiling price.
• C) consumers will be better off than they would be in the absence of the black market.
• D) excess profits will flow back to consumers.
• E) the black market price will be higher than the free- market equilibrium price.

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Definitions:

Real Interest Rates

The interest rate adjusted for inflation, reflecting the real cost of borrowing and the real yield to lenders or investors.

Crowding Out

The phenomenon where increased government spending leads to a reduction in private sector spending or investment, often due to higher interest rates.

Domestic Investment

Domestic investment refers to the total spending on capital within a country that is used for the production of goods and services.

Loanable Funds

The money available for borrowing in the financial markets, determined by savings and demands for loans.