If a Good Is Subject to a Binding Price Ceiling

question 86

Multiple Choice

If a good is subject to a binding price ceiling and you purchase it on the black market,what do you expect to happen to the price over time?

• A) The black market price will rise over time as the supply curve becomes more elastic and the demand curve becomes more inelastic.
• B) The black market price will fall over time as both the supply and demand curves become more inelastic.
• C) The black market price will rise over time as the demand curve becomes more elastic and the supply curve becomes more inelastic.
• D) The black market price will fall over time as both the supply and demand curves become more elastic.
• E) The black market price will not change over time.

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Definitions:

Loss Aversion

In prospect theory, the property of most people’s preferences that the pain generated by losses feels substantially more intense than the pleasure generated by gains.

Anchoring Effect

A cognitive bias where an individual relies too heavily on an initial piece of information (the "anchor") when making decisions.

Hedonic Treadmill

A theory suggesting that people continually seek new levels of stimulation or material goods to maintain happiness, but generally return to a stable level of happiness despite major positive or negative changes.

Prospect Theory

Prospect theory is a behavioral economic theory that describes how people choose between probabilistic alternatives that involve risk, where the probabilities of outcomes are known.