What Is the Incentive to Create a Black Market When

question 10

Multiple Choice

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

• A) A black market emerges because buyers are frustrated with shortages of the product.
• B) A black market emerges because sellers have an incentive to charge a higher price on the illegal market.
• C) A black market emerges because sellers want a market where they can sell higher-quality products.
• D) A black market does not emerge; the price will eventually fall to the equilibrium price.
• E) A black market emerges because sellers need a way to dispose of surplus product.

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Definitions:

Financial Break-Even

The point at which revenues equal expenses and neither profit nor loss is realized.

Required Rate

Also known as the Required Rate of Return, it is the minimum annual percentage return an investor expects to achieve from an investment.

Discounted Payback

The period of time required to recoup the cost of an investment considering the time value of money through discounted cash flows.

Financial Basis

The underlying value or criteria used for accounting or financial management purposes, often referred to as the method of recognizing revenues and expenses.