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:

Lost Surplus

Refers to the welfare that is lost to consumers or producers due to market inefficiencies or interventions, such as taxes or price ceilings.

Public Good

A product that one individual can consume without reducing its availability to another individual and from which no one is excluded.

National Defense

The government functions and mechanisms aimed at protecting a country against external aggression, threats, and maintaining sovereignty.

Free Market

An economic system where prices are determined by unrestricted competition between privately owned businesses, without excessive government control or intervention.