Black markets may develop as a result of price controls because:
A)price controls increase efficiency.
B)quantity demanded equals quantity supplied at the mandated price.
C)price controls offer subsidies for market transactions.
D)individuals can profit by illegal exchanges.

Question

Quizplus · Accepted Answer

When price controls are put in place, the market price is set below the equilibrium price. This means that there is excess demand for the product at the lower price, which leads to shortages. When shortages occur, some individuals are willing to pay more than the controlled price to obtain the product. This creates an opportunity for others to profit by selling the product on a black market, where they can charge higher prices. Therefore, black markets may develop as a result of price controls because individuals can profit by illegal exchanges.

Black Markets May Develop as a Result of Price Controls