Price controls encourage black markets because:
A)they eliminate opportunity costs.
B)individuals can profit by illegal exchanges.
C)they create too much efficiency.
D)they create too much equity.

Question

Quizplus · Accepted Answer

Price controls set a maximum or minimum price for a product or service, which can create a situation where there is excess demand or supply. In cases of price ceilings (a maximum price), this can lead to shortages and rationing, and in cases of price floors (a minimum price), it can lead to surpluses and inefficient production. In both cases, individuals or groups may see an opportunity to profit by selling goods or services on the black market, where prices are not restricted by the government. Therefore, price controls can encourage black markets as individuals seek to take advantage of the price differentials between the official market and the black market. Choice A, C, and D do not adequately explain why price controls encourage black markets.

Price Controls Encourage Black Markets Because