Let's say that Lewis has a friend who was caught illegally buying a good on the black market.When the judge asks him to describe his friend's motivation as a buyer,which of the following would most likely be his reply?
A) My friend bought the good on the black market because a binding price floor had created a shortage in the legal market and my friend really needed the good.
B) My friend bought the good on the black market because a price ceiling caused the price to be lower on the black market.
C) My friend bought the good on the black market because a nonbinding price floor had created a shortage on the legal market and my friend really needed the good.
D) My friend bought the good on the black market because a binding price floor made the good too expensive to purchase on the legal market and it was cheaper on the black market.
E) My friend bought the good on the black market because a nonbinding price floor made the good too expensive to purchase on the legal market and it was cheaper on the black market.

Question

Quizplus · Accepted Answer

A binding price floor would mean that the legal market price is higher than the equilibrium price, causing a shortage of the good. This shortage would lead to a higher price for the good in the legal market, making it too expensive for Lewis's friend to purchase legally. Therefore, he turns to the cheaper black market to buy the good.

Let's Say That Lewis Has a Friend Who Was Caught