Suppose you live in a community with no price controls.What do you expect to happen if your town borders a community where there is a binding price floor on most products?
A) Prices in the legal market in the community with a binding price floor would fall.
B) There would be smaller surpluses in the community with a binding price floor.
C) More consumers would purchase the product in the community without a price floor.
D) The black market in the community with a binding price floor would be larger.
E) Sales of the product in the community with a binding price floor would increase.

Question

Quizplus · Accepted Answer

In the community without a price floor, prices would be determined by market forces of supply and demand, so they could be lower than in the community with a binding price floor. As a result, more consumers would likely choose to purchase the product in the community without a price floor, leading to a shift in demand towards that community. This could lead to smaller surpluses in the community with a price floor, as well as potentially decreasing sales in that community. The black market may also be affected, but that is not the most likely outcome given the information provided.

Suppose You Live in a Community with No Price Controls