If the government imposes a price ceiling for some product,and a black market subsequently develops that gains control of all of the reduced output of the product,then
A)the black market price will be lower than the ceiling price.
B)excess profits will flow back to consumers.
C)the quantity demanded will exceed quantity supplied at the black market price.
D)the black market price will be higher than the free-market equilibrium price.
E)consumers will be better off than they would be in the absence of the black market.

Question

Quizplus · Accepted Answer

If a black market gains control of all the reduced output of a product, it means that the official suppliers are unable or unwilling to produce enough quantity to meet the demand at the price ceiling. As a result, the black market will set a higher price for the product, which will be above the legal price ceiling. Therefore, the black market price will be higher than the free-market equilibrium price. Consumers may not be better off in this situation, as they will have to pay a higher price for the product, and the quality and safety standards of the black market product may not be guaranteed.

If the Government Imposes a Price Ceiling for Some Product,and