Suppose Anthony lives in a community with no price controls.What would he expect to happen if his 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

If there is a binding price floor in the neighboring community, the prices of products in the legal market in that community would be higher than the prices in Anthony's community with no price controls. This would lead to more consumers buying the product in Anthony's community, where it is cheaper. Therefore, the demand for the product in Anthony's community would increase, while demand in the neighboring community would decrease.

Suppose Anthony Lives in a Community with No Price Controls