What is the incentive to create a black market when a binding price floor exists?
A) A black market emerges because buyers are frustrated with shortages of the product.
B) A black market emerges because sellers have an incentive to charge a higher price on the illegal market.
C) A black market emerges because sellers want a market where they can sell higher-quality products.
D) A black market does not emerge; the price will eventually fall to the equilibrium price.
E) A black market emerges because sellers need a way to dispose of surplus product.

Question

Quizplus · Accepted Answer

A binding price floor, set above the equilibrium price, leads to a surplus of the product because the price is too high for consumers to purchase the quantity supplied. Sellers, therefore, have excess inventory they cannot sell at the floor price, incentivizing the creation of a black market to sell this surplus.

What Is the Incentive to Create a Black Market When