Under what circumstances might a government price ceiling lead to the development of a black market?
What will be an ideal response?
ANS:
A so-called black market is one in which goods are being bought in violation of a government law or regulation. If the government establishes a maximum price below the free market equilibrium price, a shortage may occur at the ceiling price. Moreover, some individuals will be willing to pay a price higher than the ceiling price, so certain suppliers will violate the ceiling price and sell their products at a higher price, risking criminal prosecution in order to make more profit.
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Describe some of the external benefits associated with education. What can government do to encourage production of the efficient amount of education?
What will be an ideal response?
Refer to Figure 3-1. An increase in the expected future price of the product would be represented by a movement from
A) A to B. B) B to A. C) D1 to D2. D) D2 to D1.