Question

Please explain.

18. What will an individual do differently as a seller in the black market in the long run? a.He or she will substitute away from producing the product. b.He or she will substitute toward producing the product. c. When there exists a binding price floor, he or she will be able to sell the good at a higher price. d. When there exists a binding price ceiling, he or she will be able to sell the good at a lower price.

Answer 1

A black market is the result of a price ceiling where the seller is able to sell it's product at the ceiling price which is less than the market clearing price. there is a shortage and this causes the blackmarket to develop overtime where goods are sold at a higher price. in the long run however consumers are no longer restricted to purchase the product and hence they move away from the market which drives the prices down. With reduction in price and shortage in the short run, sellers are most likely to move away from the market and produce something else that has no price ceiling.

Option A is correct.