Question

Let’s say that Alisha has a friend who was caught illegally selling a good on the black market. When the judge asks her to describe her friend’s motivation as a seller, which of the following would most likely be her reply?

	a.	My friend sold the good on the black market because a nonbinding price ceiling caused the price to be lower on the black market.
	b.	My friend sold the good on the black market because a binding price floor had created a shortage in the legal market and my friend was performing a public service by making the good available.
	c.	My friend sold the good on the black market because a nonbinding price floor made the good too expensive to purchase in the legal market and it was cheaper on the black market.
	d.	My friend sold the good on the black market because a binding price floor resulted in a surplus of the product in the legal market and he needed to get rid of the surplus. Let's say that Alisha has a friend who was caught illegally selling a good on the black market. When the judge asks her to describe her friend's motivation as a seller, which of the following would most likely be her reply? O a. My friend sold the good on the black market because a nonbinding price ceiling caused the price to be lower on the black market. My friend sold the good on the black market because a binding price floor had created a shortage in the legal market and my friend was performing a public service by making the good available. My friend sold the good on the black market because a nonbinding price floor made the good too expensive to purchase in the legal market and it was cheaper on the black market. My friend sold the good on the black market because a binding price floor resulted in a surplus of the product in the legal market and he "needed to get rid of the surplus. I'm thinking option D but I wanted reassurance.

Answer 1

Option (d).

A binding price floor is imposed at higher than equilibrium price, which decreases quantity demanded and increases quantity supplied, causing a surplus. So a seller may sell it illegally in black market at a lower price, to sell the unsold inventory.