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8 May, 05:29

An effective price ceiling is imposed in a market. This leads to the development of an illegal black market for the product. How would the price in the black market compare to the price of the product in the legal market, which has an effective price ceiling?

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  1. 8 May, 06:01
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    The price on the black market tends to be higher.

    Explanation:

    When price ceilings are placed in legal markets, buyers are able to get goods and services at lower prices. But sellers may not be willing to sell unlimited supply of goods at the low price. This could lead to artificial scarcity, and formation of black markets.

    The main aim of black markets is for suppliers to maximise profits, so a supplier is able to sell his goods at an amount above the price ceiling set in the legal market.

    Also black markets are characterised by practices such as tax evasion, which are beneficial to the suppliers.
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