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Question
Why does a black market often arise under a binding price ceiling?
Options
Supply becomes greater than demand at the controlled price
Producers are forced to sell only to the government
Demand is greater than legal supply and some buyers pay more
The government fixes the price equal to equilibrium
MCQ
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Solution
Demand is greater than legal supply and some buyers pay more
Explanation:
When a controlled price is below equilibrium, legal supply is insufficient, and some buyers are willing to pay extra, leading traders to sell illegally at higher prices in a black market.
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