Question

The above figure shows the market for winter jackets. In an effort to keep the nation warm, the president places a price ceiling of $100 in the market for winter jackets. What is the highest price you would expect to be paid for a jacket in the black market for jackets created by the price ceiling? (Your answer should be in thousands, e.g. put 500, not 500,000).

Answer 1

When a price ceiling is imposed below the market equilibrium, a black market may arise where goods can sell for higher prices due to shortages. The highest price for a winter jacket in the black market is undetermined but would exceed the $100 ceiling, based on supply and demand forces.

Step-by-step explanation:

When a price ceiling is imposed on a market, such as a $100 limit on winter jackets as described, this ceiling is the legal maximum price that can be charged for the jackets. If demand remains high and the supply is insufficient to meet that demand at the price ceiling level, a black market may emerge. In this black market, the highest price paid for a winter jacket could be significantly above $100, depending on the balance of supply and demand.

For example, if the equilibrium price (where the supply and demand curves meet in a free market) for winter jackets is much higher than $100, there will be a shortage at the price ceiling. This shortage encourages sellers to offer the product at a higher price in an unregulated market—i.e., the black market. The highest price would then depend on how much buyers are willing to pay and how scarce the jackets are. It is impossible to determine the exact highest price without specific market data, but it would almost certainly be above the imposed price ceiling of $100.