Informal or illegal markets can be the result of
market equilibrium
government-imposed speed limits on Interstate highways
the removal of price controls
government-imposed price ceilings or price floors
The correct answer and explanation is:
The correct answer is government-imposed price ceilings or price floors.
Informal or illegal markets can arise as a result of government-imposed price controls, such as price ceilings or price floors. Price ceilings are legal maximum prices set by the government, such as rent controls or caps on the prices of certain goods. When the ceiling is set below the equilibrium price, demand exceeds supply, creating a shortage. In this scenario, some individuals may turn to informal or black markets to buy and sell goods at prices higher than the ceiling, as the legal market fails to meet demand.
On the other hand, price floors set a minimum price, such as the minimum wage or agricultural price supports. If the floor is set above the equilibrium price, a surplus is created, as producers are willing to sell more than consumers are willing to buy at that price. This excess supply might lead to the creation of illegal markets where goods are sold at lower prices than the floor allows, circumventing the legal restrictions.
Both price floors and price ceilings distort the natural supply and demand balance. They create imbalances between the quantity demanded and the quantity supplied, leading to either shortages or surpluses. When this happens, participants in the market may seek alternative methods to exchange goods or services outside the official market, often in an informal or illegal manner. These markets operate outside the legal framework and are usually unregulated, meaning that they do not adhere to legal standards or protections, which can lead to issues such as fraud, exploitation, or unsafe conditions.
In contrast, market equilibrium occurs when the supply of goods matches the demand at a certain price, with no need for external intervention or informal markets.