In the context of price ceilings and price floors, what is typically considered the final stage of the price-setting process in a regulated market?

• A. The establishment of the market equilibrium price
• B. Producers adjusting supply to match consumer demand
• C. Government intervention to set a legal maximum or minimum price
• D. The emergence of black markets as a response to price controls

Answer: (D)

Verified step by step guidance

1. Understand that in a regulated market, price ceilings and price floors are government-imposed limits on how high or low prices can legally go.
2. Recognize that the government intervention to set a legal maximum (price ceiling) or minimum (price floor) price is an initial step in the price-setting process.
3. Know that after these controls are imposed, producers and consumers adjust their behavior, often leading to shortages or surpluses because the controlled price distorts the natural market equilibrium.
4. Identify that the market equilibrium price is the price where quantity demanded equals quantity supplied without intervention, but this is disrupted by price controls.
5. Finally, understand that the last stage often involves the emergence of black markets, where goods are traded illegally at prices different from the controlled prices, as a response to the shortages or surpluses created by the price controls.