Given the quantity that will be forthcoming at the permitted price of $0.60, what will the black market price be? What is the value of side-payment per litre?

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1 Answer
Oct 31, 2016

Answer:

The black Market price is $.1.4 per litre of petrol.

Side payment for litre of petrol is #$1.4 - $.0.6 = $.0.8#![

Explanation:

Consumer behaviour is reflected in the demand curve. They will always move along the demand curve.

At $.0.6, the consumers would like to consume 60 million litres per month.

Sellers behaviour is described in the shape of the supply curve. They will always move along the supply curve.

At $.0.6 the sellers would like to sell only 20 million litres per month.

There will be heavy competition among the buyers. They, in order to get a larger share, bid a higher price. They will start moving along the demand curve and reach the point A.

It means, consumers are willing to pay $.1.4 per litre of petrol.

The black Market price is $.1.4 per litre of petrol.

Side payment for litre of petrol is #$1.4 - $.0.6 = $.0.8#

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