to consumers would rise to If black marketeers buy at the ceiling price
of and sell at the black-market price of their profits are represented
by the shaded area.
Binding price ceilings lead to excess demand, with the quantity exchanged being less than in
the free-market equilibrium.Allocating a Product in Excess Demand
Free markets with flexible prices eliminate excess demand by allowing
prices to rise, thereby allocating the available supply among would-be
purchasers. Because this adjustment cannot happen in the presence of a
binding price ceiling, some other method of allocation must be adopted.
Experience suggests what we can expect.
If stores sell their available supplies on a first-come, first-served basis,
people will rush to stores that are said to have stocks of the product.
Buyers may wait hours to get into the store, only to find that supplies are
exhausted before they can be served. This is why standing in lines
became a way of life in the centrally planned economies of the Soviet
Union and Eastern Europe, in which price controls and product shortages
were pervasive.
In market economies, “first-come, first-served” is often the basis for
allocating tickets to concerts and sporting events when promoters set a
price at which demand exceeds the supply of available seats. In these
cases, ticket “scalpers” often buy blocks of tickets and then resell them at
p 2.
p 1 p 2 ,