1. The language of price controls
Suppose that, in a competitive market without government regulations, the equilibrium price of gasoline is $3.00 per gallon.
Complete the following table by indicating whether each of the statements is an example of a price ceiling or a price floor and whether it is binding or nonbinding.
Statement Price Control Binding or Not Due to new regulations, gas stations that would like to pay better wages in order to hire more workers are prohibited from doing so. price ceiling/price floor binding/non The government has instituted a legal minimum price of $2.70 per gallon for gasoline.price ceiling/price floor The government prohibits gas stations from selling gasoline for more than $3.40 per gallon.price ceiling/price floor
1. The language of price controls
Suppose that, in a competitive market without government regulations, the equilibrium price of gasoline is $3.00 per gallon.
Complete the following table by indicating whether each of the statements is an example of a price ceiling or a price floor and whether it is binding or nonbinding.
Statement | Price Control | Binding or Not |
---|---|---|
Due to new regulations, gas stations that would like to pay better wages in order to hire more workers are prohibited from doing so. | price ceiling/price floor | binding/non |
The government has instituted a legal minimum price of $2.70 per gallon for gasoline.price ceiling/price floor | ||
The government prohibits gas stations from selling gasoline for more than $3.40 per gallon.price ceiling/price floor |
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Related questions
A recent study found that the demand and supply schedules for flying disks are as follows:
Price | Quantity Demanded | Quantity Supplied |
---|---|---|
(Dollars per disk) | (Millions of disks) | (Millions of disks) |
11 | 1 | 15 |
10 | 2 | 12 |
9 | 4 | 9 |
8 | 6 | 6 |
7 | 8 | 3 |
6 | 10 | 1 |
Complete the first row of the following table by indicating the equilibrium price and the equilibrium quantity of flying disks in the absence of any price controls.
Scenario | Market Price | Market Quantity | Binding or Not Binding |
---|---|---|---|
(Dollars per disk) | (Millions of disks) | ||
No Price Control | N/A | ||
Price Floor | |||
Price Ceiling |
Flying disk manufacturers persuade the government that flying disk production improves scientists' understanding of aerodynamics and thus is important for national security. A concerned Congress votes to impose a price floor $2 above the equilibrium price.
Complete the second row of the previous table by indicating the new price and quantity of flying disks when Congress imposes a price floor $2 above the equilibrium price. Then indicate whether the price floor is binding or not binding.
Irate college students march on Washington and demand a reduction in the price of flying disks. An even more concerned Congress votes to repeal the price floor and impose a price ceiling $3 below the former price floor.
Complete the final row of the previous table by indicating the new price and quantity of flying disks when Congress imposes a price ceiling $3 below the former price floor. Then indicate whether the price ceiling is binding or not binding.