Question

1. The language of price controls

Suppose that, in a competitive market without government regulations, the equilibrium price of donuts is $1.50 each.

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
The government has instituted a legal minimum price of $1.80 each for donuts.	Price ceiling	Binding
The government prohibits donut shops from selling donuts for more than $1.10 each.	Price floor	Binding
There are many teenagers who would like to work at donut shops, but they are not hired due to minimum-wage laws.	Price floor	Non-binding

Answer 1

a) A minimum price is an example of price floor but it will be binding because that price set by the government is above the equilibrium price.

b) A maximum price is an example of price ceiling and this time it will be binding because it is below the equilibrium price.

c) Minimum wage is a price floor and that will be binding.