Attempts: Keep the Highest: 1 1. The language of price controls Suppose that, in

Question

Attempts: Keep the Highest: 1 1. The language of price controls Suppose that, in a competitive market without government regulations, the equilibrium price of hamburgers is $7 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 $8 each for hamburgers The government prohibits fast-food restaurants from Pice floor selling hamburgers for more than $5 each. Due to new regulations, fast-food restaurants that would like to pay better wages in order to hire more workers are prohibited from doing so. Price ceiling

Explanation / Answer

Explanation for statement 1:

Minimum price set for hamburger is $8. Thus, it is price floor. Since, current price of $7 that is lesser than the minimum price, it is binding in nature.

Explanation for statement 2:

Since price cannot be put more than $5 per burger, it is price ceiling. Also, current price is $7 that is higher than the maximum price. Thus, sellers have to reduce the price. So, it is binding in nature.

Explanation for statement 3:

Since, higher wages cannot be paid, it means that there is a price ceiling and it is binding in nature due to wage cap.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.