Question

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 a. The government has instituted a legal minimum price of $5 each for hamburgers. b. 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.c. The government prohibits fast-food restaurants from selling hamburgers for more than $5 each.

Answer 1

a) price flooring, not binding b) price ceiling and binding c)Price ceiling, not binding

Step-by-step explanation:

Price flooring is setting minimum price

Price ceiling is setting maximum price

binding is if the proce floor is placed above the market price

a) minimum price is set. Market price is not discussed

b) maximum price is set. The restaurant is willing to pay more but it bound by regulation. This regulation is made with respect market value

c) minimum price is set. Market price is not discussed

Answer 2

Step-by-step explanation:

a) The first case in which government institutes a legal minimum of 5 dollar is a price floor. It imposes a lower limit on the market price.

b) The second case is a price floor because there are minimum wages which are creating unemployment.

c) The third case belongs to price ceiling because an upper limit on the price has been imposed. It is not binding because price is already below the ceiling price.