Question

Suppose that in a competitive market without government regulations, the equilibrium price of a hamburger 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
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.
The government prohibits fast-food restaurants from selling hamburgers for more that $5 each.

Answer 1

See Below..

Step-by-step explanation:

1. 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 and Binding

In the labor market, minimum wage laws are an example of a price floor while a cap on wages is an example of a price ceiling. Moreover, the impact of the minimum wage laws depends on the skill and experience of the worker. In this case, new regulations restrict fast-food restaurants from increasing wages and, thus, attracting more workers. This binding price ceiling causes a shortage of workers in this labor market.

2. The government prohibits fast-food restaurants from selling hamburgers for more that $5 each.

Price Floor and Binding

A price ceiling is a legal maximum on the price at which a good can be sold. Therefore, prohibiting fast-food restaurants from selling hamburgers for more than a particular price is an example of a price ceiling. A binding price ceiling is a price ceiling that is set below the equilibrium price. Because the equilibrium price is $7 each for hamburgers, a legal maximum price of $5 is a binding price ceiling. A binding price ceiling will ultimately cause a shortage, while a non-binding price ceiling has no effect on the equilibrium price and quantity.

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Answer 2

Price Ceiling regulations prohibit the price of a good or service from being higher than a set price known as the Price Ceiling.

Price Floor regulations prohibit the price of a good or service from being lower than a set price known as the Price floor.

When either Price Ceiling or Floor is said to be nonbinding, it means that it does not affect the market/ equilibrium price of the good or service.

Binding Ceilings or Floors affect the market/ equilibrium price.

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. BINDING PRICE CEILING.

The Fast-food restaurants cannot pay above a certain amount which makes this a Price Ceiling. It is binding because the Market wants to pay higher wages to hire more people but cannot therefore the price ceiling is having an effect on the equilibrium price.

The government prohibits fast-food restaurants from selling hamburgers for more that $5 each. BINDING PRICE CEILING.

Fast-food restaurants are not allowed to sell above the set price of $5 which makes this a price ceiling. It is Binding because the equilibrium price is $7 which means that fast-food restaurants are forced to sell below the equilibrium price therefore this Price ceiling affects the equilibrium price.