1. The language of price controls Suppose that, in a competitive market without
ID: 2440200 • Letter: 1
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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.
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 Price Control Binding or Not Statement The government prohibits gas stations from selling gasoline for more than $2.50 per gallon Due to new regulations, gas stations that would like to pay better wages in order to hire more workers are prohibited from doing so. The government has instituted a legal minimum price of $2.50 per gallon for gasoline Binding Non-bindingExplanation / Answer
1. Price ceiling ( because a maximum price per gallon has been fixed by the government). Binding since the price ceiling of $2.50 is below the market price of $3.00 per gallon.
2. Price ceiling. Binding since the equilibrium wages is less than the proposed wages.
3. Price floor ( since a minimum price is fixed). Non binding since the price 0f $2.50 per gallon is below the market price of $3.00 per gallon.
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