Question

The language of price controls

Suppose that, in a competitive market without government regulations, the equilibrium price of milk is $3.50 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.

Statement	Price Control	Binding or Not
The government prohibits grocery stores from selling milk for more than $3.00 per gallon.
There are many teenagers who would like to work at grocery stores, but they are not hired due to minimum-wage laws.
The government has instituted a legal minimum price of $3.90 per gallon for milk.

Answer 1

The first case is that of a price control which is called the price ceiling. it is a maximum price that is imposed in the market which is binding if it is less than the market price. In this case the market price is 3.5 but the ceiling price is 3.0 so it is binding.

Minimum wage laws are price floor and they are binding if there is an unemployment.

This is the legal minimum price which is again the price floor. But this is a greater than the market price so it is not binding.