Question

Suppose that, in a competitive market without government regulations, the equilibrium price of donuts is $1.00 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.View complete question »Statement Price Control (ceiling/floor?) Binding or Not (ceiling/floor?)There are many teenagers who would like to work at donut shops, but they are not hired due to minimum-wage laws. The government has instituted a legal minimum price of $1.20 each for

Answer 1

Answer:

Government Legal minimum price = $1.20 is case of 'Binding Price Floor'

Explanation:

Price Floor is the minimum base benchmark for price of a good or service. It is usually 'binding' i.e below the equilibrium price, is done to protect the producers from under pricing, based on free market forces. Example : Minimum Support Price for farmer's agricultural products.

In this case, the price floor (minimum mandated price) is in labour market for price of labour i.e wages. It is binding also, since it imposes the minimum price (wage) floor at - wage level greater than the wage as per free market demand & supply forces. Also, it is in interest of sellers (labour sellers here) analogous to farmers MSP previous example.