Question

Indicate whether each of the statements is an example of a price ceiling or a price floor and whether it is binding or nonbinding.
1. Due to new regulations, donut shops that would like to pay better wages in order to hire more workers are prohibited from doing so.

2. The government has instituted a legal minimum price of $1.80 each for donuts.

3. The government prohibits donut shops from selling donuts for more than $1.10 each.

Answer 1

Answer:

A price ceiling is a bar on the legal maximum price a commodity can be sold for  while a price floor is the least legal price a commodity can go for.

The price ceiling is always greater than the price floor  in this case it is not so, hence the price floor is not binding to the price ceiling.

the statements below is analyzed under price ceiling and price floor according to whether it is binding or nonbinding.

Explanation:

1. Due to new regulations, donut shops that would like to pay better wages in order to hire more workers are prohibited from doing so.

Statement one is neither a price ceiling nor a price floor and it is nonbinding

2. The government has instituted a legal minimum price of $1.80 each for donuts.

Statement two is a price floor and it is binding.

3. The government prohibits donut shops from selling donuts for more than $1.10 each.

Statement three is a price ceiling and it is binding.