Chapter 3: Price floors and ceilings
What is the price ceiling?
A legal maximum on the price at which a good can be sold.
What is the price floor?
A legal minimum for which the good can be sold.
Firms are a demander of what?
Labor.
Workers are a supply of what?
Labor.
What do economists usually oppose?
Price ceilings and price floors.
What happens if minimum wage is above the equilibrium?
There will be unemployment; higher wages for people who have jobs and lower income for people who cannot find jobs.
When is a price floor binding?
When it is above the equilibrium price, there is a surplus, some sellers are unable to sell all that they want.
When is a price ceiling non-binding?
When it is above the equilibrium price, there is no effect on price or quantity sold.
When is a price floor non-binding?
When it is below the equilibrium price there is no effect on the market.
When is the price ceiling binding?
When it is below the equilibrium price, there is a shortage, and the sellers must ration the scarce goods.
