ECON 2020 Module 6

A binding minimum wage tends to

- cause a labor surplus - cause unemployment - have the greatest impact in the market for teenage labor All of the above are correct.

I a binding price ceiling is imposed on the baby formula market, then

- the quantity of baby formula demanded will increase. - the quantity of baby formula supplied will decrease. - a shortage of baby formula will develop. All of the above are correct.

Price ceiling

A legal maximum on the price of a good or service; for example, rent control.

Price floor

A legal minimum on the price of a good or service; for example, minimum wage.

Binding

A price control is binding if it changes the market outcome to a different price and different quantity from equilibrium, because the equilibrium price is now considered illegal.

Non-binding

A price control is non-binding if it has no effect on the market outcome, and the market can continue to operate at equilibrium.

In a free, competitive market, what is the rationing mechanism?

Price

Price Control

Price controls are government policies that alter the private market outcome

A binding price floor on wages cause

a job labor surplus, a job shortage, unemployment

Rent-control laws dictate

a maximum rent that landlords may charge tenants

Minimum-wage laws dictate

a minimum wage that firms may pay workers

If a price ceiling is _______ the equilibrium price, it is not binding.

above

If a price floor is set _____ the point of equilibrium, it is binding and causes a surplus in the market.

above

If a price ceiling is set ______ the point of equilibrium, it is binding and causes a shortage in the market.

below

If a price floor is set _____ the point of equilibrium, it is not binding and has no effect on the market.

below

A price ceiling is binding when it is set

below the equilibrium price, causing a shortage.

setting the price ceiling below the equilibrium price causes the equilibrium price to be illegal and serves as a ______ constraint on the price.

binding

A legal maximum on the price at which a good can be sold is called a price

ceiling

when prices are not controlled, the rationing mechanism is

efficient (the goods go to the buyers that value them most highly) and impersonal (and thus fair).

A legal minimum on the price at which a good can be sold is called a price

floor

A minimum wage that is set below a market's equilibrium wage will

have no impact on unemployment

Two primary rationing mechanisms

long lines and discrimination according to the sellers' biases.

_______ are negatively affected by an increase in minimum wage

low skilled workers(teenagers)

The presence of a price control in a market for a good or service usually is an indication that

policymakers believed that the price that prevailed in that market in the absence of price controls was unfair to buyers or sellers

In a competitive market free of government regulation,

price adjusts until quantity demanded equals quantity supplied

If a nonbinding price floor is imposed on a market, then the

quantity sold in the market will stay the same

If a non-binding price ceiling is imposed on a market, then the

quantity sold in the market will stay the same.

When a binding price ceiling is imposed on a market to benefit buyers

some buyers benefit, and some buyers are harmed.

If the minimum wage exceeds the equilibrium wage, then

the quantity supplied of labor will exceed the quantity demanded

Rationing mechanisms are often

unfair and inefficient