Chapter 3: Price floors and ceilings

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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.


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