1. The language of price controls Suppose that, in a competitive market without government regulations, the equilibrium price of gasoline is $4.00 per gallon. 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. Statement Price Control Binding or Not Due to new regulations, gas stations that would like to pay better wages in order to hire more workers are prohibited from doing so. The government has instituted a legal minimum price of $4.50 per gallon for gasoline. Price floor The government prohibits gas stations from selling gasoline for more than $4.50 per gallon. Price ceiling

Price Ceiling is the maximum mandated price by the government , at which a commodity can be sold in the market. It is binding if price ceiling is set below the free market equilibrium price level. It is usually set to protect interests of buyers.

Price Floor is the minimum mandated price by the government, at which a commodity can be sold in the market. It is binding if price floor is set above the free market equilibrium price level. It is usually set to protect interest of sellers.

'The government has instituted a legal minimum price of $4.50 per gallon for gasoline' is an example of Price Floor. As floor price 4.50 > equilibrium price 4 , it is binding.

'The government prohibits gas stations from selling gasoline for more than $4.50 per gallon' is an example of Price Ceiling. As price ceil 4.50 > equilibrium price 4 , it is non binding.