The language of price controls supposes that, in a competitive market without government regulations, the equilibrium price of hamburgers is $7 each.
Indicate whether each of the statements is an example of a price ceiling or a price floor and whether it is binding or nonbinding.
(a) There are many teenagers who would like to work at fast-food restaurants, but they are not hired due to minimum-wage laws.
(b) The government prohibits fast-food restaurants from selling hamburgers for more than $5 each.
(c) The government has instituted a legal minimum price of $8 each for hamburgers.

Price ceiling is when the government or an agency of the government sets the maximum price for a good or service. Price ceiling is binding if if is set below equilibrium price. Example of price ceiling is rent controls.

Price floor is the minimum price a good or service can be sold. Price floor is binding if it is set above equilibrium price.

Example of price floor is minimum wage.

In this question, minimum wage is an example of A binding price floor because it sets the minimum price labour should be paid and this has led to a fall in the demand for Labour.

In (b), the government sets a price ceiling because $5 is the maximum price hamburgers can be sold for. It is binding because $5 is below the equilibrium price.

In (c), the government set a price floor because $8 is the minimum price hamburgers can be sold for. It is binding because $8 is above equilibrium price,$7.

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