Consider the market for donuts. Suppose that, in a competitive market without govermment regulations, the equilibrium price of donuts is $1.50 each, and employees at donut shops earn $15.50 per hour. Complete the following table by indicating whether each of the statements is an example of a price celling or a price floor and whether it results in a shortage or a surplus or has no effect on the price and quantity that prevail in the market. Price Control Effect Statement The government prohibits donut shops from selling donuts for more than $1.80 each. There are many teenagers who would like to work at donut shops, but the minimum- wage law sets the hourly wage at $18.00. The government has instituted a legal minimum price of $1.80 each for donuts.
Consider the market for donuts. Suppose that, in a competitive market without govermment regulations, the equilibrium price of donuts is $1.50 each, and employees at donut shops earn $15.50 per hour. Complete the following table by indicating whether each of the statements is an example of a price celling or a price floor and whether it results in a shortage or a surplus or has no effect on the price and quantity that prevail in the market. Price Control Effect Statement The government prohibits donut shops from selling donuts for more than $1.80 each. There are many teenagers who would like to work at donut shops, but the minimum- wage law sets the hourly wage at $18.00. The government has instituted a legal minimum price of $1.80 each for donuts.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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question 2 microeconmics

Transcribed Image Text:### 2. The Language of Price Controls
#### Consider the market for donuts.
Suppose that, in a competitive market without government regulations, the equilibrium price of donuts is $1.50 each, and employees at donut shops earn $15.50 per hour.
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 results in a shortage or a surplus or has no effect on the price and quantity that prevail in the market.
| Statement | Price Control | Effect |
|---------------------------------------------------------------------------|---------------|------------|
| The government prohibits donut shops from selling donuts for more than $1.80 each. | | |
| There are many teenagers who would like to work at donut shops, but the minimum-wage law sets the hourly wage at $18.00. | | |
| The government has instituted a legal minimum price of $1.80 each for donuts. | | |
This exercise helps understand the influence of government regulations on market equilibrium, especially focusing on concepts like price ceilings and price floors and their subsequent effects on market shortages or surpluses.
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