Assume the price for chicken is $7 per pound in equilibrium. If the government mandates that...
Assume the price for chicken is $7 per pound in equilibrium. If the government mandates that chicken cannot be sold for anything less than $5 per pound, what type of regulation is this?
| Non-binding price floor |
| Non-binding price ceiling |
| Binding price floor |
| Binding price ceiling |
Homework Answers
Answer: Non-binding price floor
Price floor is the legal minimum price that can be charged in a market. A non-binding price floor ($5) is set below the equilibrium price ($7). This changes nothing because at this price there is a shortage. (no change in price, no change in quantity demanded) This is also called ineffective price floor.
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Answer to #26
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Suppose that the chicken industry is in long-run equilibrium at
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pounds per year. Suppose that the Centers for Disease Control (CDC)
announces that a chemical found in chicken is causing bacterial
infections to spread around the world.
Suppose that the chicken industry is in long-run equilibrium at
a price of $5 per pound of chicken and a quantity of 50 million
pounds per year. Suppose the Surgeon General issues a report saying
that eating chicken is bad for your health.
Part 1: The Surgeon General’s report will cause consumers to
demand a) more b) less chicken at every
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Part 2: In the short run, firms will respond by
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