The nation of Hamsterville has passed a law that from this day forth, nobody shall sell a bowl of gazpacho for more than $\$ 10$ per bowl. Nobody really cares, however, because the equilibrium price of gazpacho in Hamsterville is $\$ 8$.

What is the term for the price control described above?
Choose 1 answer:
(A) A binding price floor
(B) A non-binding price floor
(C) A binding price ceiling
(D) A non-binding price ceiling
(E) A quota

Question

The nation of Hamsterville has passed a law that from this day forth, nobody shall sell a bowl of gazpacho for more than $\$ 10$ per bowl. Nobody really cares, however, because the equilibrium price of gazpacho in Hamsterville is $\$ 8$.

What is the term for the price control described above?
Choose 1 answer:
(A) A binding price floor
(B) A non-binding price floor
(C) A binding price ceiling
(D) A non-binding price ceiling
(E) A quota

Accepted Answer

∻Solution∻ ‖ a ⋮ Definition of Price Ceiling: A price ceiling is a legal maximum on the price at which a good can be sold. ‖ ‖ b ⋮ Non-binding vs. Binding: If the price ceiling is set above the equilibrium price, it is non-binding, meaning it has no effect on the market price or quantity sold. If it is set below the equilibrium price, it is binding, and it causes a shortage. ‖ ‖ c ⋮ Application to the Scenario: Since the law in Hamsterville sets the maximum price for gazpacho at $10, which is above the equilibrium price of $8, the price ceiling is non-binding. ‖ ∻Answer∻ ⚹ (D) A non-binding price ceiling ⚹ ∻Key Concept∻ ⚹ Non-binding Price Ceiling ⚹ ∻Explanation∻ ⚹ A non-binding price ceiling is set above the equilibrium price and does not affect the market. ⚹◊What impact would the implementation of a binding price ceiling have on the market for gazpacho in Hamsterville?⍭ Generate me a similar question◊

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