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Suppose that, in a competitive market without government regulations, the equilibrium price of donuts is $1.00 each. 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
The government prohibits donut shops from selling donuts for more than $1.20 each. Due to new regulations, donut shops 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 $0.80 each for donuts.

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ogorwyne

The table can be completed by

  • Donuts for $1.20 is a binding floor price
  • Donuts for $0.80 is a binding ceiling price.

What is a binding floor price?

This is a price that is known to be above the equilibrium price. Selling donuts for 1.20 is a binding floor price

what is a binding price ceiling?

This is the price that has been set below the equilibrium price by the government. The equilibrium price in the question is $1.00 hence:

  • The government has instituted a legal minimum price of $0.80 each for donuts is a binding ceiling.

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