ECONOMICS
PRICE CEILINGS AND FLOORS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Imagine that you can hire four low-skilled workers to move dirt with shovels at $5 an hour, or you can hire one skilled worker at $24 an hour to move the same amount of dirt with a skid loader. Who will you hire if the minimum wage increases from $5 per hour to $6.50 per hour?
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4 low-skilled workers
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1 high-skilled worker
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Either A or B
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None of the above
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Explanation:
Detailed explanation-1: -Answer and Explanation: The correct answer is price ceiling. A price ceiling set below the market equilibrium price causes a shortage. At a price below the market equilibrium price, quantity demanded will exceed quantity supplied.
Detailed explanation-2: -Price controls come in two flavors. A price ceiling keeps a price from rising above a certain level-the “ceiling”. A price floor keeps a price from falling below a certain level-the “floor”.
Detailed explanation-3: -Minimum wage is an example of a price floor as the wage or the price of labour cannot go below this level.
Detailed explanation-4: -Shortage is caused by a price ceiling that is set below the market equilibrium price.
There is 1 question to complete.