Price Controls (E201)

Based on the practice questions from the slides:

• Seattle Fast-Food Labor Market: If the equilibrium wage ($W_{eq}$) is $10$ and a proposed price floor (minimum wage) is $15$, competitive analysis predicts unemployment. This occurs because the quantity of labor demanded will fall below the quantity supplied. Demand or supply curve shifts are not part of the basic price-floor mechanism in this context.

• Generic Price Control Questions:

  • If the government imposes a price floor of $8$ when the equilibrium price ($P_{eq}$) is less than $8$, it will lead to a surplus.

  • If the government imposes a price ceiling of $8$ when the equilibrium price ($P_{eq}$) is greater than $8$, it will lead to a shortage.