Suppose that, in a competitive market without government regulations, the equilibrium price of gasoline is $3.00 per gallon. 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 Due to new regulations, gas stations that would like to pay better wages in order to hire more workers are prohibited from doing so. The government prohibits gas stations from selling gasoline for more than $3.40 per gallon. The government has instituted a legal minimum price of $2.70 per gallon for gasoline.

Table is completed below.

Explanation:

A price ceiling (price floor) is the maximum (minimum) price that can be charged in the market, and is imposed lower than (higher) than free market equilibrium price in order to be effective and binding. Therefore, the given statements can be labelled as below:

(1) Government prohibits gas stations from selling for more than $3.20 - Price ceiling, Not binding

(2) Government instituted legal minimum price of $2.80 - Price floor, Not binding

(3) Due to new regulations, gas stations cannot hire more workers - Price ceiling, Binding

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