The language of price controls
Consider the market for gasoline. Suppose that, in a competitive market without government regulations, the equilibrium price of gasoline is $3.00 per gallon, and employees at gas stations earn $20.50 per hour.
Answer the following by indicating whether each of the statements is an example of a price ceiling or a price floor and whether it results in a shortage or a surplus or has no effect on the price and quantity that prevail in the market.
1. The government prohibits gas stations from selling gasoline for more than $2.50 per gallon. (price ceiling and shortage)?
2. The government has instituted a legal minimum price of $3.40 per gallon for gasoline. (price floor and surplus)?
3. Due to new regulations, gas stations that would like to pay better wages in order to hire more workers are prohibited from paying more than $15.50 per hour. (price floor and ?)?