The demand curves for both goods "F" and "G" slope downwards-and-to-the-right. The government installs a price...

The demand curves for both goods "F" and "G" slope downwards-and-to-the-right. The government installs a price ceiling in the market for good "F" at the equilibrium price and a price floor in the market for good "G" at the equilibrium price. Now, assume there is a decrease in the wages paid to the workers who produce good "F" and good "G". As a result, the market price of good "F" will (increase / not change / decrease) and the market price of good "G" will (increase / not change / decrease).

Expert Solution

Good F: Price-ceiling at the initial equilibrium price

As a result of a decrease in the wages of labor, the supply curve shifts to the right. The new equilibrium price is below the price ceiling(the price ceiling is not binding on the downward movement of prices).

The market price of Good F will decrease.

Good G: Price floor at the initial equilibrium price

As the supply shifts to the right, the equilibrium price tends to move downwards but a price floor is binding on any downward movement of prices and hence, the price would be at the effective price floor.

The market price of Good G will not change.

Rahul Sunny answered 2 years ago

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