# Price Ceiling in the labor market

What is the most likely result of a price ceiling set below prevailing prices in the labor market? a. The supply of labor will exceed demand b. The demand for labor will exceed supply. c. Costs associated with search activity will make the pairing of workers with employers less efficient d. There will be no impact on the labor market. And your reason for the answer.

B - Demand exceeds supply At the lower price, more is demanded and less is supplied

Yes, I agree, but Stalla (LI-03923) says it has no effect on the labor market! May be the question should have said “… price ceiling set above prevailing prices”?

Or price floor set below prevailing prices. Stalla is wrong.

the answer is B if the price FLOOR is set above the prevailing price…am I right?

no - if a price floor is set above the prevailing price, supply will exceed demand

oops…yes I believe the answer is B, I had a idiot moment…

i’ve had far too many of those on AF. it’s all part of the learning process…

I also agree that the correct answer should be B. Does anyone have an explanation why Stalla would say that this has no effect on the labor market? I’m interested to see their perspective because this seems very straightforward at first glance, but these are they types of questions that turn a would be pass into a fail come exam day…

The answer is B. The reason why Stalla has the incorrect answer is probably due to an error but usually in the labor markets they won’t have price ceilings…more like price floors and if the price floor is below prevailing prices (equilibrium prices then there will be no impact) then there will be no impact.

The problem says a price ceiling set ABOVE the prevailing market price, not BELOW. I would go with the answer in Stalla. The prevailing market price is the free equilibrium price set by supply and demand of labor. A price ceiling (superior limit on how much can be charged for labor), set ABOVE the free equilibrium price, would produce no effects since the market already is at equilibrium - the prevailing price. Dreary Wrote: ------------------------------------------------------- > Yes, I agree, but Stalla (LI-03923) says it has no > effect on the labor market! > May be the question should have said “… price > ceiling set above prevailing prices”?

Initially read it as price ceiling above current prices. Agree that Stalla is wrong.