If a price ceiling of $4.00 per gallon is imposed on gasoline, and the market equilibrium price is $4.50, then the price ceiling is a binding constraint on the market.

Question

If a price ceiling of $4.00 per gallon is imposed on gasoline, and the market equilibrium price is $4.50, then the price ceiling is a binding constraint on the market.
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Quizplus · Accepted Answer

A price ceiling is a legal maximum price that can be charged for a good or service. If the market equilibrium price is higher than the price ceiling, then the price ceiling is a binding constraint on the market, meaning that it is creating a shortage of the good or service, as there is more demand than supply at the legally mandated price. In this case, if the market equilibrium price for gasoline is $4.50 per gallon and a price ceiling of $4.00 per gallon is imposed, then the price ceiling is binding, as it is below the market equilibrium price and will result in a shortage of gasoline.

If a Price Ceiling of $4