A price ceiling is binding when it is set
A)above the equilibrium price,causing a shortage.
B)above the equilibrium price,causing a surplus.
C)below the equilibrium price,causing a shortage.
D)below the equilibrium price,causing a surplus.

Question

Quizplus · Accepted Answer

A price ceiling is binding when it is set below the equilibrium price. When the price ceiling is below the equilibrium price, it creates a shortage because the quantity demanded increases while the quantity supplied declines. This shortage results in consumers being unable to purchase the quantity they desire, leading to an inefficient allocation of resources.

A Price Ceiling Is Binding When It Is Set