A binding price ceiling
i) causes a surplus.
Ii) causes a shortage.
Iii) is set at a price above the equilibrium price.
Iv) is set at a price below the equilibrium price.

Question

A binding price ceiling 
i) causes a surplus.
Ii) causes a shortage.
Iii) is set at a price above the equilibrium price.
Iv) is set at a price below the equilibrium price.

Quizplus · Accepted Answer

A binding price ceiling is set at a price below the equilibrium price, which causes a shortage in the market. This is because the quantity demanded exceeds the quantity supplied at the lower price, leading to a situation where buyers are willing to pay more than what sellers are willing to accept. As a result, there is excess demand or a shortage in the market. Therefore, option ii) is correct. Option iv) is also correct because a binding price ceiling is always set below the equilibrium price. Option i) and iii) are incorrect because a binding price ceiling does not cause a surplus, and it is set at a price below the equilibrium price.

A Binding Price Ceiling