Suppose the U.S. government imposes a maximum price of $5 per gallon of gasoline, and the current equilibrium price is $3.50 per gallon. This policy represents a:
A) binding price floor.
B) non-binding price floor.
C) binding price ceiling.
D) non-binding price ceiling.

Question

Quizplus · Accepted Answer

A non-binding price ceiling is set above the equilibrium price, meaning it has no effect on the market because the market price is already lower than the ceiling. Since the maximum price is set at $5 and the equilibrium price is $3.50, the price ceiling does not constrain the market.