(Figure: Supply and Demand in the Market for Cappuccinos) Use Figure: Supply and Demand in the Market for Cappuccinos. A binding price ceiling is represented by:

Question

Quizplus · Accepted Answer

A binding price ceiling is a price control that sets a maximum legal price that can be charged for a product or service, and it is binding when it is below the market equilibrium price. In the given figure, the equilibrium price is $5 and the binding price ceiling is represented by the horizontal dashed line at a price of $4. At this price, the quantity demanded exceeds the quantity supplied, creating a shortage. Therefore, choice C (a price of $4) is the correct answer.