When will a price ceiling be binding

Question

Quizplus · Accepted Answer

A price ceiling will only be binding if it is set below the equilibrium price. If a price ceiling is set above or at the equilibrium price, it will not have any effect on the market price. However, if it is set below the equilibrium price, it will create a shortage of the good as the quantity demanded will exceed the quantity supplied at the regulated price. This shortage can lead to inefficiencies in the market, such as black markets, rationing, or queuing.

When Will a Price Ceiling Be Binding