A binding price ceiling that could be set in the market in the graph shown would be:

Question

Quizplus · Accepted Answer

A price ceiling is a government-imposed maximum price that can be charged for a good or service. In the graph shown, the equilibrium price and quantity are at $10 and 80 units, respectively. A binding price ceiling must be below the equilibrium price, and no higher than the price at which the quantity supplied equals zero. In this case, a price ceiling of $8 would be binding because it is below the equilibrium price and is still within the range of the supply curve. If a price ceiling were set higher than $8, it would not be binding, and the market would operate at the equilibrium price of $10. However, if the price ceiling were set lower than $8, it would create a shortage of the product because the quantity demanded would exceed the quantity supplied.

A Binding Price Ceiling That Could Be Set in the Market