A nonbinding 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

Quizplus · Accepted Answer

A nonbinding price ceiling is set above the equilibrium price, so it does not affect the market. Therefore, it does not cause a shortage or surplus, which eliminates (i) and (ii). It also cannot be set below the equilibrium price, which eliminates (iv). Therefore, the correct answer is (iii) only, which states that a nonbinding price ceiling is set at a price above the equilibrium price.

A Nonbinding Price Ceiling