If a price ceiling is not binding, then which of the following is true?

• A. The price ceiling is set below the equilibrium price.
• B. The market equilibrium price is below the price ceiling.
• C. The price ceiling causes a shortage in the market.
• D. Sellers cannot legally charge the equilibrium price.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand what a price ceiling is — it is a legal maximum price that sellers can charge for a good or service.
2. Step 2: Recognize that a price ceiling is binding only if it is set below the market equilibrium price, which means it restricts the price and affects the market outcome.
3. Step 3: If the price ceiling is not binding, it means the ceiling is set above the equilibrium price, so the market price naturally stays below the ceiling without any legal restriction.
4. Step 4: Since the market equilibrium price is below the price ceiling, the ceiling does not affect the market price or quantity, so there is no shortage or surplus caused by the ceiling.
5. Step 5: Therefore, the correct statement is that the market equilibrium price is below the price ceiling, meaning sellers can legally charge the equilibrium price without violating the ceiling.