Asked by Jaylen Maloy on May 10, 2024
Verified
If a price ceiling of $2 per gallon is imposed on gasoline, and the market equilibrium price is $1.50, then the price ceiling is a binding constraint on the market.
Binding Constraint
A restriction or limitation that affects the feasibility or optimization of a decision or system.
Market Equilibrium
A state where the quantity of goods or services supplied is equal to the quantity demanded at a particular price.
- Compare and contrast binding and nonbinding price controls and their respective effects.
Verified Answer
ML
Mynish LattimoreMay 15, 2024
Final Answer :
False
Explanation :
Since the market equilibrium price of $1.50 is below the price ceiling of $2, the price ceiling does not restrict market transactions and is therefore not a binding constraint.
Learning Objectives
- Compare and contrast binding and nonbinding price controls and their respective effects.