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University of Ottawa
David Gray

Which statement best describes the concept of a binding price ceiling? Assume that the equilibrium price of gasoline is 3$ per litre? The government prohibits gas stations from selling gasoline for more than 1.80$ per litre. A price ceiling is a legal maximum price at which a good can be sold. Prohibiting gas stations from selling gasoline for more than $1.80 or $4.00 are both examples of price ceilings. A binding price ceiling is a price ceiling that is set below the equilibrium price. Since the equilibrium price is $3, the price has to be $1.80, due to the fact that binding price ceilings cause a shortage, while a non- binding price ceiling has no effect on the equilibrium price and quantity. Calculating tax incidence (Question 5): Suppose that the Canadian government decides to levy a tax (such as an excise tax) on cola consumers. Before the tax, 20000 cases of cola were sold every week at a price of $6 per case. After the tax, 12000 cases of c
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