Final answer:
A binding price ceiling below equilibrium increases quantity demanded and decreases quantity supplied, causing a shortage. It disrupts the market equilibrium, potentially reducing market transactions, and while beneficial for consumers, it can reduce social surplus due to inefficiencies.
Step-by-step explanation:
When a binding price ceiling is set below the equilibrium level, the effect on the market is significant. It increases the quantity demanded because consumers are more willing to buy the product at the lower price. However, it decreases the quantity supplied since producers are less inclined to sell their product at a price that does not cover their costs or gives less profit than the market price.
This disparity between the higher quantity demanded and lower quantity supplied leads to a shortage in the market because the price is kept artificially low, preventing the market from reaching equilibrium.
A binding price ceiling does indeed change the market equilibrium because it prevents the price from naturally adjusting to the point where quantity demanded equals quantity supplied. Instead, it creates an artificial equilibrium at a lower price and higher quantity demanded.
Regarding transactions, a price ceiling can decrease the number of transactions since there is not enough supply to meet the increased demand, leading to unfulfilled consumer wants. In contrast, a price floor set above equilibrium can decrease transactions as well because there is an excess of products that consumers do not demand at such high prices.
Price floors that benefit producers do so by keeping prices higher than the equilibrium, which could potentially mean more revenue per unit sold; however, these higher prices lead to unsold surpluses and a reduction in the total social surplus, which equals the sum of consumer and producer surplus.
The social surplus is maximized when the market is at equilibrium, where the price and quantity are determined by supply and demand forces.