Non-binding price ceiling allows equilibrium

Steps:

• Identify equilibrium at intersection of demand and supply curves: price P* and quantity Q*.
• Compare fixed maximum price P1 to P*: if P1 ≥ P*, the ceiling does not restrict the market.
• Suppliers and demanders continue trading at P* and Q* since P1 allows it.
• No shortage or surplus occurs; market clears at equilibrium.

Why C is correct:

• A non-binding price ceiling (P1 ≥ P*) leaves supply at equilibrium quantity Q*, per the law of supply and demand.

Why the others are wrong:

• A: Rationing applies only if P1 < P*, creating excess demand at Q1.
• B: Subsidies address underproduction, not maximum prices.
• D: Q2 (likely quantity supplied at P1 < P*) is not guaranteed if ceiling is non-binding.

Final answer: C