Non-binding price ceiling allows market equilibrium

Steps:

• Identify if P1 is below or above equilibrium price Pe; if above, ceiling is non-binding.
• At non-binding ceiling, supply and demand intersect at Pe and Qe unaffected.
• No shortage or surplus occurs, so market clears normally.
• Quantity supplied equals quantity demanded at Qe.

Why C is correct:

• Law of supply and demand: non-binding maximum price leaves equilibrium unchanged, so Qe is supplied.

Why the others are wrong:

• A: No shortage at P1 > Pe, so no rationing needed.
• B: Subsidy unnecessary without distortion from binding ceiling.
• D: Q2 (likely quantity at P1) exceeds Qe but isn't "guaranteed" differently from market outcome.

Final answer: C