Which of the following statements is true if the government places a price ceiling on gasoline at \$4.oo per gallon and the equilibrium price is \( \$ 3.00 \) per gallon? a. A significant increase in the supply of gasoline could cause the price ceiling to become a binding constraint. b. There will be a surplus of gasoline. c. A significant increase in the demand for gasoline could cause the price ceiling to become a binding constraint. d. There will be a shortage of gasoline.

The correct answer is: **c. A significant increase in the demand for gasoline could cause the price ceiling to become a binding constraint.** **Explanation:** - **Price Ceiling Basics:** A price ceiling is a maximum price set by the government. If the price ceiling is **above** the equilibrium price, it is **non-binding** and has no effect on the market. In this scenario, the equilibrium price is \$3.00, and the price ceiling is \$4.00, making it non-binding initially. - **Impact of Increased Demand:** If there's a significant increase in the demand for gasoline, the equilibrium price is likely to rise. If the demand increases enough that the new equilibrium price exceeds the \$4.00 ceiling, the price ceiling becomes **binding**. This means the ceiling will restrict the price from rising to its natural equilibrium level, potentially leading to shortages as the quantity demanded exceeds the quantity supplied at the capped price. - **Why Other Options Are Incorrect:** - **a.** An increase in supply would typically lower the equilibrium price further below \$3.00, keeping the price ceiling non-binding. - **b.** Since the initial price ceiling is non-binding, there is no surplus under normal circumstances. - **d.** Similarly, no shortage exists initially because the ceiling does not constrain the price below the equilibrium. **Conclusion:** Only a significant increase in demand has the potential to push the equilibrium price above the \$4.00 ceiling, making option **c** the true statement.