What happens to the quantity demanded when a binding price ceiling is imposed in a perfectly competitive market?

When a binding price ceiling is imposed in a perfectly competitive market, the price of a good or service is set below the equilibrium price. This leads to a situation where the price is artificially reduced, which generally incentivizes more consumers to purchase the product, resulting in an increase in the quantity demanded. Consumers respond to the lower price by buying more, as it becomes more affordable compared to the original price.

This scenario contrasts with a non-binding price ceiling, which does not affect market prices as they remain above the equilibrium. In this case, the quantity demanded stays the same.

While it might seem logical that lower prices could lead to reduced supply, the focus of the question is specifically on the demand side. A binding price ceiling thus creates a mismatch between supply and demand, leading to potential shortages as the quantity demanded increases while the quantity supplied may not adjust accordingly.