To be considered a binding price ceiling, it must be set:

A binding price ceiling is a government-imposed limit on how high a price can be charged for a product or service. For a price ceiling to be effective in altering market conditions, it must be set below the equilibrium price, which is the price at which the quantity supplied equals the quantity demanded.

When a price ceiling is established below the equilibrium level, it creates a situation where the maximum allowable price is lower than what would naturally occur in a free market. This leads to increased demand for the product since consumers find the lower price attractive, but simultaneously decreases the willingness of producers to supply the product at that lower price. As a result, a shortage occurs in the market; the quantity demanded exceeds the quantity supplied because producers are not incentivized to produce enough of the good.

In contrast, if a price ceiling is set above the equilibrium price, it does not have any binding effect because the market price would naturally be below the ceiling, and producers can charge their regular prices without restriction. Setting the ceiling at market price or at the equilibrium price also does not create any constraints on pricing or market dynamics, as it allows the market to function without interference.

Therefore, the correct understanding of a binding price ceiling is that it must be set below the equilibrium price