Option 1 -> A price ceiling below market price is binding and creates shortages.
Option 2 -> A price ceiling above market price is non-binding and has no effect.
Option 3 -> A price ceiling at market price doesn't constrain the market.
Option 4 -> Only below market price makes a price ceiling effective.
Hence, Option 1: Below the market determined price -> A price ceiling is a maximum legal price set by the government. For it to be effective (binding), it must be set below the equilibrium market price. When set below the market price, it prevents sellers from charging the natural equilibrium price, which typically leads to excess demand (shortages) as quantity demanded exceeds quantity supplied at the ceiling price. If set above or at the market price, the ceiling becomes non-binding since the market naturally operates at or below that level anyway. -> correct