Market Disequilibrium Price Ceilings and Price Floors cause market disequilibrium because they disrupt the natural dynamics of the marketplace (supply and demand)

Price Ceiling A legal maximum on the price at which a good can be sold. (if government feels that the price for a good or service is too high) Examples: Rent Control for apartments Electricity (NS Power)…Monopoly PROS (Purpose) Help the poor by making housing more affordable Prevent prices from becoming unreasonably high…especially in cases of Monopolies CONS Landlords cannot keep up with rising costs of maintenance. (which have not been frozen) Market inefficiency (shortages)

Case A No Point in having a price ceiling. Case B Typical Price Ceiling Scenario Case A No Point in having a price ceiling. Therefore, it is important to know where the equilibrium point is before a price ceiling is established…

Example – Gasoline Prices. An increase in the price of crude oil – shifts the supply curve of gasoline to the left in case (b). This results in a shortage of gasoline (excess demand)…causing motorists to wait for hours to buy only a few gallons of gas.

Price Floor A legal minimum on the price at which a good or service can be sold. Very common example: Minimum Wages PROS (Purpose) Help reduce the amount of poverty and raise living standards (avoid sweatshop conditions) Help people keep up with the rise of inflation (they raise it from time to time) CONS Disrupt market equilibrium (surpluses) Increases unemployment

If left to forces of supply and demand, more workers would be hired at lower wages.

Price Floor - Surpluses http://www.youtube.com/watch?v=zjXwvQz7f2o Benefits the producers.