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Market Disequilibrium

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.

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Market Disequilibrium

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

  2. 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 CONS • Landlords cannot keep up with rising costs of maintenance. (which have not been frozen) • Market inefficiency (shortages) PROS (Purpose) • Help the poor by making housing more affordable • Prevent prices from becoming unreasonably high…especially in cases of Monopolies

  3. Case ANo Point in having a price ceiling. Case B Typical Price Ceiling Scenario Therefore, it is important to know where the equilibrium point is before a price ceiling is established…

  4. 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.

  5. Price Floor • A legal minimum on the price at which a good or service can be sold. • Very common example: Minimum Wages CONS • Disrupt market equilibrium (surpluses) • Increases unemployment 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)

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

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

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