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) CONS - Help the poor by making housing more affordable - Landlords cannot keep up with rising costs of maintenance. (which have not been frozen) - Prevent prices from becoming unreasonably high…especially in cases of Monopolies - Market inefficiency (shortages) 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… Case B Typical Price Ceiling Scenario 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) CONS - Help reduce the amount of poverty and raise living standards (avoid sweatshop conditions) - Disrupt market equilibrium (surpluses) - Help people keep up with the rise of inflation (they raise it from time to time) - 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.