Disequilibrium Governments

DISEQUILIBRIUM CAUSED BY

THE GOVERNMENT

PRICE FLOOR:A law that prevents a price from

falling below a certain level.

In the USA, minimum wage is an example of a price floor dictating that unskilled workers cannot be paid lower than $7.40 per hour. This is helpful to people who are trying to

survive on a minimum wage job alone.

PRICE FLOOR:A price floor is a price higher than

the market equilibrium price. It creates a surplus, and prevents the

market from naturally moving

back to the equilibrium price.

F

P

Q

S

D

PRICE FLOOR:A price floor

creates a surplus. With a price floor on the wages of

unskilled labor (minimum

wage), a surplus of unskilled

labor is created. This contributes to unemployment.

PRICE FLOOR:Unemployment is created because employers are

demanding a lower quantity of

laborers, and because people are

more willing to supply their labor (to work) when wages are higher.

F

P

QD

S

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PRICE CEILING:A law that prevents a price from

rising above a certain level.

A price ceiling on rent for apartments was imposed by the US government to protect

soldiers returning from WWII who could not afford to pay the quickly climbing rent prices.

PRICE CEILING:A price ceiling is a price lower than

the market equilibrium price. It creates a shortage, and prevents the

market from naturally moving

back to the equilibrium price.

C

P

Q

S

D

PRICE CEILING:

A price ceiling creates a

shortage. With a price ceiling

on rent prices, a shortage of

apartments is created.

PRICE CEILING:There are not

enough apartments because, at a lower price, there is more demand for them,

and the supply quickly runs out.

P

QDQS <

C

P

S

D