Market Disequilibrium from Price Controls

Steps:

• Define market equilibrium as the price where quantity demanded equals quantity supplied.
• Identify disequilibrium as a state of excess demand or supply due to external factors like price controls.
• Evaluate each choice for imbalance between demand and supply.
• Select the option showing excess demand from a binding price floor.

Why A is correct:

• A price floor (minimum price) below equilibrium creates excess demand, as quantity demanded exceeds quantity supplied at that price, per the law of supply and demand.

Why the others are wrong:

• B: A maximum price (price ceiling) below equilibrium causes excess demand, not excess supply.
• C: Price changes adjusting demand and supply describe market equilibrium process, not disequilibrium.
• D: Equal quantity demanded and supplied defines market equilibrium, not disequilibrium.

Final answer: A