Question: Minimum wage, Rent controls and Deadweight loss.
a) Consider a labour market equilibrium in which: employment is 100,000 workers, wage rate is $10/hour, supply elasticity is 2.0 and the demand elasticity is 4.0. Use the above data to calculate the impact of imposing an $11/hour minimum wage on (i) employment and (ii) unemployment in this market.
b) Explain why the minimum wage creates deadweight loss. Explain whether an increase in the demand elasticity raises or lowers deadweight loss? Use diagrams to illustrate your answer.
c) Consider a housing rental market equilibrium in which: 100,000 units are rented, rent is $1000/month, supply elasticity is 3.0 and the demand elasticity is 1.0. Use the above data to calculate the impact of imposing of a $900/month rent ceiling on (i) the
(i) number of units rented and (ii) the shortage of rental units.
d) Explain why rent controls create deadweight loss. Explain whether an increase in the supply elasticity raises or lowers the deadweight loss? Use diagrams to illustrate your answer.