Part A: The table below exhibits the demand-supply schedules for the low-cost housing.
Q1. If government puts a rent ceiling of $650 a month on rooms, find out the rent paid, how many rooms are rented? Is the low-cost housing market proficient? Explain why?
Q2. If the government strictly imposes a rent ceiling of $550 a month, what the rent paid is and how many rooms are rented? Is low-cost housing market proficient? Describe why.
Q3. If the government strictly imposes a rent ceiling of $550 a month, what happens to the consumer surplus and producer surplus? As well, compute the total housing search costs and deadweight loss. Show your computation.
Part B: Fair Work Australia has raised the minimum wage by $26 a week, lifting the minimum weekly pay to $570. Union movement had been pushing for a $27 a week raise; however employer groups had argued that level of increase was high-priced and would send smaller firms to the wall.
Source: ABC News, 11 February 2011
Q4. On a graph of the labor market, show and describe the effect of the $26 a week increase in the minimum wage on the quantity of labor employed, worker’s surplus and firm’s surplus, job search costs and the social deadweight loss. Has the labor market become more proficient or less efficient?
Q5. What would be the results if the minimum wage was set below $544? Describe your answer.