Price Controls: Many have argued that the problems of poverty can be alleviated through the use of
Question:
Price Controls: Many have argued that the problems of poverty can be alleviated through the use of controls in labor and housing markets. Consider the following two types of controls.
(a). Consider the market for housing in an inner-city. Suppose the current equilibrium rent is $1000 per month for an apartment. Draw this market. In order to make housing more affordable, the city has enacted a rent control mandating rents be fixed at $700 per month. Explain who benefits and who loses from this legislation. What are the long-term effects from the standpoint of consumers and producers? How will the market for rental housing change over time? Has the policy met its goal of fighting poverty?
(b). Consider a local labor market for manufacturing workers. Suppose the current equilibrium wage is $10 per hour. In order to raise wages, the government has enacted a minimum wage of $15 per hour in this industry. Analyse the effects of this legislation using graphs and considering the short-run, long-run, and incentive effects of the legislation.
(c). Given your analysis in parts a and b, do these policies achieve their desired results? Why are these policies popular? Are these policies efficient from an economic point of view? Are they equitable?
(d). Discuss at least one policy for each of the above problems which may do a better job of helping those living in poverty