Question
Part A: The table shows the demand and supply schedules for low-cost housing.
|
Rent
($ per room)
|
Quantity
Demanded
(rooms)
|
Quantity
supplied
(rooms)
|
|
500
|
2,500
|
2,000
|
|
550
|
2,250
|
2,000
|
|
600
|
2,000
|
2,000
|
|
650
|
1,750
|
2,000
|
|
700
|
1,500
|
2,000
|
(a) If the government puts a rent ceiling of $650 a month on rooms, what is the rent paid, how many rooms are rented and is the low-cost housing market efficient?
(b) If the government strictly enforced a rent ceiling of $550 a month, what is the rent paid, how many rooms are rented and is the low-cost housing market efficient?
(c) Suppose that with a strictly enforced rent ceiling of $550 a month, a black market develops. How high might the black market rent be? Would the low-cost housing market be fair? Explain your answer.
Part B: Fair Work Australia has increased the minimum wage by $26 a week, lifting the minimum weekly pay to $569.90. The union movement had been pushing for a $27 a week increase, but employer groups had argued that that level of increase was unaffordable and would send smaller firms to the wall.
(d) On a graph of the market for low-skilled labour, show and explain the effect of the $26 a week increase in the minimum wage on the quantity of low-skilled labour employed. Assume that equilibrium employment was 100 thousand hours per week and the equilibrium wage rate was $544.00 per week.
(e) Explain the effects of the $26 a week increase in the minimum wage on the workers' surplus and the firms' surplus. Has the labour market become more efficient or less efficient? Explain and show the welfare measurement analysis in the graph.