The best answers eliminate the puzzle concisely. 1. Explain the short-run effect

Question

The best answers eliminate the puzzle concisely.

1. Explain the short-run effects of eliminating rent control on apartments.

2. In a competitive industry, with competitive supplies of labor and capital goods which have only normal gains, which factor obtains the "producer surplus"? What is the economic effect of taxing this surplus?

3. Is there anything a government can do to increase the productivity of an industry with a competitive free market? Explain.

4. How does a minimum wage function as a tax? Who is taxed? Who ultimately pays this tax? Is there a better way to increase the income of low-wage workers than imposing a minimum wage? Explain.

Explanation / Answer

1. The Short run effects of rent control on housing market. As with binding price ceiling rent control causes a shortage because the supply and demand for housing units are relatively inelastic, the price ceiling imposed by rent control law causes only a small shortage of housing

              In the short run, where the physical number of apartment units is fixed, the imposition of rent control will reduce the quantity of units offered on the market. For example in cities most of the people refer short run because people take time to adjust their housing arrangements. Therefore the short run for supply and demand is inelastic.

2. The factor that obtains in producing of competitive industry:

A producer is willing to produce a product if she can receive a price equal to or greater than the economic cost of producing it. Economic cost not only includes the cost of materials and labor, but also the opportunity cost of the seller's time. Hence, economic cost includes what economists call a normal profit.

                  In a purely competitive market, however, producers are price takers, so they can only participate in the market if their economic cost is less than or equal to the market equilibrium price. However, because some producers are more efficient than others, they will make more than just the economic cost of their production. They will earn a producer surplus, which is equal to the actual sale price minus their economic cost of production.

Producer Surplus = Actual Sale Price - Economic Cost

                  No seller is willing to sell for less than his economic cost, and if a seller's economic cost is equal to the selling price, then he earns no producer surplus, so he is considered a marginal seller, because he would be indifferent as to whether he would produce his product to sell in the market or not. If the market price dropped, he would be the first to leave the market to pursue better opportunities elsewhere.

                   As the market price increases, other sellers who are not as efficient will enter the market as long as the market price is greater than their economic cost of production. Note that the most efficient producers have a maximum producer surplus, while the marginal sellers have no producer surplus.

                   Economists use the concept of the willingness to sell that is comparable to the consumer's willingness to pay. Obviously sellers will be glad to sell their product for any price higher than their economic cost. Indeed, the higher the price, the greater their willingness to sell, but the market price is limited by what buyers are willing to pay. In fact, the producer surplus is limited by the market price. So the producer surplus is equal to the area under the market price is above the supply curve.

3. In economics, competition is the rivalry among sellers trying to achieve such goals as increasing profits, market share, and sales volume by varying the elements of the marketing mix: price, product, distribution, and promotion. Merriam-Webster defines competition in business as "the effort of two or more.

Three levels of economic competition have been classified:[citation needed]

4. Minimum wage: The minimum amount of compensation an employee must receive for performing labor. Minimum wages are typically established by contract or legislation by the government. As such, it is illegal to pay an employee less than the minimum wage. It is the lowest, hourly, monthly or the daily wages which is sufficient to cover the necessity of work and his family.

                The minimum wage attempts to protect employees from exploitation, allowing them to afford the basic necessities of life. The minimum wage rate fluctuates between countries, and sometimes between states or provinces.
                Minimum wages have drawn strong criticism from many economists, since it establishes a price floor on wages. Price floors can lead to a dead weight loss in the economy, which means that inefficiencies exist. In this case, the minimum wage might force companies to hire fewer employees, thus increasing unemployment.

                  In the business sector, concerns include the expected increased cost of doing business, threats to profitability, rising levels of unemployment (and subsequent higher government expenditure on welfare benefits raising tax rates), and the possible knock-on effects to the wages of more experienced workers who might already be earning the new statutory minimum wage, or slightly more. Among workers and their representatives, political consideration weigh in as labor leaders seek to win support by demanding the highest possible rate. Other concerns include purchasing power, inflation indexing and standardized working hours.

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