University Economics Report: Minimum Wage and Rent Control Analysis

This report provides an analysis of the economic impacts of minimum wage and rent control policies. The report begins by examining the effects of a minimum wage, illustrating how it can lead to unemployment by increasing the cost of labor above the equilibrium wage. The analysis includes a figure depicting the supply and demand dynamics in the labor market and explaining how the excess supply of labor leads to unemployment, particularly among low-income workers. The report then shifts to the topic of rent control, explaining how it creates a shortage of apartments by setting a price ceiling below the equilibrium rent. The report highlights how rent control reduces the supply of available apartments while increasing demand, leading to a housing shortage and potential black market activity. The analysis includes a figure showing the supply and demand dynamics in the housing market. The report concludes by referencing key economic principles and providing a list of references.

Running head: ECONOMICS
Economics
Name of the Student
Name of the University
Course ID

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Table of Contents
Minimum wage and its impact...................................................................................................2
Rent control and its impact........................................................................................................3
References..................................................................................................................................4

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Minimum wage and its impact
Minimum wage refers to the policy of implementing a legal minimum wage in the
labor market. Objective of the policy is to secure a minimum income for the workers.
Whenever equilibrium wage in the labor market is low, government imposes a minimum
wage above the equilibrium (Kreps, 2019). The impact of such a policy is illustrated in the
figure below.
Figure 1: Impact of minimum wage on labor market
In the above figure free market wage in the labor market corresponds to W*.
Equilibrium wage in the market is determined from free market labor demand and labor
supply curve. Corresponding equilibrium employment is L*. Now suppose government
imposes a binding minimum wage at W1. At the higher minimum wage supply of labor
increases to L2 while demand for labors fall to L1. At the higher wage employers prefer to
hire less number of workers to save wage cost. The excess supply of labor leads to
unemployment in the economy. The unemployment is more prevalent among the low income
as they earn only equilibrium wage (Baumol & Blinder, 2015). Implementation of minimum

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wage thus leads to the unintended consequence of unemployment among the low income
groups.
Rent control and its impact
Price ceiling is a measure of setting a legal maximum price in order to offer goods and
services at a relatively low price (Cowen & Tabarrok, 2015). Sellers are not allowed to sell
the product above this price.
Figure 2: Impact of a price floor on rent
Suppose the equilibrium rent in the market is at R* obtained from the independent
supply and demand forces. At equilibrium the available number of apartment is H*. In order
to increase affordability suppose government has kept the rent at an artificially low level at
RC. At the lower rent, because of lower prospect of income homeowners reduce the supply of
available apartment to H1. Demand for apartment on the other hand increases to H2. The
imposed rent control measure therefore creates a shortage of apartments in the market. Many
people who are willing to rent an apartment will be unable to rent a house. The shortage of
apartment may lead to black marketing of apartments (Mochrie, 2015). Low income renters

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who are unable to afford a high rent at the black market. As the group of low income people
more tend to move from one place to another they suffer from the shortage of apartments.

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References
Baumol, W. J., & Blinder, A. S. (2015). Microeconomics: Principles and policy. Nelson
Education.
Cowen, T., & Tabarrok, A. (2015). Modern principles of microeconomics. Macmillan
International Higher Education.
Kreps, D. M. (2019). Microeconomics for managers. Princeton University Press.
Mochrie, R., 2015. Intermediate microeconomics. Macmillan International Higher Education.