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UT Arlington ECON 2305 - Price and Wage Controls

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Lecture 7 Outline of Last Lecture I. Non- price determinants (continued)Outline of Current Lecture I. Price Controls and Wage Controls II. Price Ceilings and Price FloorCurrent Lecture2 types of price controls: Price ceiling – limiting price increases Rent controlsGasoline prices Nixon wage and price controls – 1970sPrice Floor – minimum price is established Minimum wage law Farming/ agriculture price support Price Ceiling:Rent control – classic example a. New York b. California c. Other areas Per text – approx 200 cities & towns Purposes: Affordable housing What are the results?- Transfer of Income (from .. to..?)- No incentive to construct housing - Non-price discrimination - Black market  Grease the market  Key deposit - Reduce maintenance  30 hours per week, down to 15 hours  What gets left out? What happens to property? Property values  Tax-base ECON 2305- Law of unintended consequences Inefficiency  Family size  3 bedroom unit - Minimum wage: Federal – recent history 5.15, 5.85, 6.55, 7.25 (40% increase)- States might have a higher minimum wage - What’s the purpose?- Who works for minimum wage? Highschool students, low-skilled workers etc. - Texas – most minimum wage jobs out of all states - Lower the wages are, the higher the demand for labor is.- Increase the minimum wage: What are the results? Surplus  Reduced quantity demanded for labor  Lay offs  Reduced hours  Reduced benefits  Wage progression (among other workers)- Who gets the boot if the wage is increased? Least productive  Less skilled Price Controls – final observation Simple ideas in theory but extremely complicated exercise in


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UT Arlington ECON 2305 - Price and Wage Controls

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