Econ 1202 1st Edition Lecture 9Outline of Lecture 7 (Gains From Trade Revisited/ Price Controls)I. Consumer SurplusII. Producer SurplusIII. Economic SurplusIV. Competitive Markets, Marginalist Paradigm, and OptimalityV. What happens when we aren’t producing at the efficient level?VI. Price CeilingsVII. Price FloorsVIII. What is one critical function the prices reform?Outline of Lecture 8 (Price Controls (continued)/Demand and Supply Application: Taxes/ Business and Corporate Governance)I. Price Floors in Labor MarketsII. Minimum WageIII. Policy ImplicationsIV. Impact of Qs>Qd if “prices” are suppressed?V. Who is or should be subsidizing the low-wage workers?VI. Types of TaxesVII. Economic EffectsVIII. Types of FirmsPrice Controls (continued)I. Price Floors in Labor Marketsa. Supporters of the minimum wage see it as a way of raising the incomes oflow-skilled workersb. Opponents argue that it results in fewer jobs and imposes large costs on small businessesc. Assuming the minimum wage does decrease employment, it must result in a deadweight loss for societyi. Loss of Employment=Deadweight LossII. Minimum Wagea. A price floor in minimum wage is the lowest price for labor that any employer may pay.b. Fair Labor Standards Act of 1938-ensure workers a minimally adequate standard of livingc. In 2012, the federal minimum wage was set at $7.25 per hour, however, many states and cities mandate minimum wages above the federal level.d. Recent proposal in 2014 is to increase minimum wage to $10.10 per hourIII. Policy Implicationsa. If minimum wage is above the equilibrium:i. Unemploymentii. Higher income for workers who have jobsiii. Lower income for workers who cannot find jobsb. Impact of the minimum wage on highly skilled and experienced workers:i. Generally no effect because their equilibrium wages are well above the minimumii. Minimum wage is not bindingc. Impact of the minimum wage on teenage labor:i. Least skilled and least experiencedii. Low equilibrium wagesiii. Willing to accept a lower wage in exchange for on-the-job trainingiv. Minimum wage is binding1. 10% increase in minimum wage decreases teenage employment between 1-3%2. Some will drop out of high school and take jobs, displacing other teenagers who have already dropped out of high school and forcing them to become unemployedIV. Impact of Qs>Qd if “prices” are suppressed?a. Rationing-who gets the scarce jobs?i. Those with the relatively more skill sets or experienceb. What is the economic problem?i. Too little skill sets in the long runc. Correct short run policy response?i. Can we find a policy that is equitable and not (too) inefficient?V. Who is or should be subsidizing the low-wage workers?a. Taxing the middle and/or upper income class Americansi. Earned Income Tax Credit-subsidizing your income if it is too lowb. Taxing the companies that hire the low wages workersi. Minimum wage causes less people to be hiredDemand and Supply Application: TaxesVI. Types of Taxesa. Sales Taxes-18% of total state or local revenueb. Statutory Burden-legal or statutory obligation to collect and ay the tax to local or state governmentc. Economic Burden-loss of economic surplusd. Effect of tax is to create a wedge or divergence between what the buyer pays and what the seller sellsVII. Economic Effectsa. Loss of economic surplus (consumer and producer surplus)b. Deadweight Loss (efficiency loss)c. Tax revenueBusiness and Corporate GovernanceVIII. Types of Firmsa. Sole Proprietorshipb. Partnershipsi. Generalii. Limitedc. Limited Liability Companies (LLC)d. Corporationsi. “S” Type-small, relatively few shareholdersii. “C” Type-large corporations where the owner’s equity interests (shares) are publically