Question

In order to correct markets, price controls may be used to benefit consumers. The establishment of a federal minimum wage creates a wage response area. This would cause the supply of labor to exceed the demand for labor, creating a response area of available workers. In the inner city, people of low socioeconomic status cannot afford to pay rent, so the government will establish rent control, also known as a price response area. Because the price of housing is so low, a response area occurs because the demand exceeds the supply of available rentals. (True/False)

Answer 1

The statement is true. Price controls, such as rent control and minimum wages, are examples of government intervention in markets to correct imbalances. Rent control benefits low socioeconomic status individuals by making housing more affordable, but it can lead to a shortage of available rentals because the demand exceeds the supply.

Step-by-step explanation:

The statement is true.

Price controls, such as rent control and minimum wages, are examples of government intervention in markets to correct imbalances. Rent control is a price ceiling that limits the amount landlords can charge for rent, while the establishment of a federal minimum wage creates a price floor that sets a minimum wage that employers must pay.

In the case of rent control, it benefits low socioeconomic status individuals by making housing more affordable, but it can lead to a shortage of available rentals because the demand exceeds the supply.

Answer 2

Price controls like rent control and the minimum wage do not necessarily benefit consumers or correct markets, as they can lead to shortages or surpluses. In the case of rent control, the artificially low price can create a shortage of rental units, and in the case of the minimum wage, a surplus of labor may occur.

Step-by-step explanation:

The statement presented in the question is false. Price controls like rent control and the minimum wage do not necessarily benefit consumers or correct markets. Rent control, which is a form of price ceiling, can lead to a shortage of available rental units as the demand exceeds the supply at the artificially low price. Similarly, a minimum wage (a price floor) can cause a surplus of labor as the supply exceeds the demand at the mandated wage, resulting in unemployment or reduced hours for workers.