Scholarly Activity Minimum Wage

Deadweight loss is defined as a loss to society and there are three main causes of deadweight loss (Samuelson & Marks, 2015). The first is a price ceiling. A price ceiling is the maximum amount set by the government that a consumer can be charged for a good or service. A perfect example of this is rent. Price floors are the second cause of deadweight loss. They are the minimum amount set by the government that a consumer can be charged for a good or service. Minimum wage is the best example of this. The third and final cause of deadweight loss is taxes. The sales tax that is added to any purchase is a great example of this type of deadweight loss.

Deadweight loss impacts both supply and demand because of the price changes (Amir, Jin, Pech, & Troge, 2016). For example, a building that has a set rent price will have more people wanting to move in than available apartments. This is because demand is greater than the supply. A price floor such as minimum wage will create unemployment. This is because some people can afford to work for minimum wage while others cannot. Taxes cause deadweight loss by increasing the price of a product. The increased price will have a negative effect on product demand.

Government Regulation

When it comes to managing an economy, there are many forms of government regulation. The next few paragraphs will address government regulation in relation to economic efficiency, wealth transfers, and cost-benefit analysis.

Economic Efficiency

Economic efficiency is about a perfectly competitive market for everyone to strive in. In other words, it’s the equilibrium and government regulation is in place to assist this perfect market Lazar, 2018). For example, if a price floor for minimum wage was not set correctly to allow for paying for a living, this could be the tipping point for a market and it could actually cause quite a bit of inefficiency. This is where the federal government could step in and possibly raise the price floor (minimum wage).

Wealth Transfers

Wealth transfers are about transferring money or property from one person to another and it is done in many forms. Some of the more common ones are through welfare, taxes, charity or divorces. For the purposes of this paper, taxes will be the sole focus (Bird-Pollan, 2016). Taxes are set by the federal government in an effort to get a small amount of money for every dollar a person spends. The goal is to generate enough revenue from taxing a population that at the start of the next year, it can then be redistributed to the same population in the form of a tax return after the government’s necessary expenditures are covered. There are many forms of taxes from the federal level all the way down to the state and local level. Depending on where you live and how much money you earn, you will be charged a percentage in taxes. In a perfect world, there would be no fraud or corruption but if that were true, there would be no need for tax lawyers.

Cost-Benefit Analysis

A cost-benefit analysis (CBA) is used by policymakers to determine what financial regulations need to be changed for an entire society as a whole. According to the Center for Effective Government, CBAs are completed by assigning monetary values to everything to predict the cost and benefits of new regulation. Additionally, CBAs are completed for every regulatory alternative too. Governments use CBAs to plan for everything from building roads to education spending (Center for Effective Government, 2015).

Market Failures

In a monopolistic market, prices for a good can get raised. With nowhere else to turn, employees are forced into the now higher price. This can cause welfare loss and the start of market failures. An externality is a side effect or in other words, a consequence that hurts others without impacting the cost of the good or service. If the side effects are negative, as in the case with pollution, then this could lead to economic inefficacy. Markets depend on efficiency and good information. Using a toy company as an example, if employees knew the new type of toy was harmful to children, then the market surround this item could suffer because of the bad information (Samuelson & Marks, 2015).

Scenario 1

This scenario states mine safety has been improving and but more than fifty deaths still occur every year. Based on the information in the scenario, an externality is present. The externality is high death rate even though mine safety is improving.

Scenario 2

This scenario states that a large financial company has a very thorough training program for new hires but many leave and go work for a competitor after less than one year. Based on the information in the scenario, an externality is present. The externality is the fact that new hires are using the company and their training program as a stepping stone in order to take a job with the competitor.

Scenario 3

This scenario states that email spam has grown significantly over the past five years. Based on the information in the scenario, an externality is not present because the scenario failed to state any side effects of the increase in spam mail.

Scenario 4

This scenario states that a family has been waiting to buy a house but is now priced out of the market due to sky-high real estate prices. Based on the information in the scenario, an externality is present. Due to family waiting, the market has changed and they can no longer afford to buy a home.

Coca-Cola and Pepsi

If Coca-Cola and Pepsi decided to merge, a large monopoly in the soft drink industry would be created. Consumers would be forced to pay monopolized prices for soft drinks that they like. The U.S. Government would have to strongly discourage this merger because of the potential monopolization of the soft drink industry. However, if the merger did go through, the U.S. government would have to play an active part in the merger to ensure consumers are not being taken advantage of and to ensure the market does not fail.

Conclusion

This was a very interesting scholarly activity. I learned more about markets from this scholarly activity than I thought I would. Specifically, I enjoyed digging into the reasons why markets fail and the role of U.S. government plays to ensure markets stay efficient.

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