Question

1) Licencing rules attempt to regulate the quality of labor in a market but what other effects do such requirements have? Describe a job that you or someone you know has had which required licencing. Would you consider the process to be worth it? Why?

2) Suppose legislation is passed which capped prices on land, labor, capital, and entrepreneurial ability. What sort of side effects will this price ceiling have on wages, rent, interest, and profits?

Answer 1

The other measures which used to regulate the labour in market are minimum wages, legislation to prohibit discrimination, health and safety legislation etc. The licensing in the labour market protects the rights of the workers and ensures the safety and protection of workers. There is increased wages for licensed workers and this make a rise in the price of products. It reduces the workers mobility and standardise the working practices. Licensing is not the form to reduce the wage inequalities. One of the example for this type of licensing is teaching field. Teachers have to obtain the license to demonstrate the standards of the career. There should be specified training, designated amount of work experience and also taking licensure exams. Most of these licenses are authorised by the state government. Licensing intended for ensuring the competent and ethical individuals who practise in occupation.
b) Price ceiling is the measure imposed by government on particular commodities to prevent the consumer form charging high prices. The price ceiling in wage rate will distribute more workers to the market and helps to get more wages for the fresh workers. This will increase the economic surplus of consumers and decrease the economic surplus of producers. Rent is the remuneration over land during the production process. Lowering price of land will reduce the supply of land its availability. This will increase the demand for land at low price. But the land owners are not willing to sell their land at this low price rate. Ceiling of interest rate will maintain the investment level of a company. This will avoid the fluctuations in interest rate, which avoid the up and downs in the investment rate. Investment rate will determine the production level. If there is high interest rate, the investment will reduce. If the ceiling for interest rate remains for long period, it will lead to liquidity trap. Price ceiling over profit will reduce the interest of profit earners. Most of the producers wish for high profit from their given level of production. This price ceiling policy retards the profit maximisation behaviour of the producer.