Question

Write a mini essay (250-300 words) discussing the conflict between markets being allocative efficient and equitable, given the decision by the new government this year to

- ban foreign buyers from certain countries to purchase NZ property.

- Increase the minimum wage to $20 by 2020

Answer 1

- Increase the minimum wage to $20 by 2020

Minimum wage act is a price flooring in economics. As shown n the diagram below, Minimum wages are set above market equilibrium wage We. If it is set at Wf then labor supply will be more than labor demand as firms will have to pay more and hence will pay less. Labors on the other side will be attracted towards labor market and hence efficient allocation will be disturbed and no new equilibrium will be made. Raising it further will make markets more inequitable.

- ban foreign buyers from certain countries to purchase NZ property.

If this happens then foreign investment in NZ will be less. It will also discourage capital investments and as less new businesses come, unemployment problems will increase. It will also happen that latest technology, business practices which can improve production and productivity in NZ will not come and hence productive and allocative efficiency will suffer in NZ.