(a) With the aid of a diagram, explain the theory of second best, label the diagram correctly. (10)

(b) Suppose government introduces a minimum in a labor market that was previously clearing at N$ 6 per hour and 120 units of labor hours. The minimum wage raises the new wage to N$7.5 per hour and the new amount of labor demanded is represented by 95 units of labor hours, while the supply increases to 150 labor hours.

(i) Using a diagram analyze the impact of the minimum wage on this market. (6)

(ii) How many hours of excess demand or excess supply have been created? (2)

(iii) Is rental control efficient or not? Why? (2