Originally Posted by
CrazyNotCrazie
In this situation, if I am remembering my Duke economics classes correctly, the restaurants would raise prices to allow them to raise pay. Then the question becomes whether people will pay the increased amount to eat there. If they won't, the restaurant will close. If a lot of restaurants close, the cost of rent will have to go down as landlords will need to have income. And eventually you hit some sort of equilibrium between rent, salaries and food prices.
There are a number of empty storefronts in my neighborhood in Manhattan and people always wonder how the landlords keep them empty for so long. There is always discussion about whether there is some type of tax advantage to keeping the store empty rather than renting at a lower price, because intuitively, one would think that renting for $1 is better than renting for $0, assuming that you have exhausted all opportunities to rent for more than $1 and you don't lock into a long-term lease at $1 that prevents you from getting better prices in the mid-term.