Question

The following graph shows the labor market in the fast-food industry in the fictional town of Supersize City. 

Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. 

Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. 

In this market, the equilibrium hourly wage is $ _______ , and the equilibrium quantity of labor is _______  thousand workers. 

Suppose a senator introduces a bill to legislate a minimum hourly wage of $6. This type of price control is called a _______ .

For each of the wages listed in the following table, determine the quantity of labor demanded, the quantity of labor supplied, and the direction of pressure exerted on wages in the absence of any price controls. 

True or False: A minimum wage above $10 per hour is not a binding minimum wage in this market. 

Answer 1

At equilibirum point, demand and supply curves intersects each other.

In this market, the equilibrium hourly wage is $10 and the equilibrium quantity of labor is 250 thousands workers.

Suppose a senator introduces a bill to legislate a minimum hourly wage of $6. This type of price control is called the price floor.

If labor demand > labor supply ----> shortage in the market ------>upward pressure on price.

If labor demand < labor supply -----> surplus in the market -------> downward pressure on price.

Wage	Labor demanded (Thousand of workers)	Labor Supplied (Thousand of workers)	Pressure on wages.
8	350	110	Upward
12	110	350	downward

Note: The labor demanded and labor supplied values in the above table might be slight differe from the actual values. Please use th graph input tool to get the actual value.

A minimum wage is said to be binding if it is set above the equilibrium wage.

False: A minimum wage above $10 per hour is not a binidng minimum wage in this market.