Question

11. Disequilibrium - Price floors 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 Graph Input Tool Market for Labor in the Fast Food Industry 20 Wage (Dollars per hour) 6 Supply Labor Demanded Thousands of workers) Labor Supplied Thousands of workers) 900 378 12 1 10 Demand 0 90 180 270 360 450 540 630 720 810 900 LABOR (Thousands of workers)
Please show all of the work. Thank you:)

Answer 1

Equilibrium is attained at the intersection of the demand and supply curves respectively.

Labor demand curve and the labor supply curve is intersecting each other corresponding to the wage rate of $10 per hour and the labor of 450,000 workers.

So,

In this market, the equilibrium hourly wage is $10, and the equilibrium quantity of labor is 450 thousand workers.

When minimum price of a commodity or service is fixed then such price control is referred to as price floor.

So,

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

When labor demand is greater than the labor supply then there is upward pressure on the wage rate.

On the other hand, when labor demand is less than the labor supply, there is downward pressure on the wage rate.

Following is the complete table -

Labor Supplied Labor Demanded Wage (Dollars per hour) 12 8 (Thousands of workers) 495 Pressure on Wages (Thousands of workers) 225 Downward ward? 405 675

Minimum wage can only be binding when it is fixed at a level greater than the equilibrium wage.

In this market, the equilibrium wage rate is $10 per hour.

So,

A minimum wage below $10 per hour is not a binding minimum wage in this market.

Hence, the given statement is True.