Question

4. Minimum wage legisiation The following graph shows the labor market in the fast-food industry in the fictional town of Supersize aty. Use the graph input tool to help you answer the folowing questions You will not be gradest on aty changes you make to ths graph aph and any corresponding amounts in each grey field wil change accordinghy Note: Once you enter a value in a white field, the g Graph Input Tool Market for Labor in the Fast Food Industry 20 18 per hour) Labor Demanded 16 14 12 10 900 Labor Suppliea Supply 0 Demand o 90 180 270 360 450 540 630 720 810 900 LABOR (Thousands of workers)

Answer 1

If the senator sets a price control at the price of $6 that is called the price ceiling, a binding price ceiling is set below the equilibrium. The equilibrium is where the labour demanded and supply is equal, the price ceiling would result in shortage of labour this is because at a lower wage no will not be interested to work.

The wage $12 is above the equilibrium wage so there will excess labour supply and this will put downward pressure on the wages and reach the equilibrium. The wage $8 is below the equilibrium level so there will be excess demand for the labour and this will put upward pressure on the wages.

The minimum wage is a price floor and it is set above the equilibrium wage, so $10 minimum wage is not above the equilibrium and it is not binding.

FALSE.