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. Graph Input Tool Market for Labor in the Fast Food Industry & Wage (Dollars per hour Labor Demanded Thouc worten 000 Labor Supplied Thor WAGE(Dollars per hour) o 0 0 150240 320 400 480 560 640 720 800 LABOR (Thousands of workers) In this market. the equilibrium hourly wage is J. and the equilibrium quantity of laboris thousand workers Suppose a senator introduces a bi to legislate a minimum hourly wage of 58. This type of price control is called 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 Wage (Dollars per hour) Labor Demanded (Thousands of workers) Labor Supplied (Thousands of workers) Pressure on Wages True or False A minimum wage above $10 per hour is binding minimum wage in this market. True O False

Answer 1

From the graph we can see the equilibrium level of price and quantity is given at the point where the supply and demand curves intersect. So we can see at that point equilibrium wage is 10 and quantity of labor is 400.

A minimum wage means that wage cannot fall below this rate. Hence it is a price floor

At wage 14, labor demanded = 0 labor supplied = 480. Since supply is greater than demand therefore the wages will go down. In other words there is a downward pressure

At price 6 labor demanded is around 760, labor supplied is around 340. Since demand is greater than supply therefore there will be an upward pressure.

A minimum wage above 10 will be a binding wage. This is because the equilibrium wage level is 10. But the minimum wage set above 10 will force it to increase therefore it will be binding. Hence the correct answer is true.