Question

Problems & Applications (Ch 06) Suppose the minimum wage is $6 per hour in the market for unskilled labor, as shown on the following graph Use the grey point (star symbol) to indicate the market equilibrium wage and quantity of labor in the absence of a minimum wage. Then use the purple point (diamond symbol) to indicate the level of employment at the minimum wage provided, and use the orange point (square symbol) to indicate the quantity of labor supplied at this minimum wage. Finally, use the green polygon (triangle symbols) to show the total wage payments to unskilled workers Supply Market Equilibrium Minimum Wage Minimum Wage Outcome Wage (Dollars per hour) Labor Supplied at Minimum Wage Total Wage Payments Demand 0 1 10 2 3 4 5 6 7 8 Quantity of Labor (Milions of workers)

Answer 1

1. 2 million workers. At the minimum wage rate, the difference between the supply and demand (i.e.6-4 =2).

2. $24 million. Product of minimum wage rate with the quantity demand for labor (i.e.6*4million =24million)

3. Supply. If the minimum wage rate rises to $7, then the supply for labor is more than its demand.

4. Demand.

5. Elasticity of demand. If the demand curve is elastic, then a change in the minimum wage will lead to a relatively large change in employment.

6. Elasticity of demand and Elasticity of supply. Both together will impact the magnitude of unemployment with a very large change.

7. Inelastic. The quantity supplied will not change much as wages change, therefore with the higher minimum wage even if the same labor works then also the wage payments to the unskilled laborers higher.