Question

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PROBLEM #1 The following represents information on the daily labor market for fast-food workers in a suburban community. Use this data on the demand and supply of labor to answer the questions below. Wage is measured per hour; quantities demanded and supplied are also measured in hours. Wage/Hour Quantity Demanded (Hours) $13 1000 12 980 960 940 890 840 Quantity Supplied (Hours) 1100 1090 1070 1060 890 810 poco o Determine the equilibrium hourly wage in this market and equilibrium quantity of hours. Suppose the state in which this town is located enacts a new law, requiring a minimum wage of $12 per hour. Determine whether this market will experience a surplus or shortage. Find the magnitude of this surplus or shortage. If the minimum wage had been set at $8/hour instead, would there be a surplus, a shortage, or neither? Briefly explain your answer. o

Answer 1

(a) At the equilibrium point, quantity demanded and quantity supplied both are equal to each other.

Therefore, the equilibrium quantity of hours is 890 and the equilibrium hourly wage is 9.

(b) Minimum wage set at $12.

At a wage of $12, the quantity demanded is 980 hours and the quantity supplied is 1090 hours.

Since the quantity supplied is larger than the quantity demanded, there is a surplus in the market.

Surplus = Quantity supplied - Quantity demanded.

Surplus = 1090 hours - 980 hours

Surplus = 110 hours.

(C) A minimum wage is said to be effective and create a surplus in the market if it is set above the equilibrium point.

If it is set below the equilibrium point, then the minimum wage is not effective and the market returns back to the equilibrium point.

So if the minimum wage is set at $8 (below the equilibrium wage) then there will be neither surplus nor shortage in the market.