Question

4. Minimum wage legislation 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 (Thousands of workers) Supply 500 Labor Supplied (Thousands of workers) WAGE (Dollars per hour) Demand 0 50 100 150 200 250 300 350 400 450 500 LABOR (Thousands of workers)

Answer 1

Equilibrium point is the point where the demand curve intersect supply curve. From the above graph it can be observed that the equilibrium hourly wage is $10 per hour and the equilibrium quantity of labor is 250 thousand of workers. If the senator introduces a bill to legislate a minimum hourly wage of $6, this type of price control is called as Price Floor. If there is an excess supply, there will be a downward pressure on the wage. If there is excess demand, there will be upward pressure on the wage. Wage (Dollars per Labor Demanded Labor supplied Pressure on wages hour) (Thousands of (Thousands of workers) workers) 8 375 125 Upward | 12 125 375 Downward A company will not reach equilibrium wage rate if the minimum wage rate is more than 10. This means at wage rate above $10, there will be a binding price floor. As a result, there will be a surplus of labors because labor supplied is always greater than labor demanded. Hence the given statement is False.