Question

Suppose the market equilibrium wage is $13.00 an hour, and the minimum wage is currently $10.00 an hour. 1st attempt ♡ Hint X ♡ See Hint Deciding whether a price floor is binding or nonbinding is the first step in determining how it will affect the market. Does this increase in the minimum wage lead to a binding or a nonbinding price floor? (a) An increa looking for jobs. of people (b) The quantity of labor demanded would . . (c) Overall, this increase in the minimum wage would result in in the labor market.

Answer 1

Answer

a)

It is given that equilibrium wage is $13. Initially Minimum wage is $10. This means that wage cannot be below $10. But Equilibrium wage is greater than minimum wage which means that we can have equilibrium wage and thus wage that will prevail in the market is equilibrium wage and hence, There will be no effect of minimum wage of $10. Similarly New minimum wage $12 is lesser than equilibrium wage and hence this minimum wage will not effect the market and hence wage that will prevail in the market is $13(equilibrium wage).

Note that If Minimum wage is greater than equilibrium wage , then minimum wage is binding and wage that will prevail in the market is the minimum wage. But If Minimum wage is less than equilibrium wage, then wage is not binding and wage that will prevail in the market is Equilibrium wage(like here).

Hence increase in minimum wage of $10 to $12 will not effect market at all as equilibrium wage is greater than both of then and in both case, equilibrium wage will prevail in the market.

Hence increase in minimum wage from $10 to $12, would result in no change in the number of people looking for jobs.

b)

Similarly as discussed above, The quantity of labor demand will not change.

c)

This increase in minimum wage will result in no change in labor market.