Question

Minimum wage laws and unemployment 

Consider the market for labor depicted by the demand and supply curves that follow. 

Use the calculator to help you answer the following questions. You will not be graded on any changes you make to the calculator 

Complete the following table with the quantity of labor supplied and demanded if the wage is set at $12.50. Then indicate whether this wage will result in a shortage or a surplus 

Hint: Be sure to pay attention to the units used on the graph and in the table. For example, type in 100 for 100,000 

Suppose a senator considers introducing a bill to legislate a minimum hourly wage of $12.50 

Which of the following statements are true? 

Check all that apply. 

Binding minimum wages increase the natural rate of unemployment. 

In the absence of price controls, a surplus puts upward pressure on wages until they rise to the equilibrium. 

If the minimum wage were set at $9.50, the market would still be able to reach equilibrium.

In this labor market, a minimum wage of $12.50 would be binding.

Answer 1

Wage	Labor Demanded	Labor Supplied	Shortage or Surplus?
	(Thousands of workers)	(Thousands of workers)
$12.50	375	625	Surplus

Suppose a senator considers introducing a bill to legislate a minimum hourly wage of $12.50.

Which of the following statements are true? Check all that apply.

In this labor market, a minimum wage of $12.50 would be binding.

Binding minimum wages increase the natural rate of unemployment.

If the minimum wage were set at $9.50, the market would still be able to reach equilibrium.

In the absence of price controls, a surplus puts upward pressure on wages until they rise to the equilibrium.

Answer 2

Wage. Ldemanded.  Lsupplied Shortage

   or surplus

$12.50. 375. 625. Surplus

Correct statement:

If the minimum wage were set at $9.50, the market would still be able to reach equilibrium.

In this labor market, a minimum wage of $12.50 would be binding