Question

6) (10 pts) Some businesses have bemoaned the high minimum wage saying they can't afford to pay workers such high wages. One business owner said, "No business owner should have to let the government decide how to run their business." Assume the unemployment rate is extremely low at the Federal minimum wage of $7.25; there is no "extra" or surplus labor in the economy. In fact, employers are claiming they can't find workers to fill positions. (Zero unemployment is unachievable as some unemployment will always exist as people change jobs, move to new locations, graduate from college, etc.) a. Is the business owner's statement about government positive or normative? Explain. b. Based on supply and demand analysis of the labor market, is minimum wage "too high"? C. Suppose that due to newly passed legislation, the minimum wage is increased to $12. At the same time unemployment rises. Based on supply and demand analysis, is this wage "too high"? Draw a diagram using supply and demand curves to demonstrate. Note: Is the statement that minimum wage is "too high" or "too low" positive or normative? It's probably normative. Suppose instead we said, "there is a labor shortage/surplus", or "at the minimum wage there are inefficiencies", or "quantity supplied is more/less than quantity demanded." These are all factual, positive statements. However, these facts are often used to support a person's opinion that minimum wage is "good" or "bad" or "fair" or "unfair.” Thus, sometimes conversations about economics move between the positive and normative.

Answer 1

6. a.Normative statement. normative statements focus on what things should be. Positive statement explain what things are. example minimum wage is $7.25 .

b. Minimum wage is price floor. Minimum wage is minimum legal wage set in this case. Companies cannot pay less than this wage even when supply is higher. Following figure b shows that minimum wage set at W2 increases supply and decreases demand. Figure a shows that as labor supply increase, wages should come down from W1 to W2 but minimum wage prohibit this.

c.Yes, as minimum wage level shown in graph b goes up than wage rate of W2, gap between demand and supply of labor will widen and more unemployment benefit will have to be paid.

wage duauht laber @ labor A. market. quantly 6 Price hoor