Question

5. 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. 0 125 250 375 500 625 750 875 1000 20.0 17.5 15.0 12.5 10.0 7.5 5.0 2.5 0 WAGE (Dollars per hour) LABOR (Thousands of workers) Demand Supply Graph Input Tool Market for Labor Wage (Dollars per hour) 7.50 Labor Demanded (Thousands of workers) 625 Labor Supplied (Thousands of workers) 375 Complete the following table with the quantity of labor supplied and demanded if the wage is set at $7.50. 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 workers. Wage Labor Demanded Labor Supplied Shortage or Surplus? (Thousands of workers) (Thousands of workers) $7.50 625 375 Shortage Suppose a senator considers introducing a bill to legislate a minimum hourly wage of $7.50. Which of the following statements are true? Check all that apply. In the absence of price controls, a shortage puts downward pressure on wages until they fall to the equilibrium. In this labor market, a minimum wage of $10.50 would be binding. Binding minimum wages cause cyclical unemployment. If the minimum wage is set at $7.50, the market will still be able to reach equilibrium.

Answer 1

At $7.50

Labour demanded is 625 thousand

Labour supplied is 375 thousand

Therfore it is a SHORTAGE.

The following statements are correct-

1. In this labor market, a minimum wage of $10.50 would be binding.

Reason- since the equilibrium is below $10.50 the minimum wage of $10.50 is binding.