Applications & Analysis 6: Minimum wage Below is a supply-demand diagram of the market for unskilled labor. S (workers) wage $18 $15 $12 D (employers) 1000 1200 1350 Q labor hours 1. Which of the three wages above would be a binding minimum wage? Why? b. imposition of the binding minimum wage? Explain.
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Step 1: First, we need to understand that a binding minimum wage is a wage that is set above the equilibrium wage, causing a surplus of labor (unemployment) because the quantity of labor supplied exceeds the quantity demanded. Show more…
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Complete the following table with the quantity of labor supplied and demanded if the wage is set at $15.00. 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 (Thousands of workers) | Labor Supplied (Thousands of workers) | Shortage or Surplus? $15.00 | | | Suppose a senator considers introducing a bill to legislate a minimum hourly wage of $15.00. Which of the following statements are true? Check all that apply. In this labor market, a minimum wage of $11.50 would be binding. In the absence of price controls, a surplus puts downward pressure on wages until they fall to the equilibrium. If the minimum wage is set at $15.00, the market will not reach equilibrium. Binding minimum wages cause structural unemployment.
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Figure 4-8 Wage rate (dollars per hour) 9.00 7.00 5.00 S Minimum wage D 0 3 5 7 Quantity (thousands of workers) Unskilled Labor Market Refer to Figure 4-8. Suppose that the government imposes a minimum wage of $9. How many fewer unskilled workers would be employed at the minimum wage, compared to the number that would be employed at the equilibrium wage? a. 3,000 b. 4,000 c. 2,000 d. 5,000
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Suppose that you have been hired to analyze the impact on employment from the imposition of a minimum wage in the labor market. Further suppose that you estimate the demand and supply functions for labor, where L stands for the quantity of labor (measured in thousands of workers) and W stands for the wage rate (measured in dollars per hour): Demand: W = 10 - 0.5Ld; Supply: W = (1/3)Ls. First, calculate the free market equilibrium wage and quantity of labor. Now suppose the proposed minimum wage is $6. How large will the surplus of labor in this market be?
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