Question 5 Chapter 15 Minimum-wage laws and unemployment
Explanation: Close Explanation
Enter $7.50 into the box marked Wage to the right of the graph. A
... [Show More] t this wage, firms demand 625,000 workers, and 375,000 workers
will want to work. Therefore, there is a shortage of 250,000 workers.
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.
Suppose a senator introduces a bill to legislate a minimum hourly wage of $7.50.
Complete the following table with the quantity of labor supplied and demanded at this wage, and indicate whether this represents a shortage
or a surplus.
Note: Be sure to pay attention to the units used on the graph and in the table. For example, type in 100,000 for 100 thousand workers.
Wage
Labor Demanded Labor Supplied
(Workers) (Workers) Shortage or Surplus?
$7.50 625,000
Points: 1 / 1
Which of the following statements are true? Check all that apply.
Binding minimum wages cause cyclical unemployment.
In this labor market, a minimum wage of $10.50 would bebinding.
Graph InputTool
20.0 Market for Labor
17.5 Supply Wage
(Dollars
15.0
12.5
per hour)
Labor
Demanded
(Thousands
of workers)
Labor
Supplied
(Thousands
of workers)
10.0
7.5
5.0 eman
2.5
0
0 125 250 375 500 625 750 875 1000
LABOR (Thousands of workers)
D d
2.50
375,000 Shortage
WAGE (Dollars per hour)
In the absence of price controls, a shortage puts downward pressure on wages until they fall to the equilibrium.
Points: 1 / 1
Explanation: Close Explanation
If the minimum wage is $7.50, employers will not be able to attract enough workers. This causes them to raise the wage until the
quantity of labor supplied is equal to the quantity they demand (this occurs at $10). That is, the shortage puts upward pressure on
wages and the market is able to reachequilibrium.
If the minimum wage is instead set at $10.50, employers will attract more workers than they are willing to hire. Because the
minimum wage prevents employers from lowering wages to the equilibrium rate, a minimum wage of $10.50 is considered binding.
A binding minimum wage will contribute to a persistent surplus of labor in this market, generating structural unemployment.
Structural unemployment is unemployment that arises from a mismatch between the skills of the existing labor force and those
required to perform available jobs. One source of structural unemployment is minimum wage legislation, which holds wages above the
productivity levels of less skilled workers, who are thus ill-suited to existing jobs. In the above scenario, the quantity of labor supplied
will continue to exceed the quantity of labor demanded as long as the minimum wage remains above the market equilibrium wage.
The resulting surplus of labor creates a pool of unemployed workers—people who would like to work at the prevailing minimum wage,
but who cannot find a job. [Show Less]