Chapter Study Outline
8.1 From Perfect Competition to Monopsony Show
8.2 Offsets, Inequality, and Education
8.3 The Minimum Wage: The U.S. Experience
What happens when minimum wage is set above the market equilibrium?A minimum wage that is set above the equilibrium wage will cause a reduction in the quantity labor demanded, and a rise in the quantity of labor supplied. This happens because, at minimum wage, the cost of production increases, and therefore, employers fire some employees to cut on the cost of production.
When the minimum wage is above the equilibrium wage?Most economists agree that a minimum wage set above the market clearing equilibrium will cause unemployment. What happens when it is set below the equilibrium wage is, however, less clear. This is partly because the literature shows that the effect of a minimum wage will depend on the reason for its implementation.
What happens when real wage is above equilibrium?If the real wage rate rises above the equilibrium wage rate then more workers will be supplied than is demanded by the market – a surplus of workers. This will create a involuntary unemployment because these workers want a job but are unable to find one.
How does minimum wage affect equilibrium?Answer and Explanation: In the case of price floor, the minimum wage is set above the equilibrium wage rate such that the quantity supplied of labor exceeds than the quantity demanded of labor in such a way that there exists a surplus of labor in an economy which creates the unemployment in an economy.
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