11. Minimum wage legislation The following graph shows the labor market in the f

Question

11. Minimum wage legislation The following graph shows the labor market in the fast-food industry in the fictional town of Supersize City. In a labor market, workers supply their labor to the market in exchange for wages, and their behavior is represented by the supply curve. Similarly, firms pay wages to obtain labor, and th their behavior is represented by the demand curve. In this way, wages are the price of labor. Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly Graph Input Tool Market for Labor in the Fast Food Industry 20 Wage (Dollars per hour) Labor Demanded (Thousands of workers) 16 Labor Supplied (Thousands of workers) Supply 900 2 12 10 Deman 0 90 180 270 360 450 540 630 720 810 900 LABOR (Thousands of workers)

Explanation / Answer

a) The minimum hour wage bill is a type of a price floor. i.e. no one can go below that wage in the market.

b) at the wage of $8 the quantity supplied is 225 and quantity demanded is 675. As quantity demanded is more there will be a a shortage. and upward pressure in the market.

c) At a wage of $12 quantity demanded will be 225 and quantity supplied will be 675. there will be surplus in the market and it will face a downward pressure.

d) "True"

As it is above the equilibirum price it will be binding.

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