(Shortage/Surplus/Neither) 5. Minimum-wage laws and unemployment Consider the ma
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(Shortage/Surplus/Neither)
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 Graph Input Tool Market for Labor 16 Wage (Dollars per hour) Supp 2.00 Labor Demanded (Thousands of workers) Labor Supplied (Thousands of workers) 12 1,400 200 10 emand 0 200 400 600 800 1000 1200 1400 1600 LABOR (Thousands of workers)Explanation / Answer
When the wage rate is $6, labor demanded is 1000 thousand workers and labor supplied is 600 thousand workers. Hence there is a shortage of 400 thousand workers.
Note that when minimum wage is $6, market wage is higher at $8 so that market will still reach the equilibrium.
Since 8.50 > 8.00, the wage rate of 8.50 will be binding.
When minimum wages are binding they cause structural unemployment. Also shortage results in increasing the wage and not decreasing it
Hence first and second option are true.
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