Question

4. Minimum wage legislation 

The following graph shows the labor market in the fast-food industry in the fictional town of Supersize City. 

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. 

In this market, the equilibrium hourly wage is and the equilibrium quantity of laboris thousand workers .

Suppose a senator introduces a bill to legislate a minimum hourly wage of 56. This type of price control is called a

For each of the wages listed in the following table, determine the quantity of labor demanded, the quantity of labor supplied, and the direction of pressure exerted on wages in the absence of any price controls. Wage (Dollars per hour) Labor Demanded (Thousands of workers) Labor Supplied (Thousands of workers) Pressure on Wages 

True or False: A minimum wage above $10 per hour is a binding minimum wage in this market. (Economists call a minimum wage that prevents the labor market from reaching equilibrium a binding minimum wage.) True False

Answer 1

At the equilibrium point, demand and supply curve intersects each other.

In this market, the equilibrium hourly wage is $10 and the equilibrium quantity of labor is 250 thousand workers.

Suppose a senator introduces a bill to legislate a minimum hourly wage of $6. This type of price control is called a price floor.

If the demand > supply, then there is excess demand which leads to upward pressure on wage.

If the demand < supply, then there is excess supply which leads to downward pressure on wages

Wages ($ per hour)	Labor Demanded (Thousand of workers)	Labor supplied (Thousand of workers)	Pressure on wages
12	175	275	downward
8	300	225	upward

True: A minimum wage above $10 per hour is binding minimum wage in this market.

Note: A price floor is binding if it is set above the equilibrium price.

A price ceiling is binding if it is set below the equilibrium price.