Question

Because of recently-introduced increases to the minimum wage, the cost of hiring workers at fast food restaurants has increased. According to the supply and demand model, what will happen to the equilibrium price and quantity of food at these restaurants?

Answer 1

Increased minimum wage generally leads to higher food prices at fast food restaurants and potentially lower quantity demanded, dependent on demand elasticity.

Step-by-step explanation:

According to the supply and demand model, an increase in the minimum wage leads to higher labor costs for fast food restaurants. This scenario typically results in a higher equilibrium price for food to cover the increased cost of hiring workers.

As a consequence, the quantity of food demanded may decrease, since consumers may be less willing to purchase food at higher prices. The actual change in equilibrium price and quantity will depend on the elasticity of demand for fast food.

If demand is inelastic, the quantity demanded might not drop significantly even with higher prices; however, if demand is elastic, consumers are more responsive to price changes, and the quantity demanded could decrease more noticeably.