Question

Suppose that the demand for low-skill labor, qd, is represented by the equation qd = 56,000,000 - 3,000,000 × w, where w is the wage rate. The supply of low-skill labor, qs, is represented by the equation qs = -8,000,000 + 5,000,000 × w. If the minimum wage is $9, there will be ________ of labor in the market.

1) a shortage, followed by a surplus
2) equiLiBrium
3) a surplus
4) a shortage

Answer 1

At a minimum wage of $9, the calculated demand for labor is 29,000,000 and supply is 37,000,000, resulting in a surplus of labor in the market.

Step-by-step explanation:

The student asked about the effect of a minimum wage on the market for low-skill labor, given the demand and supply equations for labor. To find out if there is a surplus or shortage of labor at a minimum wage of $9, we can substitute this value into the demand and supply equations to get the quantities of demand and supply at that wage. For demand, qd = 56,000,000 - 3,000,000 × 9, which gives us 29,000,000. For supply, qs = -8,000,000 + 5,000,000 × 9, which gives us 37,000,000. Comparing the two, qd < qs, therefore, at a minimum wage of $9, there is more labor supplied than demanded, resulting in a surplus of labor.