Final answer:
A minimum wage is a nonbinding price floor if it is set below the market equilibrium wage, having no effect since market wages are already higher. A living wage is a binding price floor when it is set above the equilibrium wage, forcing employers to pay more than the market rate which could impact employment levels.
Step-by-step explanation:
Under what circumstances would a minimum wage be a nonbinding price floor? A minimum wage would be considered to be a nonbinding price floor when it is set below the equilibrium wage in the market. In such a case, the market wages, as determined by the forces of supply and demand, are higher than the minimum wage, and thus employers are already paying workers a wage that is above the minimum. Therefore, the minimum wage does not impact current employment and wage levels.
On the other hand, a living wage acts as a binding price floor when it is set above the equilibrium wage. This results in employers being mandated to pay workers at least the living wage, which is higher than what the market would have otherwise offered. When the floor is binding, it can affect employment levels because it sets a threshold that may lead to excess supply of labor (unemployment) if the demand for such labor is not as high at that wage rate.