Question

The government sets a minimum wage above the current equilibrium wage. What effect does the minimum wage have on equilibrium in the labor​ market? What are its effects on consumer​ surplus, producer​ surplus, and total surplus in the labor​ market? ​(Hint: in the labor​ market, workers are​ 'producers' and firms are​ 'consumers'.)

Answer 1

Question Completion:

A binding minimum wage

▼

does not change

raises

lowers

the market wage and

▼

increases

decreases

does not change

the market employment level.

Answer:

A binding minimum wage

▼

raises

the market wage and

▼

decreases

the market employment level.

Step-by-step explanation:

This action of the government of setting the minimum wage above the current equilibrium wage will disrupt the equilibrium of labor demand and supply. Certainly, more labor will be available (the supply side will increase) while the demand for labor by firms or labor consumers will decrease. This reflects the market dynamics caused by the increased price (in the form of increased minimum wage) and the quantities of labor supplied and demanded.