Question

In: Economics

If the government imposes a minimum wage that increases wages for workers employed by the firms...

If the government imposes a minimum wage that increases wages for workers employed by the firms participating in the market, what happens to the inverse supply function?

what happens to the equilibrium price of products traded in this market?

Solutions

Expert Solution

If the government imposes a minimum wage that increases wages for workers employed by the firms participating in the market then it rise in the money wage rate makes the aggregate supply curve shift inward, meaning that the quantity supplied at any price level declines. A fall in the money wage rate makes the aggregate supply curve shift outward, meaning that the quantity supplied at any price level increases.

How does the law of supply and demand affect wages?

Just as in any market, the price of labor, the wage rate, is determined by the intersection of supply and demand. When the supply of labor increases the equilibrium price falls, and when the demand for labor increases the equilibrium price rises.

If the supply curve shifts downward, meaning supply increases, the equilibrium price falls and the quantity increases. ... If the demand curve shifts downward, meaning demand decreases but supply holds steady, the equilibrium price and quantity both decrease.


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