Question

Minimum wage legislation The following graph shows the labor market in the fast-food industry in the fictional town of Supersize City. Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. 0 30 60 90 120 150 180 210 240 270 300 20 18 16 14 12 10 8 6 4 2 0 WAGE (Dollars per hour) LABOR (Thousands of workers) Demand Supply Graph Input Tool Market for Labor in the Fast Food Industry Wage (Dollars per hour) Labor Demanded (Thousands of workers) Labor Supplied (Thousands of workers) In this market, the equilibrium hourly wage is, and the equilibrium quantity of labor is thousand workers. Suppose a senator introduces a bill to legislate a minimum hourly wage of $6. This type of price control is called a . For each of the wages listed in the following table, determine the quantity of labor demanded, the quantity of labor supplied, and the direction of pressure exerted on wages in the absence of any price controls. Wage Labor Demanded Labor Supplied Pressure on Wages (Dollars per hour) (Thousands of workers) (Thousands of workers) 12 8 True or False: A minimum wage below $10 per hour is not a binding minimum wage in this market. True False

Answer 1

The demand and supply curvei intersects each other at equilibrium point.

In this market,

the equilibrium hourly wage is $10,

and the equilibrium quantity of labor is 450 thousand workers.

Suppose a senator introduces a bill to legislate a minimum hourly wage of $6. This type of price

control is called a price floor.

If demand > supply => shortage in labor market creates upward pressure on wages

If demand < supply => surplus in labor market creates downward pressure on wages.

Wages (Dollar per hour)	Labour demanded (thousands of workers)	Labour supplied (thousands of workers)	Pressure on wages
12	360	630	Downwards
8	540	270	Upwards

A price floor is said to be binding if it is set above the equilibrium price.

False: A minimum wage below $10 per hour not a binding minimum wage in this market.