In: Economics
Labor demand: Ld = 210 – 2W
Labor supply: Ls = 120 + W
W = the wage rate.
If the government sets the minimum wage rate at $40 per hour, Ld or employment will decline by ___ (compare with equilibrium employment).
Select one:
A. 5
B. 10
C. 15
D. 20
E. 25
Initially, the equilibrium wage was,
210-2W =120+W
W = 30.
The employment level was = 210-2*30 = 210-60 =150.
After the minimum wage, the supply will be more than demand. The emplyed people would equal to the demand of workers at that wage rate.
Hence employment now = 210-2*40 =210-80 = 130.
Hence unemployment increased by 150-130 =20.(D).