Question

In a local market for unskilled labor, the quantity of labor supplied is 8 million hours at $8 per hour and 10 million hours at $9 per hour. The employers would hire 8 million hours of labor at $8 per hour and 4 million hours at $9 per hour. The local minimum wage is currently $7.50, but the city council is considering a proposal to raise it to $9 per hour. In this situation, which of the following is true? (Check all that apply.)

Multiple answers:You can select more than one option

A

The current minimum wage is nonbinding.

B

The proposed minimum wage would cause excess demand for labor.

C

With the current minimum wage in effect the market is in equilibrium.

D

The proposed minimum wage would decrease the deadweight loss in the market.

you can select more than one option

Answer 1

Options A and C

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P	Qd	Qs	Comment
8	8	8	equilibrium
9	4	10	surplus =Qs-Qd=10-4=6

The market is in equilibrium at $8 wage and a minimum wage of $7.5 is below it so the wage is not binding and the market clears at the equilibrium.

so option A and C are not correct

The current minimum wage is nonbinding.

With the current minimum wage in effect the market is in equilibrium

If the new minimum wage is in effect then the deadweight loss increases as the unemployment increases by 6 million.