Question

4) Explain why the following statements are either true or false:

A: In a competitive labor market, a minimum wage above the market equilibrium will reduce the level of employment.
       

B: In a monopoly labor market, a minimum wage set above equilibrium will always reduce the level of employment.
        

C: In bilateral monopoly labor markets the monopoly employer and the union bargain to an outcome that is closer to a competitive equilibrium.
        

D: If two industries have identical labor supplies and operate in competitive labor markets then there is no reason for them to have different wage levels. 


Answer 1

A: True

In a competitive labor market, a minimum wage above the market equilibrium will reduce the level of employment. At this wage supply does not equals demand. When the minumum wage is set above equilibrium wage, the firms reduce the quantity of labour demanded and excess supply of labour results in unemployment.B.

False

In a monopsony labor market, a minimum wage set above equilibrium will not reduce the level of employment. Monopsony is a market conditions in which there are one employer and many workers. If wage is set above equilibrium wage employees produces more output and thus will not affect employment

.C:

True

In bilateral monopoly labor markets the monopoly employer and the union bargain to an outcome that is closer to a competitive equilibrium. Both the parties enter into negotiations and finally an equilibrium is determined which is closer to competitive market

D.

False

If two industries have identical labor supplies and operate in competitive labor markets , there may be possibility of having different wage levels. Wages are determining at the point where demand and supply equates. If demand for labor varies. It can change the wage levels.