The minimum wage, if it is binding, lowers the incomes of no workers. only those workers...

The minimum wage, if it is binding, lowers the incomes of

no workers.

only those workers who become unemployed.

only those workers who have jobs.

all workers.

Suppose that the demand for lava lamps is elastic, and the supply of lava lamps is inelastic. A tax of $2 per lamp levied on lava lamps will increase the price paid by buyers of lava lamps by

less than $1.

$1.

between $1 and $2.

$2.

Expert Solution

(1) Option (2)

A minimum wage is imposed above equilibrium wage rate, so quantity of labor supplied rises while quantity of labor demanded falls, causing unemployment. Income of the unemployed workers falls.

(2) Option (1)

When demand is elastic and supply is inelastic, the producer bears majority of the tax burden and consumer bears a low proportion of tax burden. So in this case buyers will pay less than 50% (i.e. less than $1) of unit tax of $2.

Rahul Sunny answered 2 years ago

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