The following graph shows the labor market in the fast-food industry in the fictional town of Supersize City.

4. Minimum wage legislation

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.

Graph Input Tool Market for Labor in the Fast Food Industry 20 18 16 3 14 12 O 10 Wage (Dollars per hour) Labor Demanded (Tho

Solutions

Expert Solution

The equilibrium hourly wage is $10 and quantity is 350 thousand workers.
(It is determined at the intersection of labor demand and labor supply curves)

Price control is called non binding price floor.
(As minimum wage is set which is price floor and it is set below the equilibrium price so it is non binding)

Wage - $8
Labor demanded = 385
Labor supplied = 280
Pressure on wages = Upward
(Pressure on wages is to reach the equilibrium price)

Wage - $12
Labor demanded = 315
Labor supplied = 420
Pressure on wages = Downward
(Pressure on wages is to reach the equilibrium price)

False
(A binding minimum wage must be set above the equilibrium wage)

Rahul Sunny answered 1 year ago

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