The graph shows the market for apple pickers in New England. Wage rate (dollars

Question

The graph shows the market for apple pickers in New England. Wage rate (dollars per hour) 15.00 If the New England states introduce a minimum wage for apple pickers of $12.00 an hour, how many pickers are employed and how many are unemployed? 12.00 If the New England states introduce a minimum wage for apple pickers of $12.00 anhour,ckers are employed and pickers are unemployed. 9.00 The lowest wage that some workers might be able to earn if a black market develops is S 6.00 3.00 2500 3750 5000 Quantity (pickers) 6250 7500

Explanation / Answer

The price control is restrictions on prices by government to maintain affordability of essential product, to combat inflation or to ensure a minimum income for the producers and suppliers of the good. The price controls can be of two types, price floor and price ceiling. The price celling is restricting price below equilibrium price to ensure the affordability of the good. Price floor is restricting price above equilibrium price to ensure minimum income for the producers and suppliers of the good.

The minimum wage is a price floor to the price of labor. It is set above the equilibrium wage rate. In the figure below we showed the impact of a price floor. The demand and supply curve for the low skilled labor is given by D and S. The equilibrium wage is $9. The minimum wage is set above$9, at $12.

The minimum wage increases the wage of the low skilled labor in the market. Facing the higher wage the producers decreases their demand fore labor along the demand curve to 3750. The increase in wage increases labor supply along the supply curve to 6250. From the figure we see that quantity demanded is smaller than quantity supplied. There is an excess supply of amount (6250-3750)=2500.

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The black market is the market where the goods and services are exchanged outside the legal periphery of the market. The black market activity occurs due to many reasons; such as

In the black market the price that prevails is other than regulated price. In case of price floor there is tendency for the price to fall and in case of ceilling the price rises above the controlled value. In both cases the limit of the price range in black market is the equilibrium wage.

Therefore, in this case as minimum wage is price floor there is tendency of the price to fall below $12. This however not fall below equilibrium price of $9.

Then the minimum wage is $9.

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