3. Minimum wage legislation The following graph shows the labor market in the fa

Question

3. Minimum wage legislation The following graph shows the labor market in the fast-food industry in the fictional town of Supersize City. 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 14 12 10 Wage (Doliars per hour) Labor Demanded (Thousands of 0 Labor Supplied 200 (Thousands of workers) rs) 0 50 100 160 200 250 300 350 400 450 500 LABOR (Thousands of workers)

Explanation / Answer

Answer:

1)In the market the equilibrium hourly wage is $10 and the equivalent quantity of labour is 250 thousands of workers.

Explanation: When hourly wage is $10 ,both the demand for labour and supply of labour is the same.Thus 250 thousands of workers is said to be the equilibrium number of workers in the labour market.

2) A Price Floor.

Explanation: A minimum wage is a price floor below which the labour units will not allowed to be bought and sold. The wage rate can not reduce any further than the minimum wage.

3)

Wage

(Labour per hour)

LabourDemanded

(Thousands of workers)

Labour Supplied

(Thousands of workers)   

Explanation: At a wage rate of $14 per hour, the demand for labour is 150000 workers where as the supply of labour is 350000. Supply of labour is greater than demand for labour at this particular wage rate and a surplus of 200000 workers is there in the market. Therefore there is a downward pressure on wages. The wages will start to decline as a result of the downward pressure on wages and will remain to decline until there exists neither surplus nor shortage.

On the other hand, when the hourly wage rate is $6 , the amount of labour demanded is 350000 and of the labour Supplied is 150000. Thus there is an upward pressure on wages because the demand for labour is greater than that of the supply of labour. This upward pressure of wages will lead to an increase in wage until there is neither a surplus nor shortage.

4) True

Explanation: Here in this labour market the equilibrium wage rate is $10 per hour. A minimum wage above the equilibrium wage rate of $10 would be binding in the market. But any wage rate below the equilibrium wage of $10 would not be binding in the market.

Wage

(Labour per hour)

LabourDemanded

(Thousands of workers)

Labour Supplied

(Thousands of workers)   

pressure on wages 14 150 350 Downward 6 350 150 Upward

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