a If the minimum wage is set at $100, how many will be unemployed? b If the mini

Question

a If the minimum wage is set at $100, how many will be unemployed?

b If the minimum wage increases from $100 to $125, how many additional workers will be unemployed?

c If the minimum wage is equal to $125, what is the quantity of labor supplied, the quantity of labor demanded, and number unemployed?

d Without a minimum wage, what is the equilibrium level of employment? Explain what happens to the level of employment if the minimum wage is equal to $125.

e At a minimum wage of $125, how much is the surplus of labor?

Explanation / Answer

a. At the Minimum wage of $100, the labour supply is 30 and the labour demand is 20,

   Unemployment    = Labur Supply - Labour Demand

   = 30 - 20

   =    10

Thus, the quantity of labour unemployed is 10.

b. If the minimum wage rate is $100, unemployment is 10.

If the minimum wage rate is $125,

   Unemployment = Labur Supply - Labour Demand

=    35 - 15

=    20

Change in unemployment = unemployment at $125 - unemployment at $100

   = 20 - 10

   = 10

   So, 10 more additional workers will be unemployed.

c. At the minimum wage rate of $125,

Quantity of Labour Supplied is 35

  Quantity of Labour Demanded is 15

Unemployment = Labur Supply - Labour Demand

   =    35 - 15

   =    20

   The number of unemployed is 20.

d. Equilibrium level of employment is found at the intersection of labour supply and labour demand.

   So, at the equilibrium wage rate of $75, the equilibrium level of employment is 25.

   If the wage rate increases to $125, the level of umemployment increases to 20.

e. Surplus of Labour is the excess of labour supplied to the labour demanded.

   So, at the wage rate of $125, the excess of labour supplied to labour demanded is 20 ( 35 -15 )

   Thus, surplus of labour is 20.

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