SOLUTIONS In Class Problem Minimum Wage - Economics Professor Anne Wenzel In Class Problem A Wage\/hour \$15 S Pfloor-2=\$15\/hr \$10 \$8 Pfloor-1=\$8\/hr D 30

# SOLUTIONS In Class Problem Minimum Wage - Economics...

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Economics – Professor Anne Wenzel, In Class Problem Wage/hour A \$15 S Pfloor-2=\$15/hr \$10 \$8 Pfloor-1=\$8/hr D 30 100 140 Q – Low skilled labor Wage/hour B S Pfloor-2=\$15/hr. \$15 \$10 \$8 Pfloor-1=\$8/hour D 75 100 130 Q-Low skilled labor 1) If the government sets a minimum wage (price floor) of \$8 in the above markets, would that minimum wage be binding? Answer: No, the market would ignore it. At \$8 per hour, the quantity of labor demanded exceeds the quantity of labor supplied. The shortage would drive the wage up. Since a minimum wage/price floor stipulates that you cannot pay LESS, but you can pay MORE, employers could legally pay more to eliminate the labor shortage. The minimum wage would be ignored, it is set too low/below the equilibrium wage. \$10/hour would prevail. 2) For graph A: a. If the government raises the minimum wage to \$15/hour, what would unemployment be? Qs rises to 150 at \$15/hour, but Qd falls to 30. Unemployment = 120,000 b. How many people have lost their job as a result of the rise in the minimum wage?

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