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4 - 4 Minimum-wage laws and unemployment Consider the...

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Unformatted text preview: 4. Minimum-wage laws and unemployment Consider the market for labour depicted by the demand and supply curves below. Use the calmlator to help you answer the following questions, Note that the calculator Is just here to help you answer the questions that follow; you will not be scored on anything you do with it. Tool tlp: Use your mouse to drag the horizontal green line on the graph. The values In the boxes on the right side of the calculator will change accordingly. You also can directly change the value In the box with the white background by clicking In the box and typing. The graph and any related values will d1ange acmrdlngly. WAGE RATE [Dollarsperhnurl MARKET FDRLABDUR 12 Wage Rate 2 ‘ lDullars per hnurl _.. 1" Labour Demanded son Labour Supplied m lThdIlsanfls olwarkersl ITIIIIIIsands erwurkersl B o m D 100 M III all non son LABDU R [Thousands of workers] mg in this market, lhe equilibrium hourly wage is $6 I, , and the equilibrium quantity of labour is 300,000 V workers. Explanation: Bpln v Suppose a province in Canada enacts a minimum hourly wage of $8. At a wage of $3 per hour, the quantity of labour firms will demand Is 200,000 4 workers. while the quantity of labour workers will supply is 400,000 if workers. Therefore, there will be a surplus v' of 200,000 if workers In this market. In the absence of any price controls, this will exert downward 1' pressure on wages until the labour market achieves equilibrlum. However, with a price control in placer the labour market may or may not be able to reach Its equilibrium, (Note: Economists call a minimum wage that prevents the labour market from read'ilng equilibrium a binding minimum wage.) In this particular case, the minimum wage of $8 per hour will if prevent the market from reaching the equilibrium you mund above and will \i contribute b0 prolonged unemployment. , Explanation: open v The minimum wage causes structural v’ unemployment, , hat-notion: Open v ...
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