Minimum Wage: A Price Floor Example & Economic Analysis

📚 Quick Study Guide

• ⚖️ Minimum wage is a price floor set by the government, below which employers cannot legally pay employees.
• 📈 If the minimum wage is set *above* the equilibrium wage, it can lead to a surplus of labor (unemployment).
• 📉 If the minimum wage is set *below* the equilibrium wage, it has no effect.
• 💰 The effects of minimum wage on employment are debated, with some arguing it reduces employment and others arguing it has little or no impact, or even increases it in certain situations.
• 🌍 The impact of minimum wage can depend on the elasticity of labor demand and supply, and the presence of other factors like unions.
• 💡Key terms: Price floor, equilibrium wage, labor demand, labor supply, surplus (unemployment).

Practice Quiz

1. Which of the following best describes a minimum wage?
   1. A) A price ceiling on labor.
   2. B) A price floor on labor.
   3. C) The equilibrium wage.
   4. D) A subsidy for employers.
2. If the minimum wage is set below the equilibrium wage, what is the likely outcome?
   1. A) A shortage of labor.
   2. B) A surplus of labor.
   3. C) No effect on the labor market.
   4. D) Increased employment.
3. What is a potential consequence of a minimum wage set above the equilibrium wage?
   1. A) Increased demand for labor.
   2. B) Decreased unemployment.
   3. C) A surplus of labor (unemployment).
   4. D) Increased profits for all businesses.
4. The effect of minimum wage on employment is a topic of ____.
   1. A) universal agreement among economists.
   2. B) widespread celebration.
   3. C) ongoing debate.
   4. D) complete irrelevance.
5. What factor can influence the impact of minimum wage on employment?
   1. A) The elasticity of labor demand and supply.
   2. B) The color of money.
   3. C) The current temperature.
   4. D) The price of tea in China.
6. Minimum wage laws are primarily intended to:
   1. A) increase company profits.
   2. B) ensure a basic standard of living for workers.
   3. C) reduce the supply of labor.
   4. D) create unemployment.
7. Which of the following is NOT directly related to minimum wage analysis?
   1. A) Labor demand.
   2. B) Price ceilings on rent.
   3. C) Equilibrium wage.
   4. D) Labor supply.