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Chapter 4: Q. e (page 89)
When firms respond to minimum wage increases by shutting down entirely, who else is harmed besides their employees?
Consumers
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Consider the diagram below,which depicts the labor
market inacity that has adopteda"living wage law"
requiring employers to payaminimum wage rate of
\(11 per hour.Answer the questions that follow.
a.What condition exists in this city's labor market
at the present minimum wage of\)11 per hour?
How many people are unemployed at this wage?
b.Acity councilwoman has proposed amending
the living wage law.She suggests reducing the
minimum wage to\(9per hour.Assuming that
the labor demand and supply curves were to
remain in their present positions,how many
people would be unemployed atanew\)9
minimum wage?
c.Acouncilman has offeredacounterproposal.In
his view,the current minimum wage is too low
and should be increased to\(12 per hour.
Assuming that the labor demand and supply
curves remain in their present positions,how
many people would be unemployed atanew\)12
minimum wage?
Explain the effects of price ceilings
In recent years, technological improvements have greatly reduced the costs of producing basic cell phones, and a number of new firms have entered the cell phone industry. At the same time, prices of substitutes for cell phones, such as smartphones and some tablet devices, have declined considerably. Construct a supply and demand diagram of the market for cell phones. Illustrate the impacts of these developments, and evaluate the effects on the market price and equilibrium quantity.
Explain the effects of price floors and government-imposed quantity restrictions
In advance of the recent increase in the U.S.
minimum wage rate,the government of the state
of Arizona decided to boost its own minimum
wage by an additional$1.60 per hour.This
pushed the wage rate earned by Arizona teenag
ers above the equilibrium wage rate in the teen
labor market.What is the predicted effect of this
action by Arizona's government on each of the
following?
a.The quantity of labor supplied by Arizona
teenagers
b.The quantity of labor demanded by employers
of Arizona teenagers
c.The number of unemployed Arizona teenagers
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