Under what circumstances would a minimum wage be a nonbinding price floor? Under what circumstances would a living wage be a binding price floor?

- Minimum wage: This is the lowest wage that employers are legally allowed to pay their workers. It acts as a price floor for labor. - Nonbinding price floor: A price floor is considered nonbinding when it is set below the market equilibrium price. In this case, it does not have any impact on the quantity supplied and demanded in the market. - Living wage: A living wage is the minimum income that a worker needs to cover their basic needs, including food, shelter, healthcare, and other necessities. It is generally higher than the minimum wage and is based on the cost of living in a particular area. - Binding price floor: A price floor is considered binding when it is set above the market equilibrium price. In this case, it affects the quantity of goods supplied and demanded in the market.

A minimum wage would be a nonbinding price floor when it is set below the equilibrium wage rate in the labor market. Under these circumstances, the market wage rate is higher than the legally set minimum wage, meaning that employers are already paying their workers more than the minimum wage required by law. In this situation, the minimum wage does not impact the labor market since it does not force employers to increase their wages, and workers are not willing to work for less than they are currently receiving. Therefore, it does not affect the equilibrium quantity of labor supplied or demanded.

A living wage would be a binding price floor when it is set above the equilibrium wage rate in the labor market. Under these circumstances, in order to pay their workers a living wage, employers are forced to increase the wages they offer, which is higher than the current market wage rate. This situation leads to a surplus in the labor supply as more people are willing to work for higher wages, but at the same time, it results in a decrease in the demand for labor as employers are less willing to hire workers at higher wage rates. This creates unemployment since there are more workers willing to work than there are job openings. Therefore, a living wage acting as a binding price floor disrupts the labor market equilibrium and may have unintended consequences such as increased unemployment. In conclusion: A minimum wage would be a nonbinding price floor when it is set below the equilibrium wage rate in the labor market, while a living wage would be a binding price floor when it is set above the equilibrium wage rate.