Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 4: Q 22. (page 105)

Suppose that a 5% increase in the minimum wage causes a 5% reduction in employment. How would this affect employers and how would it affect workers? In your opinion, would this be a good policy?

Short Answer

Expert verified

This policy is good or bad is based on various situations and variables.

Step by step solution

01

Step 1. Given information

A 5% increase in the minimum wage causes a 5% reduction in employment.

02

Step 2. Introduction

When the minimum wage increases by 5%, this will automatically result in that employers will hire fewer employees because now the increase in wages of workers, and by this their cost of production increases. So, to make their cost less they will not hire more and reduce their production cost.

03

Step 3. Explanation

They take more work from a smaller number of employees by increasing their wages and the standard of living of the employees also increases. The worker's purchasing power increases, their standard of living increases, now they fulfill their luxurious needs also.

On the other hand, because of this wage increase the employment decline and unemployment increases in the economy, so the increase in the minimum wage is not a good policy for the economy.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Would usury laws help or hinder resolution of a shortage in financial markets?

Identify the most accurate statement. A price floor will have the largest effect if it is set:

a. substantially above the equilibrium price

b. slightly above the equilibrium price

c. slightly below the equilibrium price

d. substantially below the equilibrium price

Identify each of the following as involving either demand or supply. Draw a circular flow diagram and label the flows A through F. (Some choices can be on both sides of the goods market.)

a. Households in the labor market

b. Firms in the goods market

c. Firms in the financial market

d. Households in the goods market

e. Firms in the labor market

f. Households in the financial market

During a discussion several years ago on building a pipeline to Alaska to carry natural gas, the U.S. Senate passed a bill stipulating that there should be a guaranteed minimum price for the natural gas that would flow through the pipeline. The thinking behind the bill was that if private firms had a guaranteed price for their natural gas, they would be more willing to drill for gas and to pay to build the pipeline.

a. Using the demand and supply framework, predict the effects of this price floor on the price, quantity demanded, and quantity supplied.

b. With the enactment of this price floor for natural gas, what are some of the likely unintended consequences in the market?

c. Suggest some policies other than the price floor that the government can pursue if it wishes to encourage drilling for natural gas and for a new pipeline in Alaska.

Other than the demand for labor, what would be

another example of a “derived demand?”
See all solutions

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free