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Chapter 4: Q. 3 (page 103)

Why is a living wage considered a price floor? Does imposing a living wage have the same outcome as a minimum wage?

Short Answer

Expert verified

A livable wage functions as a price floor because it is a prescribed minimum salary. If the living wage is legally enforceable, it will result in an oversupply of workers at that wage rate. So, it has the same affect as minimum wage.

Step by step solution

01

Step1. Given Information

Wage: The amount of money paid to an individual for providing labor services to a company or an individual employer is referred to as wage. The amount of money given to an individual is determined by the amount of time it takes to complete the task and the abilities required to complete it.

02

Step2. Explanation

A livable wage functions as a price floor because it is a prescribed minimum salary (assuming, of course, that it is followed).

If the living wage is legally enforceable, it will result in an oversupply of workers at that wage rate. So, it has the same affect as minimum wage.


Therefore, the living wage-price floor must be set higher than the equilibrium wage to be legally binding. Assume the US economy begins to develop at a faster rate than the rest of the globe.

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Most popular questions from this chapter

Table 4.6 shows the amount of savings and

borrowing in a market for loans to purchase homes, measured in millions of dollars, at various interest rates. What is the equilibrium interest rate and quantity in the capital financial market? How can you tell? Now, imagine that because of a shift in the perceptions of foreign investors, the supply curve shifts so that there will be $10 million less supplied at every interest rate. Calculate the new equilibrium interest rate and quantity, and explain why the direction of the interest rate shift makes intuitive sense.

Interest Rate
Qs
Qd
5%
130170
6%135150
7%140140
8%145135
9%
150125
10%155110

Imagine that to preserve the traditional way of life in small fishing villages, a government decides to impose a price floor that will guarantee all fishermen a certain price for their catch.

a. Using the demand and supply framework,

predict the effects on the price, quantity

demanded, and quantity supplied.

b. With the enactment of this price floor for fish, what are some of the likely unintended

consequences in the market?

c. Suggest some policies other than the price floor to make it possible for small fishing villages to continue.

What would be a sign of a shortage in financial markets?

29. Predict how each of the following events will raise or lower the equilibrium wage and quantity of oil workers in Texas. In each case, sketch a demand and supply diagram to illustrate your answer.

a. The price of oil rises.

b. New oil-drilling equipment is invented that is cheap and requires few workers to run.

c. Several major companies that do not drill oil open factories in Texas, offering many well-paid jobs outside the oil industry.

d. Government imposes costly new regulations to make oil drilling a safer job.

Whether the product market or the labor market, what happens to the equilibrium price and quantity for each of the four possibilities: increase in demand, decrease in demand, increase in supply, and decrease in supply.
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