ECON 101 Lecture Notes - Lecture 9: Price Floor, Fixed Cost, Economic Surplus

• School: U of M
• Department: Economics
• Course: ECON 101
• Professor: Ronald C Caldwell

Document Summary

Model could be wrong in this context. Instead of firing, firms could make employees part time: may miss reduction in hours worked. Some withdraw from the labor force: no longer look for work anymore. Timing problem on when studies are done. Firm responds before study was done minimum wage raises are announced years in advance. Machinery will be installed to replace workers now labor is cheap (and since machines have a high fixed cost) but if the minimum wage were to increase some companies may do this, but this takes time. But starting a study earlier may also not be good since other things come into play too. Assumption: price floor above the equilibrium wage. Not many people work minimum wage: 2007 267,000 people federal minimum wage, 2011 1. 7 million people. Minimum wage also rose: 2014 1. 3 million people. Statutory incidence: who is legally responsible for paying the tax to the government.