ECON 2300 Lecture Notes - Lecture 7: Marginal Cost, W. M. Keck Observatory, Price Ceiling

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amaranthhamster412

9 Jan 2017

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Suppose that the labor market is competitive and that the government sets a minimum wage that is higher than the prevailing equilibrium wage. Since demand equals supply at the equilibrium wage, the supply of labor will exceed the demand for labor at the higher minimum wage. Panel a shows the effect of a minimum wage in a competitive labor market. At the competitive wage, wc, employment would be lc. At the minimum wage, w, employment is only lmw. Panel b shows the effect of a minimum wage in a monopsonized labor market. Under monopsony, the wage is wm and employment is lm, which is less than the employment in the competitive labor market. If the minimum wage is set to wc, employment will increase to lc. Things are very different if the labor market is dominated by a monopsonist. In this case, it is possible that imposing a minimum wage may actually increase employment.

Related Questions

1.An effective minimum wage law introduced into a perfectly competitive labor market with complete coverage is expected to cause employment to:
A.rise.
B.fall.
C. remain unchanged.
D.change in an unpredictable manner.

2.An increase in an effective minimum wage in a monopsony labor market will cause employment to:
A.increase.
B.decrease.
C. remain unchanged.
D.change in an unpredictable manner, depending upon the magnitude of the increase in the minimum wage.

3.Suppose that a 10% increase in the wage results in a 5% reduction in employment. In this case, labor demand is said to be:

	A.	elastic
	B.	inelastic
	C.	unit elastic

4. The cross-wage (cross-price) elasticity of demand between labor and capital is positive when

A.	the substitution effect is larger than the scale effect.
	B.	the scale effect is larger than the substitution effect.
	C.	the wage rises, but not when the wage decreases.
	D.	None of the above is correct.

whitejellyfish186

I can't figure out these last few questions. Please help me!

1. An increase in an effective minimum wage in a monopsony labor market will cause employment to:
A. increase.
B. decrease.
C. remain unchanged.
D. change in an unpredictable manner, depending upon the magnitude of the increase in the minimum wage.

2. Suppose that a 10% increase in the wage results in a 5% reduction in employment. In this case, labor demand is said to be:
A. elastic
B. inelastic
C. unit elastic

3. The cross-wage (cross-price) elasticity of demand between labor and capital is positive when:
A. the substitution effect is larger than the scale effect.
B. the scale effect is larger than the substitution effect.
C. the wage rises, but not when the wage decreases.
D. None of the above is correct.

4. Suppose that an effective minimum wage law is introduced into some, but not all, firms in a perfectly competitive market. It is expected that employment in the covered sector will:
A. rise.
B. fall.
C. remain unchanged.
D. change in an unpredictable manner.

apricotraven436

Consider the market for labor depicted by the demand and supply curves that follow.

Complete the following table with the quantity of labour supplied and demanded if the wage is set at $15.00. Then indicate whether this wage will result in a shortage or a surplus.

Wage Labor Demanded Labor Supplied Shortage or surplus

(Dollars per hour) (Thousands of workers) (Thousands of workers)

Suppose a senator considers introducing a bill to legislate a minimum hourly wage of $15.

Which of the following statements are true? Check all that apply.

1. In the absence of price controls, a surplus puts downward pressure on wages until they fall to the equilibrium.

2. In this labour market, a minimum wage of $11.50 would be binding.

3. If the minimum wage is set at $15, the market will not reach equilibrium.

4. Binding minimum wages cause structural unemployment.

apricotelephant493

ECON 2300 Lecture Notes - Lecture 7: Marginal Cost, W. M. Keck Observatory, Price Ceiling

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