A minimum wage policy induces an:
A) excess demand for labor.
B) excess supply of labor.
C) efficient market outcome.
D) elastic labor supply response.

Question

Quizplus · Accepted Answer

A minimum wage policy sets a wage floor above the market equilibrium, which creates an excess supply of labor (more people want to work than there are available jobs). This is because firms will demand less labor (due to the higher wage) while more workers will be willing to supply labor at the higher wage. This can lead to unemployment and reduced efficiency in the labor market. The other choices are incorrect - a minimum wage policy does not induce excess demand for labor, nor does it necessarily lead to an efficient market outcome or elastic labor supply response.

A Minimum Wage Policy Induces An