Suppose the current equilibrium wage rate for landscapers is $6.65 in Little Rock; $7.50 in St. Louis and $9.05 in Raleigh. An increase in the minimum wage to $7.50 per hour results in unemployment of landscapers in
A) Little Rock and St. Louis.
B) St. Louis and Raleigh.
C) only Little Rock.
D) only Raleigh.
E) Little Rock, St. Louis and Raleigh.

Question

Quizplus · Accepted Answer

Since the current equilibrium wage rate in St. Louis ($7.50) is already equal to the minimum wage increase, there should be no effect on unemployment in St. Louis. Similarly, the current equilibrium wage rate in Raleigh ($9.05) is already above the minimum wage increase, so there should also be no effect on unemployment in Raleigh. Therefore, the only city that is affected by the minimum wage increase is Little Rock, where the current equilibrium wage rate is below the new minimum wage. This will result in some unemployment of landscapers in Little Rock as employers adjust to the higher wage.

Suppose the Current Equilibrium Wage Rate for Landscapers Is $6