-The above figure shows the market for carpenters in Geelong. There is a minimum wage set at $18. Compared to the initial equilibrium without the minimum wage, once the minimum wage is in place, and after taking account of job search, the total workers' surplus ________ and the total firms' surplus ________.
A) increases; increases
B) decreases; increases
C) decreases; decreases
D) does not change; increases
E) increases; decreases

Question

-The above figure shows the market for carpenters in Geelong. There is a minimum wage set at $18. Compared to the initial equilibrium without the minimum wage, once the minimum wage is in place, and after taking account of job search, the total workers' surplus ________ and the total firms' surplus ________.
A) increases; increases 
B) decreases; increases 
C) decreases; decreases 
D) does not change; increases 
E) increases; decreases

Quizplus · Accepted Answer

When a minimum wage is set above the equilibrium wage, it typically leads to a surplus of labor (unemployment) because the quantity of labor supplied exceeds the quantity of labor demanded at that wage. This results in a decrease in workers' surplus because fewer workers are employed and they must now also account for the time and effort spent on job search. Firms' surplus decreases as well because they have to pay higher wages than the equilibrium wage, which increases their costs.

-The Above Figure Shows the Market for Carpenters in Geelong