Suppose that the demand for labour is given by P = 30 - Q and the supply of labour is given by P =
2Q. Which of the following is not true if a minimum wage of 24 is imposed on the labour market?
A)the dead weight loss will be 24.
B)the dead weight loss will be 30.
C)labour supply will be 12.
D)labour demand will be 6.

Question

Quizplus · Accepted Answer

When a minimum wage of 24 is imposed, it is above the equilibrium wage where the demand and supply of labour intersect. In this case, the intersection occurs when P = 2Q = 10. If a minimum wage of 24 is imposed, it will create a surplus of labour as more people will be willing to work at that wage but fewer employers will be willing to hire at that wage. This surplus of labour is also known as the deadweight loss, which is the reduction in economic efficiency that occurs when a market is unable to allocate goods and services to the demand side of the market.

To calculate the deadweight loss, we need to find the difference between the quantity of labour supplied and the quantity of labour demanded at the minimum wage. At a wage of 24, labour demand will be 30-24=6 and labour supply will be 2Q=24, Q=12. Therefore, there will be a surplus of 12-6=6 units of labour. The deadweight loss can be calculated as the triangle between the demand curve and the supply curve, up to the point where the minimum wage intersects the supply curve. The area of this triangle is 1/2 x 6 x (30-24) = 18.

Therefore, the deadweight loss will be 18, not 24, as stated in option A. Option B is not true because the deadweight loss is actually 18, not 30. Option C is true because labour supply will be 12 at the minimum wage. Option D is true because labour demand will be 6 at the minimum wage.

Suppose That the Demand for Labour Is Given by P