The minimum wage in 2008 was $6.55 cents until July 2008 when it was raised to $7.25. If the minimum wage in June was below the equilibrium wage and the increased wage in July was above the equilibrium wage, then
A) firms' producer surplus was greater in June than in July.
B) unemployment was unaffected by the increase.
C) the deadweight loss was greater in June than in July.
D) employment of low-skilled workers increased in July.

Question

Quizplus · Accepted Answer

When the minimum wage was below the equilibrium wage in June, it did not affect the market, and firms' producer surplus was maximized. In July, when the minimum wage was above the equilibrium wage, it created a surplus of labor (unemployment), reducing firms' producer surplus.

The Minimum Wage in 2008 Was $6