Minimum wage legislation:
A) sets a price ceiling above the market-clearing price.
B) has no impact if the minimum wage is above the market-clearing price.
C) has the same impact in all labor markets.
D) creates unemployment when the minimum wage is above the equilibrium wage.
E) is opposed by organized labor.

Question

Quizplus · Accepted Answer

When the minimum wage is set above the equilibrium wage (the market-clearing price), employers will demand less labor than workers want to supply. This will lead to some workers being laid off, and fewer workers being hired in the future. As a result, minimum wage legislation creates unemployment when it is above the equilibrium wage. Choices A, B, and C are not correct because they either contain incorrect information or are too general. Choice E is not always true because some segments of organized labor may support minimum wage legislation.

Minimum Wage Legislation