What will a minimum wage do

Question

Quizplus · Accepted Answer

When a minimum wage is implemented, it sets a wage floor that is higher than the equilibrium wage. This means that the quantity demanded of labour will decrease, as firms will not be willing to hire as many workers at the higher wage. Simultaneously, the quantity supplied of labour will increase, as more workers will be willing to supply their labour at the higher wage. This shift in demand and supply will lead to a surplus of workers (unemployment) in the labour market. Therefore, the minimum wage will alter both the quantity demanded and quantity supplied of labour. Option B is incorrect because it assumes that only the quantity demanded of labour is affected, which is not the case. Option C is also incorrect because if the minimum wage is set above the equilibrium wage, it will definitely have an impact on the quantity of labour demanded and supplied. Option D is not fully correct because while the market may eventually adjust, there will still be a temporary period of unemployment in the initial stages of implementing the minimum wage.

What Will a Minimum Wage Do