Suppose a minimum wage of $4 an hour is in force, resulting in unemployment of 10 million hours. Then the demand for labour increases such that supply and demand curves intersect at a wage rate of $5 per hour. What will happen to the equilibrium wage rate and employment?
A)The wage rate is $5 an hour and there will be no unemployment.
B)The wage rate is $5 an hour and there will be a surplus of labour.
C)The wage rate is $4 an hour and there will be a surplus of labour.
D)The wage rate is $4 an hour and there will be no unemployment.
E)The wage rate is $4 an hour and there will be unemployment.

Question

Quizplus · Accepted Answer

When the supply and demand curves intersect at a wage rate of $5 per hour, this becomes the new equilibrium wage rate. Since it is higher than the minimum wage of $4 per hour, there will be no unemployment. This is because as long as employers are willing to pay the higher wage, workers will be willing to work and there will be no surplus of labor. Therefore, the best choice is A.

Suppose a Minimum Wage of $4 an Hour Is in Force