Suppose that a labor market is initially in equilibrium. If the minimum wage is set above the initial equilibrium wage rate

Question

Quizplus · Accepted Answer

Setting the minimum wage above the initial equilibrium wage rate creates a price floor in the labor market, which leads to a surplus of labor. As a result, the quantity demanded of labor decreases, leading to unemployment. The labor supply curve is not affected by the minimum wage setting. Only those workers who manage to keep their jobs will be better off, but at the expense of the unemployed workers. Therefore, option A is incorrect. Option B is incorrect because the labor supply curve is not affected by the minimum wage setting.

Suppose That a Labor Market Is Initially in Equilibrium