The following graph illustrates a low wage labor market.
The imposition of the $12/hour minimum wage caused the total economic surplus in the labor market to __________ by __________.

Question

The following graph illustrates a low wage labor market. 
The imposition of the $12/hour minimum wage caused the total economic surplus in the labor market to __________ by __________.

Quizplus · Accepted Answer

The economic surplus in the labor market is the difference between the total benefit from employing workers and the total cost of employing them. Before the minimum wage was imposed, the economic surplus was the area of the triangle with base 70 (the quantity of labor demanded at a wage of $10 per hour) and height 15 (the difference between the wage and the reservation wage of $5 per hour). This is equal to 0.5 x 70 x 15 = $525.
After the minimum wage was imposed, the economic surplus became the area of the rectangle with base 30 (the quantity of labor demanded at a wage of $12 per hour) and height 12 (the difference between the wage and the reservation wage of $5 per hour). This is equal to 30 x 12 = $360.
Therefore, the minimum wage caused the total economic surplus in the labor market to fall by $165 ($525 - $360). None of the answer choices reflect this result, but B is the closest option in terms of the direction of the change in economic surplus.

The Following Graph Illustrates a Low Wage Labor Market