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 graph shows that at the original equilibrium wage of $8/hour, the total economic surplus was $1,012.50 (the area of the triangle formed by the supply and demand curves). When the minimum wage is raised to $12/hour, the quantity demanded decreases from Q1 to Q2, while the quantity supplied increases from Q1 to Q3. This creates a surplus of workers (unemployment) equal to Q3-Q2. The decrease in the quantity demanded and the increase in the quantity supplied result in a decrease in total economic surplus, which is the sum of producer surplus and consumer surplus. Therefore, the correct answer is B, fall;$1,012.50.

The Following Graph Illustrates a Low Wage Labor Market