Critics of the minimum wage argue that an increase in the minimum wage rate above the equilibrium rate of a purely competitive labor market would
A) increase unemployment in the labor market.
B) increase firms' demand for labor.
C) decrease the supply of labor.
D) cause firms to substitute labor for capital.

Question

Quizplus · Accepted Answer

If the minimum wage rate is set above the equilibrium rate, it will increase the cost of labor for businesses. As a result, firms will reduce their demand for labor, leading to an increase in unemployment in the labor market. This is because firms will either reduce their output or find ways to substitute labor for capital, resulting in a decrease in overall employment. Thus, an increase in the minimum wage rate can lead to unintended consequences, such as higher unemployment rates.

Critics of the Minimum Wage Argue That an Increase in the Minimum