The unemployment caused by minimum wage would be larger if
A) both labor demand and labor supply are more elastic.
B) both labor demand and labor supply are more inelastic.
C) minimum wage is set equal to the equilibrium wage rate.
D) minimum wage is set below the equilibrium wage rate.
E) both labor demand and labor supply are perfectly inelastic.

Question

Quizplus · Accepted Answer

When both labor demand and labor supply are more elastic, a small increase in minimum wage will cause a relatively larger decline in demand for labor and an increase in supply of labor. Therefore, the unemployment caused by minimum wage would be larger. In contrast, if both labor demand and labor supply are more inelastic, a small increase in minimum wage will have a smaller impact on labor market equilibrium, resulting in a smaller increase in unemployment.

The Unemployment Caused by Minimum Wage Would Be Larger If