The equilibrium wage in a local labor market is $10 per hour.If a minimum wage of $15 per hour is imposed,which of the following will occur?
A)There will be an increase in unemployment.
B)There will be an increase in the quantity of labor demanded by firms.
C)There will be a decrease in the quantity of labor supplied by households.
D)All of the above will occur.

Question

Quizplus · Accepted Answer

If the minimum wage is set above the equilibrium wage, there will be an excess supply of labor, meaning that there will be more people seeking work than there are jobs available at the higher wage rate. Employers will find it more expensive to hire workers, and might decrease the quantity of labor demanded, resulting in unemployment. Therefore, option A is the correct choice. Option B is incorrect because, as explained above, employers might actually decrease the quantity of labor demanded. Option C is also incorrect because, when faced with a higher wage rate, households are likely to supply more labor, not less, since the opportunity cost of not working has increased.

The Equilibrium Wage in a Local Labor Market Is $10