[Kls238]

I’m having trouble understanding the effects of raising minimum wage, especially the following question.

In a competitive market an increase in the minimum wage will likely have the following effects:

a. The general (or aggregate) demand for labor will remain unchanged; however, the quantity demanded will decrease.

b. The general (or aggregate) supply of labor will increase; however, the quantity supplied will remain unchanged.

c. The general (or aggregate) supply of labor will remain unchanged; however, the quantity supplied will decrease.

d. The general (or aggregate) demand for labor will increase; however, the quantity demanded will remain unchanged.

The answer is a. However, I don’t understand why QD will be less than QS resulting in a surplus. Wouldn’t it be the opposite? Wouldn’t an increase in min wage increase the demand for jobs causing a shortage of jobs? Why isn’t an increase minimum wage considered an increase in input, which would result in a decrease in QS?

Can anyone help me out? Thanks!

Passed all sections.

[Jsmith87]

Try to look at this question from the perspective of the business. The business demands labor. Workers will supply the labor. If the price of labor is artificially raised, the quantity of labor demanded will decrease. However, workers will be willing to work more hours. This creates a surplus of labor in the market.

[Kls238]

Thanks, that makes more sense to me now.

Passed all sections.

[taxman89]

exactly the reason that raising the min wage hurts the group of people its designed to help (and thats without considering inflation and how it hurts people currently making 110%-120% of min wage)

AUD - 75
BEC - 77
FAR - 78
REG - 82

AUD: 61-67-75 (Thanks ninja aud)
BEC: 77
FAR: 78
REG:69-73-70-82

Aud-75 3x I knew i never liked you
Bec-77 1x being in the bubble is stressful
Reg-82 4x its not me its you...and no we cant be friends
Far-78 1x easiest section

[zieba]

mmmmmm… smells like BEC. If I didn't truly and absolutely did not love Economics that prep would have been a lot more mundane.

AUD - 75*, 88 done 5/14! (*exp)
BEC - 74 , 77
REG - 65 , 76 (10 point combooo!!)
FAR - 69 , 75

Dr: perseverance
Dr: intelligence
Dr: luck
. Cr: . advisory score

[Author]

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