[Hammer]

In competitive markets, an increase in an effective minimum wage will:

a.

Decrease the supply of labor.

b.

Have a neutral effect on the demand for labor.

c.

Increase unemployment.

d.

Decrease unemployment.

Explanation

Choice “c” is correct. When the “minimum” wages are increased, employers may elect to hire fewer employees thereby increasing unemployment.

Choice “b” is incorrect. An increase in the minimum wage will have an effect on the demand for labor.

Choice “a” is incorrect. The supply of labor will likely go up as the wage being paid increases.

Choice “d” is incorrect. As the minimum wage increases, unemployment will increase.

Isn’t C & A effectively the same answer?

FAR - 70, 81
AUD - 83
BEC - 77
REG - 70, 78

Licensed in Ohio.

Now what the hell do I do?

[MommyBear]

Actually they are opposites. Increasing the unemployment actually increases the supply of labor.

[MommyBear]

Actually they are opposites. Increasing the unemployment actually increases the supply of labor.

[mtwst113]

MommyBear is correct. When the minimum wage increases, employers decrease their quantity demanded for labor. This increases unemployment (i.e. layoffs), which increases the available supply of workers. Moreover, when the minimum wage rises, the supply of labor increases because more people are willing to work at the higher wage.

BEC – 78

BEC | √
AUD| √
FAR| Spring 2015

[mtwst113]

MommyBear is correct. When the minimum wage increases, employers decrease their quantity demanded for labor. This increases unemployment (i.e. layoffs), which increases the available supply of workers. Moreover, when the minimum wage rises, the supply of labor increases because more people are willing to work at the higher wage.

BEC – 78

BEC | √
AUD| √
FAR| Spring 2015

[Author]

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