Consider the market for labor depicted by the demand and sup

Consider the market for labor depicted by the demand and supply curves that follow. Use the calculator to help you answer the following questions.

WAGE RATE ?Dollars per hour! 12 MARKET FOR LABOR Wage Rate Dollars per hourl 10 Labor Demanded Thousands of workers 500 Labor Supplied 100 Thousands of workars 0 100 200 300400 500 600 LABOR (Thousands of workers) In this market, the equilibrium hourly wage is workers ,and the equilibrium quantity of labor is Suppose a senator introduces a bill to legislate a minimum hourly wage of $8. At a wage of $8 per hour, the quantity of labor firms will demand is workers, whereas the quantity of labor workers will supply is workers. Therefore, there will be of workers in this market. In the absence of any price controls, this will exert equilibrium. However, with a price control in place, the labor market may or may not be able to reach its equilibrium. (Note: Economists call a minimum wage that prevents the labor market from reaching equilibrium a binding minimum wage.) In this partícular case, the minimum wage of $B per hour reaching the equilibrium you found before and pressure on wages until the labor market achieves prevent the market from contribute to proionged unemployment. The minimum wage causes unemployment.

Solution

The equilibrium occurs when demand is equal to suply. In the graph, demand curve intersect the supply curve when wage rate is 6$ and the corresponding equilibrium quantity of labour at the intersection is 300.

At a wage of $8 per hour, the quantity demand of labour is 200 labours (plot $8 corresponding to the demand curve) and the quantity supplied of labour is 500 labours (plot $8 corresponding to the supply curve). Therefore, there will be excess supply of workers in the market.

In the absence of any price controls, this will exert a downward pressure on wages (since supply is greater than demand) until the labour market achieves equilibrium.

However, with price control, the labour market may or may not be able to reach its equilibrium. The minimum wage fo $8 per hour is binding and prevent the market from reaching the equilibrium.

The minimum wages causes prolonged unemployment,