4 Minimum wage legislation The following graph shows the lab

4. Minimum wage legislation The following graph shows the labor market in the fast-food industry in the fictional town of Supersize City. Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly.

Solution

Labor demand curve and labor supply curve are intersecting each other corresponding to wage rate of $10 per hour and quantity of 300,000 workers.

So,

In this market, the equilibrium hourly wage is $10, and the equilibrium quantity of labor is 300 thousand workers.

When minimum price is fixed for a thing then such price control is referred to as price floor.

So,

Suppose a senator introduces a bill to legislate a minimum hourly wage of $8. This type of price control is called a price floor.

When labor demanded is greater than the labor supplied there is upward pressure on wages.

When labor demanded is less than the labor supplied there is downward pressure on wages.

Following is the complete table -

Price floor can only be binding, if price fixed is above the equilibrium price.

Minimum wage acts as price floor. So, minimum wage can only be binding if wage fixed is above the equilibrium wage.

The equilibrium wage is $10 per hour.

So,

A minimum wage above $10 per hour would be binding in this market.

Hence, the given statement is False.

Wage	Labor demanded	Labor supplied	Pressure on wages
14	180	420	Downward
6	420	180	Upward