Chapter 8, Problem 2MCQ

To determine

The correct option for an effective minimum wage law.

Explanation of Solution

An effective minimum wage law is an example of a price floor method to control the level of wages in the market. A higher wage set by the government discourages employers from hiring more workers as their input costs increases and they demand fewer workers, while a higher wage encourages the workers to get a job and receive a higher wage in return. Thus workers increase their supply, but due to lower demand for workers in the market, workers stay unemployed.

So, the number of workers supplied exceeds the number of workers demanded in the labor market, indicating a surplus of workers. The size of the surplus of workers reflects the number of unemployed workers. Thus, an effective minimum wage doesn’t benefit all workers.

Therefore, an effective minimum wage law lowers the quantity of labor demanded in the labor market.

Option “d” is correct.

Economics Concept Introduction

The minimum wage is a price control method used by the government to protect labor from exploitation and to bring the market into a required shape. In this method, the government sets a wage that is above the equilibrium wage in the labor market. The government usually sets price-controlling methods to safeguard the marginal group or a specific group, but these methods result in various types of inefficiencies in the market.