An increase in the minimum wage
A)increases both the quantity demanded and the quantity supplied of labor.
B)decreases both the quantity demanded and the quantity supplied of labor.
C)increases the quantity of labor demanded but decreases the quantity of labor supplied.
D)decreases the quantity of labor demanded but increases the quantity of labor supplied.

Question

Quizplus · Accepted Answer

When the minimum wage is increased, the cost of hiring workers rises and firms tend to reduce the quantity of labor demanded. However, at the same time, the higher wage rate encourages more people to offer their labor in the market (i.e., increase in the quantity supplied of labor). As a result, the quantity of labor supplied increases, while the quantity of labor demanded decreases, leading to a surplus of labor or unemployment.

An Increase in the Minimum Wage