A binding minimum wage
A)alters both the quantity demanded and quantity supplied of labor.
B)affects only the quantity of labor demanded;it does not affect the quantity of labor supplied.
C)has no effect on the quantity of labor demanded or the quantity of labor supplied.
D)causes only temporary unemployment because the market will adjust and eliminate any temporary surplus of workers.

Question

Quizplus · Accepted Answer

A binding minimum wage sets a wage floor above the equilibrium wage rate. This leads to a decrease in the quantity of labor demanded by firms, as they substitute lower-cost factors of production for labor. Meanwhile, the quantity of labor supplied increases, as more people are willing to supply labor at the higher wage rate. The result is a surplus of workers (or unemployment) equal to the quantity by which the quantity of labor supplied exceeds the quantity demanded. Thus, a binding minimum wage alters both the quantity demanded and quantity supplied of labor.

A Binding Minimum Wage