In a particular labor market, the demand for labor is given by W = 20 - (1 / 100)L, and the supply of labor is given by W = 4 + (1 / 100)L, where W is the wage rate, and L is the number of workers. Suppose government decides to impose a minimum wage of $15. The wage will:
A)have no effect, since it is below the equilibrium wage.
B)cause a shortage of workers, since it is above the equilibrium wage.
C)cause a surplus of workers, since it is above the equilibrium wage.
D)result in increases in wages for workers who were employed at the equilibrium wage only.

Question

Quizplus · Accepted Answer

The equilibrium wage is found by setting the demand equal to the supply: 20 - (1/100)L = 4 + (1/100)L. Solving this gives an equilibrium wage of $12. Since the minimum wage of $15 is above the equilibrium wage, it will cause a surplus of workers.

In a Particular Labor Market, the Demand for Labor Is