Question:

Market-Clearing Wage - Economics... HW HELP!?

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When the minimum wage is set above the market-clearing wage of a competitive labor market, the outcome is:

An increase in the quantity of labor demanded.

An increase in the quantity of labor supplied.

Higher employment.

A shortage of labor.

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  1. There is an increase in quantity of labor supplied.  Why: Minimum wage will increase the amount of labor-

    Due to higher wages, labor will increase.  More people will want to work.  So, the quantity supply of labor will increase.  None of the other choices are correct.

    Companies wouldn't want as much labor (quantity  demanded of labor would go down) due to higher costs and may even fire/layoff workers.  There wouldn't be higher employment because companies wouldn't want to hire more employees- instead there could be unemployment due to them not hiring many (if any workers) employees and reducing their workforce (I don't know how much they would it would depend on costs).  Plus, there is an excess supply of labor-- too many people who would want to work.  Thus, too many people would want to work and not enough people would be hired.  So, a shortage of labor would not occur..

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