Econ 1 Q2 Minimum Wage
If the minimum wage exceeds competitive equilibrium wage, minimum wage:
-reduces total employment -increases number of workers seeking jobs -increases involuntary unemployment -reduces profit of employers -might or might not increase workers income
A minimum wage that is below the competitive equilibrium wage
-does not influence the wage paid and is called a nonbonding minimum wage
If the minimum wage exceeds the c.e. wage and the demand for labor is price inelastic and increase in the minimum wage will
decrease the total wages of employed workers
Labor supply at any wage
is the number of workers who want to work at that wage
Voluntary unemployment
laborer who is not employed and chooses not to work at the average wage
Involuntary unemployment
laborer who is not employed but would willingly work at the average wage
Total amount of wage demanded in the market is the
sum of the amounts demanded by all the firms in the market
Reservation wage
the lowest wage at which a worker would be willing to accept employment -also called opportunity cost of labor time
A minimum wage law does not change
the marginal value product of labor for any firm, nor does it change any workers reservation wage -does not change either the supply curve or demand curve
If the minimum wage is set higher than the competitive equilibrium wage
then more workers will want to work than the number of workers that firms are willing to hire
