This week we are going to examine what happens in a market when the government intervenes in the market and introduces price controls. In particular we are going to examine what happens when the minimum wage is increased.
A minimum wage is a Price Floor. When a price floor is imposed on a market the price can be higher than the price floor, but not lower than the price floor.
In the labor market, the price is the wage rate. Thus, a minimum wage above the equilibrium wage increases workers wages, but it also decreases the quantity demanded of labor. In particular, it reduces the quantity demanded of unskilled and low skilled labor, especially youth labor.
1) View the two videos above and videos 1, 2 and 7 under the YouTube Videos link for the week. You may also wish to view the other videos for a deeper understanding of price controls.
2) Read Chapter 6 in your textbook in careful detail. Pay close attention to the graphs in Figures 1 – 5. Focus on Figure 5 in particular. (The chapter and the figures are the same in both the 6th and the 7th editions of text book). You may also wish to review the CBO Report on employment and income impacts of an increased minimum wage.
3) Based on the videos, the readings and any additional research you decide to do (remember to cite and reference all your sources) what you do think will be the market impact(s) of the proposed increase in the federal minimum wage to $10 per hour?
a) Will the proposed increase help workers? And if so which part(s) of the labor market will be helped.
b) Which part(s) of the labor market will hurt by the proposed increase? How will they be hurt?
c) What will happen to the prices of goods and services produced with minimum wage labor?
4) What is your conclusion? Is this proposal a good idea or not? Explain why.
5) Post your views to the discussion board and refer to at least two different concepts from this week’s Chapters. Your illustration of concepts MUST include an explanation why you think they are relevant to the week’s topic using specific information from the articles, videos and other research that you have done
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