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Chapter 4: Q. e (page 89)

When firms respond to minimum wage increases by shutting down entirely, who else is harmed besides their employees?

Short Answer

Expert verified

Consumers

Step by step solution

01

Step1. Given information

Upon imposition of price floors to ensure a minimum wage, the companies shut down entirely.

02

Step2. Explanation

As the minimum wages increase the cost of production significantly, companies might be unable to operate and force to shut down. In such cases, not only the employees loose their complete livelihood, but also the consumers suffer as the supply in the market, and hence the choices to choose from for consumers fall as well.

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