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Chapter 4: Q 23. (page 105)

Under what circumstances would a minimum wage be a nonbinding price floor? Under what circumstances would a living wage be a binding price floor?

Short Answer

Expert verified

There are two circumstances when this situation occurs.

Step by step solution

01

Step 1. Given information

A price floor is a situation when by the market forces of demand and supply the price is charged above or below the equilibrium price.

02

Step 2. Explanation

In order to have minimum wages be non-binding, we must have these below equilibrium wages. This is because of this policy or action there is a surplus and wages get bid down.

On the other hand, in order to have the living wage-price floor to be binding, we must set equilibrium wage above equilibrium. This is because of this the quantity supplied will be more than the quantity demanded, and more supply and surplus will be the result.

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Most popular questions from this chapter

How do economists define equilibrium in financial

markets?

Name some factors that can cause a shift in the

supply curve in labor markets.

Identify the most accurate statement. A price floor will have the largest effect if it is set:

a. substantially above the equilibrium price

b. slightly above the equilibrium price

c. slightly below the equilibrium price

d. substantially below the equilibrium price

Other than the demand for labor, what would be another example of a 鈥渄erived demand?鈥�

Table 4.6 shows the amount of savings and borrowing in a market for loans to purchase homes, measured in millions of dollars, at various interest rates. What is the equilibrium interest rate and quantity in the capital financial market? How can you tell? Now, imagine that because of a shift in the perceptions of foreign investors, the supply curve shifts so that there will be $10 million less supplied at every interest rate. Calculate the new equilibrium interest rate and quantity, and explain why the direction of the interest rate shift makes intuitive sense.
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