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Chapter 4: Q3 (page 103)

Why is a living wage considered a price floor? Does imposing a living wage have the same outcome as a minimum wage?

Short Answer

Expert verified

Living wage is considered a price ie wage floor, as it is the bare minimum needed for decent survival standards. Yes, imposing a living wage have similar outcome as minimum wage - ie protecting workers.

Step by step solution

01

 Basic Concepts 

Living wage is hypothetical income level, that facilitates individuals to afford basic needs of life at decent quality level. Basic amenities include food, shelter & other necessities.

Price Floor is the minimum mandated price sale price of a good or service, imposed by regulatory body to protect the interests of sellers.

02

Detail Explanation 

In labor markets - workers are the sellers & firms are buyers of productive services, and the price paid by latter to former is wages or salaries.

Price ie wage floor is analogous to 'living wage', imposed to protect workers from poverty.

Their impacts are also same, ie prevention of workers from being economically exploited.

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Most popular questions from this chapter

During a discussion several years ago on building a pipeline to Alaska to carry natural gas, the U.S. Senate passed a bill stipulating that there should be a guaranteed minimum price for the natural gas that would flow through the pipeline. The thinking behind the bill was that if private firms had a guaranteed price for their natural gas, they would be more willing to drill for gas and to pay to build the pipeline.

a. Using the demand and supply framework, predict the effects of this price floor on the price, quantity demanded, and quantity supplied.

b. With the enactment of this price floor for natural gas, what are some of the likely unintended consequences in the market?

c. Suggest some policies other than the price floor that the government can pursue if it wishes to encourage drilling for natural gas and for a new pipeline in Alaska.

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

Name some factors that can cause a shift in the

demand curve in labor markets.

Why are the factors that shift the demand for a product different from the factors that shift the demand

for labor? Why are the factors that shift the supply of a product different from those that shift the supply of labor?

A price ceiling will have the largest effect:

a. substantially below the equilibrium price

b. slightly below the equilibrium price

c. substantially above the equilibrium price

d. slightly above the equilibrium price
See all solutions

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