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Chapter 4: Q.3 (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

A livable wage functions as a price floor because it is a prescribed minimum salary. If the living wage is legally enforceable, it will result in an oversupply of workers at that wage rate. So, it has the same affect as minimum wage.

Step by step solution

01

Definition

Wage:

The amount of money paid to an individual for providing labor services to a company or an individual employer is referred to as wage. The amount of money given to an individual is determined by the amount of time it takes to complete the task and the abilities required to complete it.

02

Explanation

A livable wage functions as a price floor because it is a prescribed minimum salary (assuming, of course, that it is followed).

If the living wage is legally enforceable, it will result in an oversupply of workers at that wage rate. So, it has the same affect as minimum wage.

03

Conclusion

Therefore, the living wage-price floor must be set higher than the equilibrium wage to be legally binding. Assume the US economy begins to develop at a faster rate than the rest of the globe.

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Most popular questions from this chapter

Predict how each of the following economic changes will affect the equilibrium price and quantity in the financial market for home loans. Sketch a demand and supply diagram to support your answers.

a. The number of people at the most common ages for home-buying increases.

b. People gain confidence that the economy is growing and that their jobs are secure.

c. Banks that have made home loans find that a larger number of people than they expected are not repaying those loans. d. Because of a threat of a war, people become uncertain about their economic future.

e. The overall level of saving in the economy diminishes.

f. The federal government changes its bank regulations in a way that makes it cheaper and easier for banks to make home loans.

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.

Sketch all four of these possibilities on a demand and supply diagram to illustrate your answer

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

Which of the following changes in the financial market will lead to an increase in the quantity of loans made and received: a. a rise in demand b. a fall in demand c. a rise in supply d. a fall in supply

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.

Interest rateQsQd
5%130170
6%135150
7%140140
8%145135
9%150125
10%155110

Table 4.6
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