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Price
Floors
A price floor is
a minimum price, set by the
government, that must be paid for a good
or service. Price floors
are often imposed
when government wants sellers to receive
some minimum reward for their
efforts.
The Minimum Wage
One well-known price
floor is the minimum
wage, which sets a minimum price that an
employer can pay a worker
for an hour of
labor. The federal government sets a base
level for the minimum wage, and
states
can set their own minimum wages even
higher. A full-time worker being paid
the
federal minimum wage will earn less than
the federal government says is necessary
to
support a couple with one child. However,
it does provide some lower limit
for
workers’ earnings. The important question,
as you will read in Debating Current
Issues
on pages 238–239 (Chapter 9), is whether the benefits to minimum wage workers
outweigh the loss of some jobs.
If the minimum wage is set above the
market equilibrium
wage rate, the result is
a decrease in employment, as demonstrated
in Figure 6.4. This figure
illustrates
the supply curve of labor, which shows the
number of worker-hours offered at
various wage rates, and a demand curve for labor,
which shows the number of workers
employers
will hire at various wages.
If the market equilibrium wage for lowskilled
labor is $4.50 per
hour, and the
minimum wage is set at $5.15, the result
is an excess supply of labor. There are
now
2 million more people looking for work
than employers are willing to
hire.
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(Remember that in this example, the
worker is the supplier because he
or she
supplies labor that is bought by an
employer.) Firms will employ 2 million
fewer
workers than they would at the
equilibrium wage rate because the price
floor on labor keeps the
wage rate artificially
high. If the minimum wage is below
the equilibrium rate, it will have no
effect
because employers would have to pay at
least the equilibrium rate anyway to
find
workers in a free market.
A
minimum wage law can set the price of labor above the equilibrium price, leading to a labor surplus.
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1.
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The U.S. Government sets the
minimum wage that workers must be paid for an hour of work. The states are free
to
a. | set the minimum wage
lower | c. | abolish the minimum wage
altogether | b. | set the minimum wage higher |
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2.
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The federal minimum wage is set
_____ the amount needed to support a family with one child.
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3.
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Setting the minimum wage above
the market equilibrium wage rate
a. | will increase the number of jobs
available to workers | c. | will maintain the
current level of jobs available to workers | b. | will result in job market
equilibrium | d. | will decrease the number of jobs
available to workers |
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4.
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As the supply of workers
increases, the demand for labor
a. | increases | c. | decreases | b. | stays the same |
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5.
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What is the equilbrium price
(salary) for workers?
a. | $5.15 per
hour | c. | $4.00 per
hour | b. | $4.50 per hour | d. | $5.00 per hour |
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6.
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As the minimum wage rose to
$5.15 what did the supply of labor rise to?
a. | 6 million
workers | c. | 4 million
workers | b. | 2 million workers | d. | 8 million workers |
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7.
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Currently there is a drive to
set the minimum wage to $15.00 an hour. What is this cartoonist saying about the effects of raising
the minimum wage. (click all that apply)
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a. | price
ceiling | e. | excess | b. | price floor | f. | minimum wage | c. | equilibrium | g. | disequilibrium | d. | rent control | h. | excess |
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8.
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describes any price or
quantity not at equilibrium; when quantity supplied is not equal to quantity demanded in a
market
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9.
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supplywhen quantity supplied
is more than quantity demanded
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10.
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minimum price for a good or
service
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11.
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the point at which quantity
demanded and quantity supplied are equa
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12.
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a price ceiling placed on rent
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13.
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demandwhen quantity demanded
is more than quantity supplied
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14.
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a minimum price that an
employer can pay a worker for an hour of labor
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15.
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a maximum price that can be
legally charged for a good or service
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16.
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This lesson is a continuation
of the lesson on Combining Supply and Demand. In this lesson we will focus on “price
floors” and the “minimum wage”
After you finish studying this lesson, return to this
question and explain your position on the minimum wage issue:
State your position on the
minimum wage, Do you agree or disagree with the minimum wage and what amount should it
be.
Next, provide support for your position. Avoid emotional responses. We do not care how you
“feel” about the subject.
Provide a list of factual reasons to support your
position
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