Question

There are 45 potential workers in this economy. How many people are unemployed ?

Answer 1

45 workers are unemployed. This follows logically from the fact that the 45 people mentioned are 'potential' workers. If they were employed, they would not be workers and not potential workers. This is because in the English language, saying that something is 'potentially' something implies that it is not that thing, but could be.

Answer 2

The correct answer is: 27.

In this labor market the equilibrium price is $12, but price floor or minimum wage has been established at $18.

A price floor is defined as the minimum price allowed for a good, which is established by an economic authority and which distorts the market when it is located above the equilibrium price, creating a situation of excess supply. The most famous price floor is the minimum wage in the labor market.

Therefore, in the labor market analyzed there is a situation of excess supply. There are 45 potential workers who are offering their services in the labor market but, at the predefined price level ($18), only 18 workers are demanded, and hence, only 18 people are able to find a job.

The number of unemployed people in this economy is: 45 - 18 = 27.