Lucky started a new business last year. Since it was the first year of operation, the business purchased $10,000 in machinery an
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Answer:
<em>1. In this labor market, a minimum wage of $9.00 is binding : </em><em>FALSE</em>
<em>2. In the absence of price controls, a shortage puts upward pressure on wages until they rise to the equilibrium : </em><em>TRUE</em>
<em>3. If the minimum wage is set at $12.50, the market will not reach equilibrium : </em><em>TRUE</em>
<em>4. Binding minimum wages cause frictional unemployment : </em><em>FALSE</em>
Explanation:
<em><u>Question has been attached here</u></em>
Unemployment is the term used to define those who are willing and are actively seeking work but cannot find any. A minimum wage is a price control, in the form of a price floor imposed by government legislation in order to protect laborers from low wages. Paying anything below the minimum wage is against the law.
<em>1. In this labor market, a minimum wage of $9.00 is binding : </em><em>FALSE</em>
A minimum wage is binding only if it is set above the equilibrium price. In this scenario, the equilibrium price is at $12. Hence, $9 is not binding since a shortage of labor would gradually raise the price to the equilibrium.
<em>2. In the absence of price controls, a shortage puts upward pressure on wages until they rise to the equilibrium : </em><em>TRUE</em>
When there is a shortage in the market, it means that the quantity supplied is higher than the quantity demanded. With any particular commodity such as bread or rice, a shortage creates a rise in price. Just as that, a shortage of workers creates an upward pressure on the price (wage). Since there are no price ceilings, market will reach equilibrium.
<em>3. If the minimum wage is set at $12.50, the market will not reach equilibrium : </em><em>TRUE</em>
As shown in the diagram, the market equilibrium is $12. If the minimum wage was $12.50, there would be a surplus of labor (quantity supplied is higher than quantity demanded). Naturally, this may cause a downward pressure on wages until it reaches $12. However, when a minimum wage is imposed at $12.50, it cannot fall below that level. Thus, the market will not reach the equilibrium.
<em>4. Binding minimum wages cause frictional unemployment : </em><em>FALSE</em>
Frictional unemployment is a type of unemployment that occurs when workers are temporarily unemployed while switching between jobs. It is normal and occurs even in the healthiest of economies. A binding minimum wage is more likely to cause structural unemployment. This occurs when there is a mismatch between the skills of the labor force and the skills expected to be possessed by employers to do a particular job. Hence, even if jobs are available, the laborers are not suited to do them and thus are unemployed.
