Question

Assume the minimum wage is increased above the previous equilibrium wage. Which of the following statements is/are correct? The supply curve of workers will increase. The demand curve for workers will decrease. The unemployment rate will decrease. The quantity of labor supplied will increase. The unemployment rate will increase. Statements I and II are correct. Statement III is correct. Statements IV and V are correct. Statement V is correct. None of the statements above are correct.

Answer 1

Answer:

Statements IV and V are correct.

• The quantity of labor supplied will increase.
• The unemployment rate will increase.

Explanation:

If the minimum wage increases then more people should be willing to work (increase in the labor supply). The problem is that if the increase is above the equilibrium level, then the quantity demanded for labor will decrease, which will in turn increase the unemployment level. Less companies will be willing to hire new employees or keep current employees.