federal minimum wage law.

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ECON 111 Handout for class

1. Consider the federal minimum wage law.
(a) Suppose the minimum wage is above the equilibrium wage in the market for unskilled labor. Using a

supply and demand diagram of the market for unskilled labor, show the market wage, the number of workers who are employed, and the number of workers who are unemployed. Also show the total wage payments to unskilled workers (this is the wage times the number of workers).

  1. (b) If the demand for unskilled labor were inelastic, would a proposed increase in the minimum wage raise or lower total wage payments to unskilled workers?
  2. (c) How would your answer change if the demand for unskilled labor were elastic?
  3. This year, weather events severely reduced the lemon crop in California.
    (a) Explain what happens to consumer surplus in the market for lemons. Illustrate your answer with a diagram. (b) Explain what happens to consumer surplus in the market for lemonade. Use a diagram. Attached is the worksheet to fill in the answers

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ECON 111 Handout for class 1. Consider the federal minimum wage law. (a) Suppose the minimum wage is above the equilibrium wage in the market for unskilled labor. Using a supply and demand diagram of the market for unskilled labor, show the market wage, the number of workers who are employed, and the number of workers who are unemployed. Also show the total wage payments to unskilled workers (this is the wage times the number of workers). (b) If the demand for unskilled labor were inelastic, would a proposed increase in the minimum wage raise or lower total wage payments to unskilled workers? (c) How would your answer change if the demand for unskilled labor were elastic? 2. This year, weather events severely reduced the lemon crop in California. (a) Explain what happens to consumer surplus in the market for lemons. Illustrate your answer with a diagram. (b) Explain what happens to consumer surplus in the market for lemonade. Use a diagram. 3. Consider the market for any good, like an ICEE. (a) If this market has very elastic supply and very inelastic demand, how would the burden of a tax on ICEE be shared between consumers and producers? Use a diagram. (b) If this market has very inelastic supply and very elastic demand, how would the burden of a tax on an ICEE be shared between consumers and producers? (c) Contrast your answer with your answer to part (a). 4. Consider the following diagram which shows a tax on sellers. (a) How much is the per unit tax? (b) Calculate the following: (i) consumer surplus (ii) producer surplus (iii) total firm revenue (iv) total tax revenue collected by the government (v) portion of the total tax revenue paid by the buyer (vi) portion of the total tax revenue paid by the seller (vii) deadweight loss
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Running head: ECON111

1

ECON111
Name
Course
Tutor
Date

ECON111

2
Federal Minimum Wage Law

1.
Wage
Labour
surplus
Minimum wage

Wage
payment

Labour demand

Quality of labour
Quality demand

Quality supply

b.
The total wage of the unskilled labour will raise due the increase on the wage as it is the
parameter that changes while the labour demand is inelastic meaning it will remain the same
therefore the wages will increase on the already present unskilled labour and this will end up
influencing the total wage as it will be marked with an increase from the increased wage on
unskilled labour.
c.
If the demand for the unskilled labour was elastic this means there will be increase all
across and the only factor that will change is that the will be a great change in the total wage
increase all across than the increase that was recorded ...


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