Sunday 16 September 2012

Does a minimum wage law cause quantity supplied to be greater than quantity demanded?

According to
economic theory, yes.  A minimum wage does cause the quantity supplied of labor to be higher
than the quantity demanded.  That is assuming that the minimum wage is set higher than the
equilibrium wage would be if there were no minimum wage.

To see why this is,
draw yourself supply and demand curves that intersect somewhere on your graph.  Then draw in a
horizontal line above the equilbrium point (where the lines cross).  If you have labeled your
curves correctly, you will see that the horizontal line will cross the supply curve to the right
of where it crosses the demand curve.  That indicates that (at that price) there is a higher
quantity supplied of labor than quantity demanded.

Cut and paste this link to
see an exmple.  (For some reason I can't paste this in where I'm supposed to put a
link...)


http://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=monopsony,+minimum+wage

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