Question

Minimum wages create unemployment in markets where they create a

a. shortage of labor. Minimum wage laws are the predominant reason for unemployment in the U.S.

b. shortage of labor. Minimum wage laws are not the predominant reason for unemployment in the U.S.

c. surplus of labor. Minimum wage laws are not the predominant reason for unemployment in the U.S.

d. surplus of labor. Minimum wage laws are the predominant reason for unemployment in the U.S. 5 points

Answer 1

Answer:

The correct answer is option c.

Explanation:

The minimum wage law create unemployment in the market as they create a surplus in the labor market. When the wages are fixed above the equilibrium point. At the level of the minimum wage, the quantity of labor supplied is greater as the wage rate and labor supply is positively related.  

The quantity of labor demand, however, is smaller as the wage rate and labor demand are negatively related. So the quantity demanded of labor will be lower and quantity supplied will be higher. This will create a surplus in the labor market.  

The predominant reason for unemployment, however, is structural and cyclical unemployment. Minimum wage laws are not the predominant reason.