Question

1. Explain what kind of Price Control the Minimum Wage law is. In your answer be sure to also explain what makes the law binding vs. non-binding, as well as how it might result in inefficient quantity, quality, and wasted resources.

Answer 1

A minimum wage law is a Price Ceiling . It does not allow wage to fall to market equilibrium because in these cases market equilibrium wage is exploitative or very low , hence this law is set .

It becomes binding when placed above the market equilibrium wage . When placed below the market equilibrium wage it is non-binding because then the market wage prevails .

This causes unemployment in the market as quatity of labor supplied is greater than demanded at minimum wage level . So this causes inefficient quantity , quality and wasted resources because the total market surplus is not maximized , dead weight loss is created . Also unemployment causes labor resource wasted .