Question

If the minimum wage were currently above the equilibrium wage, then a decrease in the minimum wage that kept it above equilibrium would _____ the _______ of labor.

a.increase, shortage

b.decrease, surplus

c.increase, surplus

d.decrease, shortage

Answer 1

ANSWER : b. decrease, surplus

Equilibrium in labour market is achieved when demand of labour is equal to supply of labour.

When wage is above the equilibrium level, W' in the above figure, the supply of labour will be more than the demand for labour as we can see from the above figure,

E' > E"

Thus, there will be excess supply of labour, which means there will be surplus of labour.

When wage decreases but is still above the equilibrium level, the surplus of labour will decrease.