Question

Answer each question with True or False and explain using graphical analysis (supply and demand diagrams).

h)- If there are only a few large employers in the labor market, the minimum wage can reduce unemployment and make the labor market more efficient.

I)- Free trade with China hurts the US economy because Chinese workers are willing to work at lower wages compared with US workers.

Answer 1

Solution H

Answer is False.

When large employers in few numbers constitute oligopoly market structure, the minimum wage standards leads to lower profitability and hence unemployment widens because layoffs take place and rationalisation of workforce takes place to employ only high skilled workers making labor market inefficient.

Solution I

Answer is True.

Because free trade will mean higher inflow of Chinese workers who work for lower wages and displace American workers causing domestic unemployment to rise.

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