Question

Describe who the suppliers and demanders are in the labor market. Is a government-mandated minimum wage a price floor or ceiling? Discuss the effect of a minimum wage law from a supply and demand standpoint, making sure to address the concept of surplus or shortage.(200 words)

Answer 1

Answer - In the labor market , the household are the supplier of labor who wish to work in the firms. The demanders are the owner of the firms who employ labor for production. The quantity and the wages of labor are derived from the intersection of this demand and supply of labor.

The government mandated minumum wage is the price floor. It signifies the minumum amount of wages that the labor should be paid for the work. It is above the equilibrium price. It leads to the surplus or excess supply in labor market . This is because , the workers receive more than equilibrium wages , so people desire to work and hence the supply increases. On the other hand , employers have to pay more. Hence the demand is less and supply is more giving the condition of surplus in labor market.