Question at position 8 If a binding minimum wage increases in a perfectly competitive labor market, then which of the following will likely occur in the labor market? The supply of workers will increase.The demand for workers will decrease.The quantity of workers supplied will increase.The demand for workers will increase.The supply of workers will decrease.

Question

Question at position 8  If a binding minimum wage increases in a perfectly competitive labor market, then which of the following will likely occur in the labor market? The supply of workers will increase.The demand for workers will decrease.The quantity of workers supplied will increase.The demand for workers will increase.The supply of workers will decrease.

BlackTom AI · Accepted Answer

Begin by recalling what a binding minimum wage (a price floor above the market-clearing wage) does in a perfectly competitive labor market. It creates a surplus of labor: more workers are willing to work at that wage than there are jobs available.
Option 1: 'The supply of workers will increase.' In a binding price floor, the quantity supplied of labor is determined by workers' willingness to work at that wage, not by a shift in the entire supply curve. The actual supply of labor does not rise simply because the wage floor exists; rather, more workers are willing to supply labor at that higher wage, which is about the quantity supplied, not the overall supply curve shifting.
Option 2: 'The demand for workers will decrease.' While it is true that a higher wage reduces the number of job openings companies want to hire for at that wage, this statement refers to the demand curve’s position rather than the quantity demanded at the binding wage. The typical effect described in economics is a lower quantity demanded, not necessarily a complete decrease in demand, and the option wording is ambiguous about whether it means a shift or a point along the curve.
Option 3: 'The quantity of workers supplied will increase.' This aligns with the key outcome of a binding minimum wage: at the higher wage floor, more workers are willing to work, so the quantity supplied rises relative to the equilibrium quantity.
Option 4: 'The demand for workers will increase.' An elevated minimum wage does not increase employers’ desired quantity of hiring; it tends to reduce hiring or leave it unchanged, especially in the short run, so this is not correct.
Option 5: 'The supply of workers will decrease.' This would imply fewer workers are willing to work at that wage, which contradicts the basic effect of a higher wage drawing in more workers to supply labor, so this is incorrect.
In sum, the binding minimum wage creates a surplus by increasing the quantity of workers willing to work (supplied) while decreasing the quantity of workers firms want to hire (demand), leading to unemployment or excess supply of labor. Therefore, the statement that best captures the direct consequence is that the quantity of workers supplied will increase.

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