Suppose that the free market labour supply and labour demand equations are given by
Qs = 5W and Qd = 30 - 5W. If the minimum wage were set at $2.50 an hour, how many
people would not be able to find work?
20
To find out how many people would not be able to find work when the minimum wage is set at $2.50 an hour, we need to determine the equilibrium wage rate in the labor market.
The equilibrium wage rate is the point where labor supply and labor demand intersect. At this wage rate, the quantity of labor supplied equals the quantity of labor demanded.
Let's set the labor supply equation (Qs) equal to the labor demand equation (Qd) and solve for the equilibrium wage:
5W = 30 - 5W (equating Qs and Qd)
10W = 30 (combining like terms)
W = 3 (dividing both sides by 10)
Therefore, the equilibrium wage in the labor market is $3 per hour.
To find out how many people would not be able to find work when the minimum wage is set at $2.50 an hour, we need to compare the minimum wage with the equilibrium wage.
Since the minimum wage ($2.50) is less than the equilibrium wage ($3), everyone who is willing to work at or below the minimum wage will be able to find work. This means that no one would be unable to find work when the minimum wage is set at $2.50 an hour.