TRUE OR FALSE:
9. Assume that the Minimum Wage has increased to $14 from $10. If the total labour-income at the wage of $14 is higher than the total labour-income at the wage of $10, it means that the labour-demand with respect to wage is elastic.
FALSE.
I don't understand why this statement is false. If you minimum wage increase has caused and increase in the total labour income then does that not mean that increasing the minimum wage will result in more money for the firm? Would that mean that labour-supply is elastic and not labour-demand? I'm very confused. :S
To determine whether the labor-demand is elastic or inelastic, we need to understand the concepts of elasticity and labor-demand.
Elasticity refers to the responsiveness of the quantity demanded or supplied to changes in price. In the context of labor-demand elasticity, it measures how sensitive the demand for labor is to changes in the wage rate.
Now let's analyze the statement: "Assume that the Minimum Wage has increased to $14 from $10. If the total labor-income at the wage of $14 is higher than the total labor-income at the wage of $10, it means that the labor-demand with respect to wage is elastic."
The statement is false because an increase in total labor-income by itself does not necessarily indicate that labor-demand is elastic.
In this scenario, if the total labor-income at the wage of $14 is higher than the total labor-income at the wage of $10, it means that at the higher wage rate of $14, more income is being earned by the workers than at the lower wage rate of $10. However, this does not determine the responsiveness of labor-demand to changes in wages.
To determine whether labor-demand is elastic or inelastic, we need to analyze how changes in wages affect the quantity of labor demanded by firms. If an increase in the wage rate leads to a proportionately smaller decrease in the quantity of labor demanded, it indicates that labor-demand is elastic. On the other hand, if an increase in the wage rate leads to a relatively larger decrease in the quantity of labor demanded, it indicates that labor-demand is inelastic.
Therefore, to determine whether labor-demand is elastic or inelastic, we need more information about how the quantity of labor demanded changes in response to changes in the wage rate, rather than just looking at the total labor-income.