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Q. 4.14

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Economics Today
Found in: Page 94

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Short Answer

In advance of the recent increase in the U.S.

minimum wage rate,the government of the state

of Arizona decided to boost its own minimum

wage by an additional$1.60 per hour.This

pushed the wage rate earned by Arizona teenag

ers above the equilibrium wage rate in the teen

labor market.What is the predicted effect of this

action by Arizona's government on each of the

following?

a.The quantity of labor supplied by Arizona

teenagers

b.The quantity of labor demanded by employers

of Arizona teenagers

c.The number of unemployed Arizona teenagers

Demand will fall, supply rise, unemployment increase.

See the step by step solution

Step by Step Solution

Step1. Given information

The minimum wage rate is increased above the equilibrium level.

Step2. a. Explanation 

Since, the wage rate is above equilibrium level, supply of labor will increase as more people would want to work at the prevailing high wage rate.

Step3. b. Explanation 

The demand however will reduce for labor as labor has become expensive due to increased wage rate. Hence, the demand shall fall.

Step4. c. Explanation 

The unemployment is the number of people looking for job (supply) minus number of people actually getting the job (demand).

Since the demand has fallen and supply risen, the difference between the two, i.e., unemployment will rise.

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