A Binding Minimum Wage Established by the Government

question 103

Multiple Choice

A binding minimum wage established by the government

• A) will be effective only if the minimum wage is set below the free- market equilibrium wage.
• B) is a price floor that will create a surplus of workers if the labour market is competitive.
• C) is essentially a price ceiling that creates a shortage of workers.
• D) will affect adversely only those workers whose value of productivity is greater than this minimum wage.
• E) will have no effect on the quantity of labour employed.

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Definitions:

Usury Laws

Regulations that set maximum interest rates which can be charged on loans, to protect borrowers from excessively high rates.

Interest Rates

The cost of borrowing money, typically expressed as a percentage of the principal, paid to lenders over a period.

Real Rate of Return

The rate of profit or loss on an investment after adjusting for inflation, providing a more accurate measure of purchasing power.

Inflation Rate

The percentage rate at which the general level of prices for goods and services is rising, eroding purchasing power over time.