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:

Variable Factors

Elements in production that can change in the short term, such as labor and raw materials, in contrast to fixed factors like capital.

Total Cost

The complete sum of all expenses incurred in the production of goods or services, including both fixed and variable costs.

Output

the total amount of goods or services produced by a company, industry, or economy in a given period.

Average Variable Cost (AVC)

The total variable costs divided by the quantity of output produced, representing the variable cost per unit of output.