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The following graph represents a hypothetical equilibrium for labor market for fast food workers
The following graph represents a hypothetical equilibrium for labor market for fast food workers. Which of the following may occur if the employers must start paying a minimum wage of above $5? Select all that apply. You can move the orange line on the graph below to simulate various price movements, but the graph is not graded. Be sure to put either ?may occur? or ?will not occur? by each statement.
a) Labor Demand Falls
b) Producer surplus rises
c) Producer Surplus Falls
d) Total firm profits rise
e) The quantity of labor demanded rises
Expert Solution
a) Labor Demand Falls: MAY OCCUR
b) Producer surplus rises: WILL NOT OCCUR
c) Producer Surplus Falls: MAY OCCUR
d) Total firm profits rise: WILL NOT OCCUR
e) The quantity of labor demanded rises: WILL NOT OCCUR
Labor Demand Falls
Before the introduction of minimum wage, the demand for labor is 5 million. However, after the introduction of minimum, say $8, the demand for labor falls to 2 million.
Producer Surplus Falls
The producer surplus will fall because the cost of labor has increased.
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