Minimum Wage Price Floor

A good example of how price floors can harm the very people who are supposed to be helped by undermining economic cooperation is the minimum wage.

Minimum wage price floor. In the case of minimum wage employees are the suppliers of labor the good while businesses become the consumers. The minimum wage is a legally mandated price floor on hourly wages below which non exempt workers may not be offered or accept a job. When the minimum wage is raised above the equilibrium that would occur in a free market the effect may be to create unemployment. In modern western countries labor is the primary recipient of price floors 1 in particular the government imposes a minimum wage making it illegal for an employer to pay a worker less than a certain amount per hour.

For a price floor to be effective the minimum price has to be higher than the equilibrium price. In this case the wage is the price of labour and employees are the suppliers of labor and the company is the consumer of employees labour. Because this is the most popular and recognizable example of a price floor we will concentrate on it for the rest of this. A minimum wage is the lowest wage per hour that a worker may be paid as mandated by federal law.

Draw demand and supply curves for unskilled labor. The minimum wage is a legally mandated price floor on hourly wages below which non. Unfortunately it like any price floor creates a surplus. When the minimum wage is set above the equilibrium market.

A price floor is the legal limit on how low a price may be set for a good. The price floors are established through minimum wage laws which set a lower limit for wages. Minimum wage is an example of a government intervention in order to redistribute wealth through the use of a price floor. At the same time business owners are faced with higher labor costs and look for ways to.

The horizontal axis will show the quantity of unskilled labor per period and the vertical axis will show the hourly wage rate for unskilled workers which is the price of unskilled labor. A minimum wage law is another example of a price floor. An example of a price floor is minimum wage laws where the government sets out the minimum hourly rate that can be paid for labour. It is usually a binding price floor in the market for unskilled labor and a non binding price floor in the market for skilled labor.

Some workers who would not work at the lower equilibrium wage go looking for jobs at the higher wage. The most common example of a price floor is the minimum wage. Legislating a minimum wage is commonly seen as an effective way of giving raises to low wage workers.