Supply and demand graph for the labor market of fast food restaurants
Using specific numbers from the graph, explain what would happen in this market if a new minimum price of $15 was instituted by the United States Government. Be sure to include information identifying if this is a ceiling or a floor, and the exact amount of shortage or surplus that would result. (5 points) Given this shortage or surplus, explain why the government would still choose to implement this policy (2 points), and explain if you would support such a change. Give at least 2 reasons you would or would not. (3 points)
(10 points)
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If a new minimum price of $15 was instituted by the United States Government in the labor market for fast food restaurants, this would create a surplus of labor. This new minimum price of $15 acts as a floor in this scenario.
On the supply and demand graph, this minimum wage of $15 would be above the equilibrium wage rate. This would lead to an increase in the quantity of labor supplied, as more workers are willing to work for this higher wage. However, the quantity of labor demanded by fast food restaurants would decrease, as they would not be willing to hire as many workers at this higher wage rate. This mismatch in supply and demand would lead to a surplus of labor in the market.
Despite this surplus of labor, the government may still choose to implement this policy in order to ensure that workers in the fast food industry are able to earn a livable wage. The government may prioritize the well-being and financial stability of workers over the potential inefficiencies created in the labor market.
I would support this change for several reasons. Firstly, I believe that all workers deserve to earn a fair and livable wage, and a higher minimum wage can help alleviate poverty and inequality. Additionally, a higher minimum wage can stimulate the economy by increasing consumer spending power, as workers have more income to spend on goods and services.
However, I can understand why some may not support this change. Critics may argue that a higher minimum wage could lead to job losses and increased prices for consumers, as businesses may need to cut costs in order to accommodate the higher wage rates. Additionally, some may believe that the market should dictate wages, rather than government intervention.