Answer:
1. In this labor market, a minimum wage of $9.00 is binding : FALSE
2. In the absence of price controls, a shortage puts upward pressure on wages until they rise to the equilibrium : TRUE
3. If the minimum wage is set at $12.50, the market will not reach equilibrium : TRUE
4. Binding minimum wages cause frictional unemployment : FALSE
Explanation:
Question has been attached here
Unemployment is the term used to define those who are willing and are actively seeking work but cannot find any. A minimum wage is a price control, in the form of a price floor imposed by government legislation in order to protect laborers from low wages. Paying anything below the minimum wage is against the law.
1. In this labor market, a minimum wage of $9.00 is binding : FALSE
A minimum wage is binding only if it is set above the equilibrium price. In this scenario, the equilibrium price is at $12. Hence, $9 is not binding since a shortage of labor would gradually raise the price to the equilibrium.
2. In the absence of price controls, a shortage puts upward pressure on wages until they rise to the equilibrium : TRUE
When there is a shortage in the market, it means that the quantity supplied is higher than the quantity demanded. With any particular commodity such as bread or rice, a shortage creates a rise in price. Just as that, a shortage of workers creates an upward pressure on the price (wage). Since there are no price ceilings, market will reach equilibrium.
3. If the minimum wage is set at $12.50, the market will not reach equilibrium : TRUE
As shown in the diagram, the market equilibrium is $12. If the minimum wage was $12.50, there would be a surplus of labor (quantity supplied is higher than quantity demanded). Naturally, this may cause a downward pressure on wages until it reaches $12. However, when a minimum wage is imposed at $12.50, it cannot fall below that level. Thus, the market will not reach the equilibrium.
4. Binding minimum wages cause frictional unemployment : FALSE
Frictional unemployment is a type of unemployment that occurs when workers are temporarily unemployed while switching between jobs. It is normal and occurs even in the healthiest of economies. A binding minimum wage is more likely to cause structural unemployment. This occurs when there is a mismatch between the skills of the labor force and the skills expected to be possessed by employers to do a particular job. Hence, even if jobs are available, the laborers are not suited to do them and thus are unemployed.
The statements that are true are:
A minimum wage is known to be the smallest form of income or remuneration that employers are said or required to legally pay all their employees.
Note that If the equilibrium wage is said to be higher than the minimum wage (at the price floor), then the minimum wage is said to have no kind of effect on the market, based on the fact that the equilibrium point is above the minimum wage.
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