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Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985

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BuyFindarrow_forward

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985
Textbook Problem

In a competitive labor market, when the government increases the minimum wage, the result is a(n) _____ in the quantity of labor supplied and a(n) _____ in the quantity of labor demanded.

a. increase, increase

b. increase, decrease

c. decrease, increase

d. decrease, decrease

To determine

Increase in wage rate and its effect in the labor demand and supply curve.

Explanation

Option (b):

In a competitive labor market, when the government increases the minimum wage, it leads to increase the quantity of labor supplied and decrease in the quantity of labor demanded. When the wage rate increases, the labor supply curve shifts rightward and labor demand curve shifts to leftward. Thus, the option “b” is correct.

Option (a):

Increase in the minimum wage rate does not lead to increase the quantity demand for labors but it leads to reduce the quantity demand for labor in the market. Thus, the option “a” is incorrect...

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