Use the graph to answer the following question

Supply and demand graph for the labor market of fast food restaurants

Using specific information and numbers from the graph, explain what would happen in this market if a new price of $15 was instituted by the United States Government.

Part 1- Identify if this is a ceiling or a floor. How do you know? (3 points)

Part 2- Give the exact amount of shortage or surplus that would result. (2 points) Would this result in more or less employment? Why? (2 points)

Part 3- Given this shortage or surplus, explain if you would support such a change. Give at least 2 reasons you would or would not. (3 points)

REMINDER - Absolutely no outside resources are allowed to be used on tests. This includes, but is not limited to the use of lessons, notes, internet resources, and artificial intelligence. To do so is a violation of the honor code and will be reported.

(10 points)

1 answer

To answer the questions about the labor market for fast food restaurants based on the supply and demand graph, here are the steps:

Part 1

Identify if this is a ceiling or a floor. How do you know? (3 points)
The price of $15 set by the government is categorized as a price floor. A price floor is a minimum price that can be charged for a good or service; it is typically above the equilibrium price to have an effect. If the graph shows the equilibrium wage rate (where supply equals demand) to be below $15, we understand that the government is mandating a minimum wage above what the market would otherwise naturally set.

Part 2

Give the exact amount of shortage or surplus that would result. (2 points)
To determine the exact amount of surplus or shortage, we would look at the graph to find the quantities supplied and demanded at the price of $15. If the quantity supplied at $15 is greater than the quantity demanded, there will be a surplus. For example, if the graph indicates that at $15, the quantity supplied is 200 workers and the quantity demanded is 150 workers, the surplus would be 50 workers.

Would this result in more or less employment? Why? (2 points)
This situation would likely lead to less employment. With a surplus of labor, meaning there are more people willing to work at the higher wage than there are jobs available, employers may be reluctant to hire as many workers. Additionally, some employers might cut jobs or reduce hours due to the higher wage costs, contributing to lower overall employment in the market.

Part 3

Given this shortage or surplus, explain if you would support such a change. Give at least 2 reasons you would or would not. (3 points)
I would not support the increase to a minimum wage of $15 in this context for two reasons:

  1. Increased Unemployment: As mentioned, instituting a price floor leads to a surplus of labor, which can result in higher unemployment rates, particularly affecting low-skilled workers who may struggle to find jobs if wages rise artificially.

  2. Increased Operational Costs for Employers: Fast food restaurants may face higher costs due to the mandated wage, which could lead them to raise prices for consumers, cut employee hours, or automate tasks, ultimately reducing service quality and job availability.

These factors suggest that while the intention behind a higher minimum wage may be to improve workers’ living conditions, the market reality often leads to adverse outcomes in terms of employment opportunities and business viability.

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