On a standard labor market graph with wage on the vertical axis and quantity of labor on the horizontal axis, which point represents the minimum wage as a price floor?

• A. The intersection of the labor supply and labor demand curves
• B. A point below the equilibrium wage where the wage is set by law
• C. A point where the quantity of labor supplied equals zero
• D. A point above the equilibrium wage where the wage is set by law

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the labor market graph setup, where the vertical axis represents the wage rate (price of labor) and the horizontal axis represents the quantity of labor (number of workers employed).
2. Step 2: Identify the equilibrium wage, which is the point where the labor supply curve (workers willing to work at different wages) intersects the labor demand curve (employers willing to hire at different wages). This intersection determines the market-clearing wage and quantity of labor.
3. Step 3: Recognize that a minimum wage set as a price floor is a legally imposed wage rate that cannot go below a certain level. This price floor must be set above the equilibrium wage to have any effect.
4. Step 4: On the graph, locate the point above the equilibrium wage on the vertical axis where the minimum wage is set. This point represents the minimum wage as a price floor because it is higher than the market-clearing wage.
5. Step 5: Understand the implications of this price floor: at this higher wage, the quantity of labor supplied will typically exceed the quantity of labor demanded, potentially causing unemployment (excess supply of labor).