Multiple Choice
If the equilibrium price of corn is \$9 and a price ceiling of \$7 is imposed, which of the following is most likely to occur in the market for corn?
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5. Consumer and Producer Surplus; Price Ceilings and Floors
Price Ceilings, Price Floors, and Black Markets
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Minimum-wage laws dictate:
A
the equilibrium wage in a competitive labor market
B
the highest legal price that can be paid for labor
C
the lowest legal price that can be paid for labor
D
the average wage paid to all workers in the economy
Verified step by step guidance1
Understand the concept of a minimum-wage law: it sets a legal floor on the wage rate, meaning employers cannot pay workers less than this wage.
Recognize that in a competitive labor market, the equilibrium wage is determined by the intersection of labor supply and labor demand, without legal restrictions.
Identify that a minimum wage acts as the lowest legal price that can be paid for labor, preventing wages from falling below this level.
Note that minimum-wage laws do not set the highest legal price for labor, nor do they directly determine the average wage paid to all workers.
Conclude that the correct interpretation of minimum-wage laws is that they establish the lowest legal price that can be paid for labor.
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