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If the minimum wage is set below the equilibrium wage rate, it has no effect. The market works as if there were no minimum wage.If the minimum wage is set above the equilibrium wage rate, it has powerful effects.

The Labor Market and the Minimum WageIf the minimum wage is set above the equilibrium wage rate, the quantity of labor supplied by workers exceeds the quantity demanded by employers. There is a surplus of labor.Because employers cannot be forced to hire a greater quantity than they wish, the quantity of labor hired at the minimum wage is less than the quantity that would be hired in an unregulated labor market.Because the legal wage rate cannot eliminate the surplus, the minimum wage creates unemployment

The Labor Market and the Minimum WageThe equilibrium wage rate is $4 an hour.The minimum wage rate is set at $5 an hour.So the equilibrium wage rate is in the illegal region.

The Labor Market and the Minimum WageThe quantity of labor employed is the quantity demanded.The quantity of labor supplied exceeds the quantity demanded.Unemployment is the gap between the quantity demanded and the quantity supplied.

The Labor Market and the Minimum WageInefficiency of a Minimum WageA minimum wage leads to an inefficient use of resources.The quantity of labor employed is less than the efficient quantity and there is a deadweight loss.

Housing Markets and Rent CeilingsA minimum wage decreases the quantity of labor employed,shrinks the firms’ and workers’ surplus by using resources in job search activity,and creates a deadweight loss.

The Labor Market and the Minimum WageA Living WageA living wagehas been defined as an hourly wage rate that enables a person who works a 40 hour week to rent adequate housing for not more than 30 percent of the amount earned.The effects of a living wage are similar to those of a minimum wage.

TaxesEverything you earn and most things you buy are taxed.Who reallypays these taxes?Income tax and the Social Security tax are deducted from your pay, and the sales tax is added to the price of the things you buy, so isn’t it obvious that youpay these taxes?Isn’t it equally obvious that your employer pays the employer’s contribution to the Social Security tax?You’re going to discover that it isn’t obvious who pays a tax and that lawmakers don’t decide who will pay!

TaxesTax IncidenceTax incidenceis the division of the burden of a tax between the buyer and the seller.When an item is taxed, its price might rise by the full amount of the tax, by a lesser amount, or not at all.1.If the price rises by the full amount of the tax, the buyer pays the tax.2.If the price rise by a lesser amount than the tax, the buyer and seller share the burden of the

 
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