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Unemployment: Minimum Wage Laws and Efficiency Wages quiz

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  • What is a price floor in the context of the labor market?
    A price floor is a legally determined minimum price for labor, such as a minimum wage, set above the equilibrium wage.
  • What happens to the quantity of labor demanded when a minimum wage is set above the equilibrium wage?
    The quantity of labor demanded decreases because firms want to hire fewer workers at the higher wage.
  • How does a minimum wage above equilibrium affect the quantity of labor supplied?
    The quantity of labor supplied increases because more people want jobs at the higher wage.
  • What is the result of having a higher quantity of labor supplied than demanded due to minimum wage laws?
    It creates a surplus of labor, meaning there are more job seekers than available jobs, leading to unemployment.
  • Why is a minimum wage set below the equilibrium wage ineffective?
    Because the market already pays above the minimum, so it does not affect wages or employment.
  • What is the main trade-off created by minimum wage laws?
    They provide a living wage for those employed but increase unemployment for those who cannot find jobs.
  • What is an efficiency wage?
    An efficiency wage is a wage paid above the equilibrium level to incentivize workers and increase their productivity.
  • How do efficiency wages affect worker turnover?
    Efficiency wages decrease worker turnover because employees are less likely to leave higher-paying jobs.
  • Why do efficiency wages attract higher-quality workers?
    Higher wages attract more applicants, allowing employers to select the best candidates for the job.
  • How do efficiency wages influence worker effort?
    Workers are motivated to work harder to avoid losing their higher-paying jobs.
  • What is the opportunity cost for a worker losing a job with an efficiency wage?
    The opportunity cost is higher because the worker would likely have to accept a lower-paying job elsewhere.
  • How do minimum wage laws and efficiency wages both affect unemployment?
    Both can increase unemployment by setting wages above equilibrium, but efficiency wages aim to boost productivity.
  • Who benefits from minimum wage laws?
    Workers who keep their jobs benefit from higher wages, but others may become unemployed.
  • What role do incentives play in efficiency wage theory?
    Incentives from higher wages encourage workers to stay, work harder, and improve productivity.
  • Why might a firm choose to pay efficiency wages despite higher labor costs?
    Firms may pay efficiency wages to reduce turnover, attract better workers, and increase overall efficiency.