Low Floor Price Floor

Microeconomics Written Assignment Unit 2

In a market economy, price floors and price ceilings are tools which the government can use to protect the vulnerable members of society. However, price floors and price ceilings can end up hurting those who they are supposed to help. These price controls prevent the market from reaching the equilibrium point and make the markets inefficient. Market inefficiencies hurt both the suppliers and the demanders leaving both worse off than before. The price controls have unintended consequences when the price floor is set above the equilibrium point and when price ceilings are set below the equilibrium point (Taylor, 2016). For the price floor, we will consider the minimum wage and what the impact of

This law is important because it prevents the most unskilled workers from being taken advantage of. In recent years, there has been a call in major cities to raise the minimum wage to a living wage. A living wage, as defined by the textbook, Principles of Economics by Taylor (2016), is where the minimum wage is raised to a level where a full time worker should be paid enough to afford the basic needs of livings. I feel that support for a living wage is gaining popularity in major cities because the cost of living is generally higher in the city than in rural areas. Since the gap between the very wealthy and the very poor grows larger and larger, there is public support for raising the minimum wage. While the idea of raising minimum wage might seem, at first glance, to be a win for low income workers, there might be unintended consequences. Looking through the lens of economics, minimum wage is seen as a price floor in the labor market. We know that there is a opportunity cost to every decision and this case, it might be a loss of jobs or less hours, employers seeking technological replacements, and could increase the cost of goods and services (Taylor, 2016). These opportunity costs and unintended consequences, offer a counter argument again raising the minimum wage by using the demand and supply model to understand the possible effects of such a

With the price floor above the equilibrium, the quantity of labor supply, job seekers, increases while the quantity of labor demand decreases. This means that there will be more people trying to get jobs than the job providers want to hire and might mean that some people lose their jobs or have their hours cut. For the people who still have their jobs, their lives will improve with higher pay. However, those that lose their jobs or would have been willing to work for lower pay, but can not get hired due to lower labor demand, they are worse off than before. When there is a surplus supply of labor, there is inefficiency in the labor market (Taylor, 2016). With employers unwilling to hire workers at a higher wage, the employers might seek out alternative replacements for their labor needs. This can come in the form of technological replacements or moving jobs offshore to countries with cheap labor. Another possible consequence of raising the minimum wage would be the employers passing their new cost directly to the customers by raising prices for goods and services. If prices of goods and services rise throughout the economy, then the gains of those who receive a higher wage would be nullified by the rise in the cost of living. While the idea of raising the minimum wage to a living wage seems like a popular and moral