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Principles of Microeconomics
Principles of Microeconomics, 1st Canadian Edition
Robert H. Frank, Cornell University
Ben S. Bernanke, Princeton University
Lars Osberg, Dalhousie University
Melvin Cross, Dalhousie University
Brian MacLean, Laurentian University
Income Redistribution

Practice Activity 2

 
Economic Surplus and the Minimum Wage
The labour market in an economy is described by the following demand curve:
W = 20 – 0.02 L
where W º wage and
where L º the number of worker-hours hired.
The supply is described by the equation:
W = 0.02 L

  1. What is the market wage, and how many worker-hours are hired?

  2. What is the total hourly wage bill, and what is the total economic surplus created in this labour market?

  3. Suppose the government imposes a minimum wage of $13 per hour.

    1. How many worker-hours will now be hired?
    2. What will be the total economic surplus created by the market?

  4. Are workers and this economy better off with or without the minimum wage? Explain.

See our suggested answer for this activity.

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