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    Price Controls and Equilibrium

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    Price Controls and Equilibrium

    The issue of price setting and price controls is great political and social as well as economic interest; it's often very hard to separate these dimensions. Consider the article below that deals with the always hot topic of the minimum wage law. This is an area of great political, social, and economic interest, and it illustrates the difficulty in separating these dimensions in real life.

    Mythology of the Minimum Wage by D. W. MacKenzie (2006). Retrieved August 12, 2009.

    1. In economic terms, what are the market consequences of a price floor? Discuss the economic implications of implementing a legal mimimum wage.

    2. What do the laws of supply and demand predict would be the result of an immediate removal of minimum wage in terms of the price of labor and the quantity available?

    3. Do you believe that the minimum wage should be raised in order to provide workers with a better standard of living? Why or Why not?

    4. Is the minimum wage law an effective poverty-fighting measure? Discuss at least one alternative policy.

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    Solution Preview

    Price Controls and Equilibrium

    The issue of price setting and price controls is great political and social as well as economic interest; it's often very hard to separate these dimensions. Consider the article below that deals with the always hot topic of the minimum wage law. This is an area of great political, social, and economic interest, and it illustrates the difficulty in separating these dimensions in real life.

    Mythology of the Minimum Wage by D. W. Mackenzie (2006). Retrieved August 12, 2009!

    1. In economic terms, what are the market consequences of a price floor? Discuss the economic implications of implementing a legal minimum wage.

    The market consequences of a price floor are that equilibrium is not reached in the market for labor. As a result the price of the labor remains fixed because of the price floor at a higher level than equilibrium price. Because of the price floor, the quantity of labor demanded is lower than the equilibrium ...

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