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Artificially Setting Wages Above Market Level

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Discuss the following from an economic perspective and give numerical examples:

Minimum wages - artificially setting wages above market level is going to cause distortions in the allocation of resources in society.

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Solution Summary

The expert examines artificially setting wages above market levels. The resources in society are determined.

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Atificially setting wages above market level is going to cause distortions in the allocation of resources in society because it will cause the wrong inputs to be employed and will also adversly affect the number of outputs available. For example, consider there is a store that wants to stay open later and can either employ a checkout person for $1000 a month or a checkout machine for $1500. Stay open later will give the store a revenue of $1700. At this point, employing a checkout person makes sense because now it will give the store $700 of additional revenue. It also lets the checkout machine be used in a ...

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