Question

question 1
an effective minimum wage law can be expected to
○ clear the market for unskilled workers.
○ increase working hours for some affected workers.
○ increase the number of firms in those industries where the law is effective.
○ reduce the hours worked for some unskilled workers.

question 2
if a price floor is not binding, then
○ the equilibrium price is above the price floor.
○ the equilibrium price is below the price floor.
○ it has no legal enforcement mechanism.
○ more than one of the other answers is correct.
○ none of the other answers is correct.

Explanation:

Question 1

An effective minimum wage (a price floor in the labor market) is set above the equilibrium wage. This creates a surplus of labor (unemployment for unskilled workers, as firms demand less labor at the higher wage). For some unskilled workers, firms will reduce the hours they work (since they hire fewer workers or reduce hours to cut costs due to higher labor costs).

• "Clear the market" is wrong as surplus exists.
• "Increase working hours" is wrong—firms cut hours/labor demand.
• "Increase number of firms" is wrong—higher labor costs discourage new firms.
• "Reduce hours for some unskilled workers" matches the surplus and reduced labor demand.

A non - binding price floor is set below the equilibrium price. In a market, the equilibrium price is determined by supply and demand. If the price floor is non - binding, the market will operate at the equilibrium price, which is above the price floor (because the price floor doesn't restrict the market price—firms and consumers will transact at the equilibrium price which is higher than the non - binding floor).

• "Equilibrium price below floor" is wrong (that would make the floor binding).
• "No legal enforcement" is not related to binding/non - binding (binding is about price level, not enforcement).
• "More than one" and "None" are wrong as only "equilibrium price above floor" is correct.

Answer:

D. reduce the hours worked for some unskilled workers.

Question 2