Question

the federal minimum wage was established in 1938 at $0.25 cents an hour. currently the federal minimum wage is $7.25 an hour, however, 45 of the 50 states have their own state minimum wage with the other 5 states using the federal minimum wage as their minimum wage. there was no minimum wage prior to 1938. this means when an employer hired someone to work for them, how much they were paid was an agreement between the employer and the employee. if you think of an employees wage as price, this would mean the market is setting the price for how much a job pays the employee. the minimum wage law is what we call a price floor, or the government saying this is the minimum price a good or service can be charged for.
analyze the graph of a price floor and answer the questions below

1. the price floor puts the price above or below the equilibrium price?
2. the price floor creates a surplus. in this scenario of the minimum wage price floor, what is the surplus of?
3. critical thinking question: what is the trade - off of the government setting a minimum wage?

Explanation:

1. A price floor must be above equilibrium to be effective, causing surplus.
2. Minimum wage as price floor leads to surplus of labor (unemployment).
3. Trade-off: Higher wages for some vs. potential unemployment for others.

Answer:

1. Above the equilibrium price.
2. Surplus of labor (unemployment).
3. Higher wages for employed workers versus potential unemployment due to reduced labor demand.