Minimum wage activity

Minimum Wage (10 pts)

1. Using traditional economic models create a graph of the market for minimum wage workers and how increasing the minimum wage would appear (hint: You will be graphing a price ceiling or price floor).  These traditional models would indicate the creation of either a shortage or surplus of minimum wage workers.  Mark and label which of these occurs.

2. Let’s investigate what happens for a business and their production costs with a proposed increase in minimum wage. You can refer to Solved Problem 11.4 in your textbook (pg. 377) to assist you in completing this activity.

Let’s look at a candy store.  We will simplify their costs to include:  $100 lease payment per week and the cost of minimum wage workers (8 hours per day, 5 days a week each worker).  Complete the following tables (one for the current Federal minimum wage of $7.25 per hour, one for proposed Federal minimum wage of $10.10 per hour):

7. Costs at current minimum wage of $7.25/hour

10. Costs at proposed minimum wage of $10.10/hour

Answer the following questions:

3. What changes did you notice for the candy store scenario above? What might employers of minimum wage workers have to do in response?

4. Tying this into past weeks, how does the increase in income of the workers affect product markets? Create a demand and supply graph showing this effect.  Be sure to indicate what happens to price and quantity demanded/supplied.