Question:
If a government passes an effective minimum wage law, the resulting change in employment will be the smallest when the:
(1) labour demand is relatively elastic.
(2) labour demand is unitary elastic.
(3) labour demand is relatively inelastic.
(4) labour demand is perfectly elastic.
(5) labour supply is relatively elastic.
Correct Answer:
(3)
Answer Explanation:
An effective minimum wage acts as a price floor, raising wages. The resulting drop in employment (quantity of labor demanded) is minimized when labor demand is relatively inelastic, meaning employers cannot easily substitute labor with machines.
Topic: Price Control Year: 2023
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