In a perfectly competitive labor market, an increase in the effective minimum wage will result in

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Prepare for the AP Microeconomics exam on Market Failure and the Role of Government with detailed quizzes featuring multiple-choice questions, hints, and explanations. Master your understanding and ace the test!

Multiple Choice

In a perfectly competitive labor market, an increase in the effective minimum wage will result in

Explanation:
In a perfectly competitive labor market, wages are set where the supply of labor meets the demand for labor. If the minimum wage is raised above this market-clearing wage, it becomes binding and prevents the market from reaching equilibrium. The higher wage increases the cost of hiring for firms, so they hire fewer workers. Some workers remain employed at the higher wage, but the total number of workers hired falls, creating unemployment among those who cannot find jobs at the new, higher wage. So the outcome is that fewer workers are hired.

In a perfectly competitive labor market, wages are set where the supply of labor meets the demand for labor. If the minimum wage is raised above this market-clearing wage, it becomes binding and prevents the market from reaching equilibrium. The higher wage increases the cost of hiring for firms, so they hire fewer workers. Some workers remain employed at the higher wage, but the total number of workers hired falls, creating unemployment among those who cannot find jobs at the new, higher wage. So the outcome is that fewer workers are hired.

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