Which of the following is least likely to be the result of a minimum wage? A) There will be an abundance of low-skilled workers willing to work. B) On-the-job training will be cut back. C) Labor will be substituted for capital. Your answer:–> B Correct answer --> C Explanation Firms substitute capital for the “expensive” labor and use more than the economically efficient amount of capital. ***************************** Can someone pls explain this…
Do you think the “minimum wage” referring to a new, established price floor?
I think minimum wage in this context does not refer to price ceiling. Only then it makes sense.
Minimum wage is when govt sets a wage which any employer MUST pay as a minimum to any employee it employs. When this Minimum Wage comes out to be ABOVE market Equilibrium wage rate, then it is a problem. A) There will be an abundance of low-skilled workers willing to work. --> Yes, there will an abundance of workers willing to work, as they are getting more than the equlibrium wage. B) On-the-job training will be cut back. --> Yes, on the job training will be cut back by employer, as they are already spending more than what they should be actually paying for labor. C) Labor will be substituted for capital. --> NO. It is going to be the other way round, since labor has been made more expensive by govt by introducing ‘minimum wage’. Since labor is expensive, companies in the long run will substitute Capital for Labor and NOT Labor for Capital. So, correct answer is C.
Thanks rus1bus