I don’t understand how Price Floors create a surplus of labor and how a surplus of labor = unemployment. it doesn’t make sense the way they are explaining it on the chart. This is the way I’m understanding it. Price ceilings restrict the amount you can sell or rent a product, It’s placed below the Market selling price. So more consumers are going to want to rent the product at the lower price in turn reducing the amount of apartments or products available. (shift to the left on the supply curve, price goes down, supply goes down) Price Floors, such as minimum wage. Are floors placed above what employers want to pay employees (using that as an example). Which is a shift to the right on the supply curve, increasing the price of minimum wage and increasing the quantity. But shouldn’t that reduce the amount of labor available (reducing the quantity)? Because employers can’t afford to pay the same amount of employees more money? Also shouldn’t that reduce the amount of jobs because more people would want to work at the higher rate? I know in the book they’re saying it does create unemployment but they are referring to it as a surplus and over-production. I don’t understand how that could be a surplus, unless my understanding of the word “surplus” is off. Thanks people.
I think of a price floor or minimum wage as a horizontal line at a price above the equilibrium price where Quantity of labor demanded is less than the equilibrium quantity of labor supplied. As such, unemployment exists. I don’t follow what you say about shifting the supply curve to the right. Shifting the supply curve right decreases prices
Price floors/ceilings don’t cause a shift in supply or demand curves. They force the price or quantity out of equilibrium.
Juv ---- right
juventurd: Yes you’re right there are no shifts, I wish I could copy and paste the chart into this box as a screen shot. It’s the way they map it out on the supply/demand curve. Because the price is higher (for the price floor) it’s higher on the supply curve (right), and because it’s higher and to the right of the curve that indicates a higher quanitity. RIGWDL3: I think of a price floor or minimum wage as a horizontal line at a price above the equilibrium price where Quantity of labor demanded is less than the equilibrium quantity of labor supplied. As such, unemployment exists. So what you are saying is there is plently of labor but people would rather not work at a higher wage rate thus creating unemployment?? that doesn’t make any sense to me. Sorry guys its sad that I’m doing this on a Friday night lol.
With price floors you are not in equilibrium. At a higher wage rate people will want to work more than equilibrium however employers will employ / demand less. More people will seek work for fewer jobs
Okay I understand now. So there is a surplus of workers? Thanks guys.