There is a proposal to increase the federal minimum wage to $10.10. If 16 hours per day are available for work and leisure, graphically represent the daily wage constraint for a worker who was earning the minimum wage rate of $7.25 and the new budget constraint after the increase.
Discuss the theoretical impact of the proposed higher minimum wage on labor supply.
More specifically, under the current $7.25/hour minimum wage suppose Joe's desired hours of work is 3 hours per day, and for Bill it is 7 hours per day. Compare and discuss the relative magnitudes of the substitution and income effects of the higher minimum wage for workers like Joe versus workers like Bill.