How does the price floor impact the quantity supplied


Problem

1) Draw a graph of the market for low-skilled labor services with an equilibrium wage of $12 and an equilibrium quantity of 100.

a) Explain who (employers or workers) demands labor services and who (employers or workers) supplies labor services.
b) Show on your graph the area that represents total gains from trade in this market.

2) Now assume that a price floor of $15 is imposed on this market. Show on your graph and explain the following.

a) How does the price floor impact the quantity supplied and the quantity demanded of labor services.
b) Show on your graph the amount of unemployment created by the price floor.
c) Show the Deadweight Loss created by by the price floor and explain why the Deadweight Loss exists and what it represents.

3) Discuss how the price floor impacts the poor.

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Macroeconomics: How does the price floor impact the quantity supplied
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