Minimum Wages: In lecture we set down rough numbers for California’s forthcoming ongoing choice to raise the minimum wage to $15/hour in 2023—to a level that represents an increase from a level in 2014 that, relative to productivity and given current inflation, would correspond to $10.50/hour. Suppose that in 2023 there will be 4 million lowwage workers in California affected by this policy.
a) If the demand curve for low-wage workers in 2015 is: P = 10.50 - 20(Q - 4) and the supply curve is: P = 8, what will be the shift in price and quantity from the equilibrium (P, Q) = (10.50, 4) to the new price-floor equilibrium as a result of this policy? What will be the change in consumer and producer surplus?
b) In what units are your answers to (a). If you wanted to express them in terms of dollars per year, how would you go about doing that and what would your answers be?
c) How would you go about thinking whether this minimum wage increase was a good policy or not?
d) If, instead, the demand curve for low-wage workers in 2015 is: P = 10.50 - 20(Q - 4) and the supply curve is: Q = 4 (i.e., the opportunity cost of a low-wage worker is zero up to the point where 4 million are employed, and there are no additional low-wage workers available at higher wages) what will be the shift in price and quantity from the equilibrium (P, Q) = (10.50, 4) to the new price-floor equilibrium as a result of this policy? What will be the change in consumer and producer surplus?
e) In what units are your answers to (a). If you wanted to express them in terms of dollars per year, how would you go about doing that and what would your answers be?
f) How would you go about thinking whether this minimum wage increase was a good policy or not?