Problem
Consider three interconnected markets, the market for labor, the market for coffee, and the market for donuts.
1. Draw the market for Sacramento County's minimum wage labor in equilibrium, with an equilibrium wage of $14 and an equilibrium quantity of employed people of 660,000.
2. Draw the effect of pandemic restrictions relaxing and federal stimulus checks being spent by local consumers; what effect (generally) does this have on the labor market and equilibrium wage? (What will happen to the demand for labor?)
3. Now consider local coffee shops, which primarily employ minimum wage labor. Draw the market in equilibrium.
4. What effect will the change above have on the market for coffee in Sacramento County? Draw the effect and indicate the new equilibrium.
5. Now consider donuts, a compliment to coffee. Draw the market in equilibrium.
6. Graph the effect of the changes above on the market for donuts. Will the donut market be affected in more than one way?
7. Now imagine the changes in the market for donuts affect coffee. Given the new equilibrium price you found in the donut market, what will be the change in the coffee market?