March 19, 2025

Based on the videos, the readings, and any additional research you decide to do what you do think will be the market impact(s) of the proposed increas

Note: The video has Closed Captioning. To activate it, start the video, mouse over the bottom of the video and click on the CC icon, then select from the menu.

This week we will analyze what happens in a market when the government intervenes in the market and introduces price controls. In particular, we will examine what happens when the minimum wage is increased.

Assignment Summary:

1. View the two videos above and videos 1, 2 and 7 under the Week Two Videos. You may also wish to view the other videos for a deeper understanding of price controls.

Visit The Faces of <5 (https://facesof15.com/) for more perspectives on a $15 minimum wage.

3. Read Chapter 6 in your textbook in careful detail. Pay close attention to the graphs in Figures 1 – 5. Focus on Figure 5 in particular. You may also wish to review the CBO Report CBO Report – Alternative Formats on employment and income impacts of an increased minimum wage.

4. Read "Controversies over the minimum wage" on pages 118 – 120 in the text.

5. Based on the videos, the readings, and any additional research you decide to do (remember to cite and reference all your sources) what you do think will be the market impact(s) of the proposed increase in the federal minimum wage?

1. Will the proposed increase help workers? And if so which part(s) of the labor market will be helped?

2. Which part(s) of the labor market will be hurt by the proposed increase? How will they be hurt?

3. What will happen to the prices of goods and services produced with minimum wage labor?

6. What is your conclusion? Is this proposal a good idea or not? Explain why.

7. Post your views to the discussion board and refer to at least two different concepts from this week’s Chapters. Remember to use CAPITAL LETTERS to name and define them. Your illustration of concepts MUST include an explanation of why you think they are relevant to the week’s topic using specific information from the articles, videos and other research that you have done.

· Each post submitted should be between 150 and 250 words. Keep them short, specific, and clear.

· Please review Plagiarism Powerpoints ( PLAGIARISM.ppt PLAGIARISM.ppt – Alternative Formats ) and be sure to provide references (APA.ppt), including URLs where appropriate, to all works that you cite.

Week 2 DISCUSSION

Note: The video has Closed Captioning. To activate it, start the video, mouse over the bottom of the video and click on the CC icon, then select from the menu.

Assignment Summary:

1. View the two videos above and videos 1, 2 and 7 under the Week Two Videos. You may also wish to view the other videos for a deeper understanding of price controls.

2. Visit The Faces of <5 (https://facesof15.com/) for more perspectives on a $15 minimum wage.

4. Read "Controversies over the minimum wage" on pages 118 – 120 in the text.

1. Will the proposed increase help workers? And if so which part(s) of the labor market will be helped?

2. Which part(s) of the labor market will be hurt by the proposed increase? How will they be hurt?

3. What will happen to the prices of goods and services produced with minimum wage labor?

6. What is your conclusion? Is this proposal a good idea or not? Explain why.

· Each post submitted should be between 150 and 250 words. Keep them short, specific, and clear.

149

The Effects of a Minimum-Wage Increase on Employment and Family Income

report

february 18, 2014

Read Complete Document (pdf, 504 kb)

Increasing the minimum wage would have two principal effects on low-wage workers. Most of them would receive higher pay that would increase their family’s income, and some of those families would see their income rise above the federal poverty threshold. But some jobs for low-wage workers would probably be eliminated, the income of most workers who became jobless would fall substantially, and the share of low-wage workers who were employed would probably fall slightly.

What Options for Increasing the Minimum Wage Did CBO Examine?

For this report, CBO examined the effects on employment and family income of two options for increasing the federal minimum wage (see the figure below):

A “$10.10 option” would increase the federal minimum wage from its current rate of $7.25 per hour to $10.10 per hour in three steps—in 2014, 2015, and 2016. After reaching $10.10 in 2016, the minimum wage would be adjusted annually for inflation as measured by the consumer price index.

A “$9.00 option” would raise the federal minimum wage from $7.25 per hour to $9.00 per hour in two steps—in 2015 and 2016. After reaching $9.00 in 2016, the minimum wage would not be subsequently adjusted for inflation.

What Effects Would Those Options Have?

The $10.10 option would have substantially larger effects on employment and income than the $9.00 option would—because more workers would see their wages rise; the change in their wages would be greater; and, CBO expects, employment would be more responsive to a minimum-wage increase that was

The Effects of a Minimum-Wage Increase on Employment and Family Inc… http://www.cbo.gov/publication/44995

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larger and was subsequently adjusted for inflation. The net effect of either option on the federal budget would probably be small.

Effects of the $10.10 Option on Employment and Income

Once fully implemented in the second half of 2016, the $10.10 option would reduce total employment by about 500,000 workers, or 0.3 percent, CBO projects (see the table below). As with any such estimates, however, the actual losses could be smaller or larger; in CBO’s assessment, there is about a two-thirds chance that the effect would be in the range between a very slight reduction in employment and a reduction in employment of 1.0 million workers.

Many more low-wage workers would see an increase in their earnings. Of those workers who will earn up to $10.10 under current law, most—about 16.5 million, according to CBO’s estimates—would have higher earnings during an average week in the second half of 2016 if the $10.10 option was implemented. Some of the people earning slightly more than $10.10 would also have higher earnings under that option, for reasons discussed below. Further, a few higher-wage workers would owe their jobs and increased earnings to the heightened demand for goods and services that would result from the minimum-wage increase.

The increased earnings for low-wage workers resulting from the higher minimum wage would total $31 billion, by CBO’s estimate. However, those earnings would not go only to low-income families, because many low-wage workers are not members of low-income families. Just 19 percent of the $31 billion would accrue to families with earnings below the poverty threshold, whereas 29 percent would accrue to families earning more than three times the poverty threshold, CBO estimates.

Moreover, the increased earnings for some workers would be accompanied by reductions in real (inflation- adjusted) income for the people who became jobless because of the minimum-wage increase, for business owners, and for consumers facing higher prices. CBO examined family income overall and for various income groups, reaching the following conclusions (see the figure below):

Once the increases and decreases in income for all workers are taken into account, overall real income would rise by $2 billion.

Real income would increase, on net, by $5 billion for families whose income will be below the poverty threshold under current law, boosting their average family income by about 3 percent and moving about 900,000 people, on net, above the poverty threshold (out of the roughly 45 million people who are projected to be below that threshold under current law).

Families whose income would have been between one and three times the poverty threshold would receive, on net, $12 billion in additional real income. About $2 billion, on net, would go to families whose income would have been between three and six times the poverty threshold.

Real income would decrease, on net, by $17 billion for families whose income would otherwise have been six times the poverty threshold or more, lowering their average family income by 0.4 percent.

The Effects of a Minimum-Wage Increase on Employment and Family Inc… http://www.cbo.gov/publication/44995

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Effects of the $9.00 Option on Employment and Income

The $9.00 option would reduce employment by about 100,000 workers, or by less than 0.1 percent, CBO projects. There is about a two-thirds chance that the effect would be in the range between a very slight increase in employment and a reduction in employment of 200,000 workers, in CBO’s assessment. Roughly 7.6 million workers who will earn up to $9.00 per hour under current law would have higher earnings during an average week in the second half of 2016 if this option was implemented, CBO estimates, and some people earning more than $9.00 would have higher earnings as well.

The increased earnings for low-wage workers resulting from the higher minimum wage would total $9 billion; 22 percent of that sum would accrue to families with income below the poverty threshold, whereas 33 percent would accrue to families earning more than three times the poverty threshold, CBO estimates.

For family income overall and for various income groups, CBO estimates the following:

Once the increases and decreases in income for all workers are taken into account, overall real

The Effects of a Minimum-Wage Increase on Employment and Family Inc… http://www.cbo.gov/publication/44995

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income would rise by $1 billion.

Real income would increase, on net, by about $1 billion for families whose income will be below the poverty threshold under current law, boosting their average family income by about 1 percent and moving about 300,000 people, on net, above the poverty threshold.

Families whose income would have been between one and three times the poverty threshold would receive, on net, $3 billion in additional real income. About $1 billion, on net, would go to families whose income would have been between three and six times the poverty threshold.

Real income would decrease, on net, by $4 billion for families whose income would otherwise have been six times the poverty threshold or more, lowering their average family income by about 0.1 percent.

Effects of a Minimum-Wage Increase on the Federal Budget

In addition to affecting employment and family income, increasing the federal minimum wage would affect the federal budget directly by increasing the wages that the federal government paid to a small number of hourly employees and indirectly by boosting the prices of some goods and services purchased by the government. Most of those costs would need to be covered by discretionary appropriations, which are capped through 2021 under current law.

Federal spending and taxes would also be indirectly affected by the increases in real income for some people and the reduction in real income for others. As a group, workers with increased earnings would pay more in taxes and receive less in federal benefits of certain types than they would have otherwise. However, people who became jobless because of the minimum-wage increase, business owners, and consumers facing higher prices would see a reduction in real income and would collectively pay less in taxes and receive more in federal benefits than they would have otherwise. CBO concludes that the net effect on the federal budget of raising the minimum wage would probably be a small decrease in budget deficits for several years but a small increase in budget deficits thereafter. It is unclear whether the effect for the coming decade as a whole would be a small increase or a small decrease in budget deficits.

The Effects of a Minimum-Wage Increase on Employment and Family Inc… http://www.cbo.gov/publication/44995

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Principles of Economics, 10e

Chapter 6: Supply, Demand, and Government Policies

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Chapter Objectives (1 of 2)

By the end of this chapter, you should be able to:

Determine the impact of price controls on economic welfare using the supply and demand model.

Determine if a price control is a price ceiling or a price floor using the supply and demand model.

Determine if a price control is binding using the supply and demand model.

Determine the amount of shortage or surplus generated by a price control using the supply and demand model.

‹#›

Chapter Objectives (2 of 2)

Describe the unintended consequences of rent control using the supply and demand model.

Explain how a change in a labor supply determinant impacts labor supply.

Identify the tax incidence on consumers and producers for a given market.

Determine the impact of a tax on the equilibrium price and quantity in a market.

Analyze the relationship between elasticity and tax burden.

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6-1

The Surprising Effects of Price Controls

‹#›

Price Controls

Economists as policy analysts and advisers try to use theories to change the world

Policymakers often enact price controls when they believe that the market price of a good or service is too high or too low

These policies can generate problems of their own

‹#›

Price Ceiling and Price Floor

Price ceiling*

A legal maximum on the price at which a good can be sold

Rent-control laws

Price floor*

A legal minimum on the price at which a good can be sold

Minimum wage laws

*Words accompanied by an asterisk are key terms from the chapter.

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How Price Ceilings Affect Market Outcomes

Not binding

Set above the equilibrium price

No effect on price or quantity sold

Binding constraint

Set below the equilibrium price

Market price must be the price ceiling

‹#›

Active Learning 1: Price Ceilings for Muffins

The Muffin Buyers’ Association lobbies the government to impose a price ceiling. Which of the following is binding and what’s the effect on the market?

The price ceiling is set at $5

The price ceiling is set at $2

‹#›

Allow your students 5–10 minutes to work by themselves or in groups before asking for volunteers to share their answers. The correct answers are on the next slide.

Remind your students that a price ceiling is a maximum legal price (so any prices below the price ceiling are fine, but prices above the ceiling are not possible/legal).

Active Learning 1: Answers

The price ceiling is set at $5

Not binding

P = $3, Q = 15

The price ceiling is set at $2

Binding

P = $2, Qd = 18, Qs = 10

Shortage = 8 muffins

‹#›

Allow your students 5–10 minutes to work by themselves or in groups before asking for volunteers to share their answers. The correct answers are on the next slide.

A price ceiling is a maximum legal price, so prices set above the ceiling will not be legal.

If the price ceiling is set at $5, above the equilibrium price, there’s no impediment to the market reaching the equilibrium (well, staying in equilibrium at P = $3). Sellers continue to sell muffins at $3 each, and 15 muffins are sold and bought.

If the price ceiling is set at $2 (at the request of the “buyers’ association” of “Oh, no, muffins are too expensive, and the government should do something about the very expensive muffins!!”). Because it is below the market equilibrium, the $2 price ceiling is binding and it will keep the market in disequilibrium: shortage of muffins!! Though the buyers requested and got the lower prices, buyers will not be able to buy the 15 equilibrium muffins, but they will have to be happy with the 10 muffins sellers will be willing and able to sell at the lower price. Yikes!

Figure 1 A Market with a Price Ceiling

In panel (a), the government imposes a price ceiling of $4. Because it is above the equilibrium price of $3, the ceiling has no effect, and the market can reach the equilibrium of supply and demand. At this point, quantity supplied and quantity demanded both equal 100 cones. In panel (b), the government imposes a price ceiling of $2. Because the ceiling is below the equilibrium price of $3, the market price is $2. At this price, 125 cones are demanded while only 75 are supplied, so there is a shortage of 50 cones.

‹#›

Binding Price Ceiling

When the government imposes a binding price ceiling

Shortage arises

Sellers must ration scarce goods among potential buyers

Rationing mechanisms are rarely desirable

Long lines waste buyers’ time

Bias of sellers

Inefficient (good may not go to the buyer who values it most)

Unfair

‹#›

Rationing Mechanism

Rationing mechanism in a free, competitive market is straightforward

When market reaches its equilibrium, anyone who wants to pay the market price can buy the good

May seem unfair to some buyers when prices are high

Is efficient and impersonal

‹#›

Figure 2 The Market for Gasoline with a Price Ceiling

Panel (a) shows the gasoline market when the price ceiling is not binding because the equilibrium price, P1, is below the ceiling. Panel (b) shows the gasoline market after an increase in the price of crude oil (an input into making gasoline) shifts the supply curve to the left from S1 to S2. In an unregulated market, the price would have risen from P1 to P2. The price ceiling, however, prevents this from happening. At the binding price ceiling, consumers are willing to buy QD, but producers of gasoline are willing to sell only QS. The difference between quantity demanded and quantity supplied, QD – QS, measures the gasoline shortage.

‹#›

Ask the Experts: Rent Control

“Local ordinances that limit rent increases for some rental housing units, such as in New York and San Francisco, have had a positive impact over the past three decades on the amount and quality of broadly affordable rental housing in cities that have used them.”

Source: IGM Economic Experts Panel, February 7, 2012.

‹#›

This “Ask the Experts” feature provides the opportunity for class discussion. If you want, you can move this feature and class discussion after you have presented the rent control example on the next slide.

Start by asking the class what they know about rent control (you may have to explain what rent control is, and tell them that the main goal of this policy is to help the poor by making housing more affordable).

After showing the statement, you can ask your students to choose one of the options: agree, disagree, or uncertain. You can collect their answers in a variety of ways: show of hands, ballot, clicker system, etc. If time permits, you can allow students to group together and discuss some of the reasons of why they chose their answer.

Ask the students to share with the class their reasons. Their answers will vary.

Figure 3 Rent Control in the Short Run and in the Long Run

Panel (a) shows the short-run effects of rent control: Because the supply and demand curves for apartments are relatively inelastic, the price ceiling imposed by a rent-control law causes only a small shortage of housing. Panel (b) shows the long-run effects of rent control: Because the supply and demand curves for apartments are more elastic, rent control causes a larger shortage.

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How Price Floors Affect Market Outcomes

Not binding

Set below the equilibrium price

No effect on price or quantity sold

Binding constraint

Set above the equilibrium price

Some sellers are unable to sell what they want

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Binding Price Floor

When the government imposes a binding price ceiling

Surpluses arise

Sellers who appeal to the buyers’ personal biases may be better able to sell their goods than those who do not

In a free market, price is the rationing mechanism

Sellers may not be happy about how much they are paid at the equilibrium price, but they can sell all they want

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Figure 4 A Market with a Price Floor

In panel (a), the government imposes a price floor of $2. Because it is below the equilibrium price of $3, the floor has no effect, and the market can reach the equilibrium of supply and demand. At this point, quantity supplied and demanded both equal100 cones. In panel (b), the government imposes a price floor of $4. Because the floor is above the equilibrium price of $3, the market price is $4. At this price, 120 cones are supplied while only 80 are demanded, so there is a surplus of 40 cones.

‹#›

Ask the Experts: The Minimum Wage

“The current US federal minimum wage is $7.25 per hour. States can choose whether to have a higher minimum—and many do. A federal minimum wage of $15 per hour would lower employment for low-wage workers in many states.”

Source: IGM Economic Experts Panel, February 2, 2021.

‹#›

This “Ask the Experts” feature provides the opportunity for class discussion.

I think this feature is better suited here, after the discussion of minimum wage as a binding price floor.

After showing the statement, you can ask your students to choose one of the options: agree, disagree, or uncertain. You can collect their answers in a

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Based on the videos, the readings, and any additional research you decide to do what you do think will be the market impact(s) of the proposed increas

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