ACDC Econ: Key Economic Concepts in 60 Seconds

Topic: The Resource Market

Overview

• Discussion on the resource market, specifically focusing on supply and demand in the labor market for fast food cooks.
• Introduction to the concept of minimum wage and its impact on the labor market.

Key Concepts

Supply and Demand for Labor

• Demand (by Firms):
  • High wages result in fewer fast food cooks being hired by businesses.
  • Lower wages encourage businesses to hire more cooks.
• Supply (by Individuals):
  • Low wages discourage individuals from working.
  • Higher wages incentivize individuals to seek employment as fast food cooks.
• Equilibrium is reached when supply and demand meet, determining the wage and quantity of labor.
  • Example: Wage set at $10/hour with a quantity of 100 workers.

Shifts in Supply and Demand

• Demand Shift: Can shift right, increasing demand.
• Supply Shift: Can decrease, affecting the equilibrium wage and quantity.

Minimum Wage

• Government intervention establishes a wage floor (analogy to a price floor).
• Minimum wage must be set above the equilibrium to be effective.
• Example: Wage floor set at $15/hour.

Impact of Minimum Wage

• Number of Workers Fired:

  • Increase in wage reduces quantity demanded; firms hire fewer workers.
  • Example: With a wage increase from $10 to $15, workers hired decrease from 100 to 50 (50 workers fired).

• Number of New Entrants into the Industry:

  • Higher wages increase quantity supplied; more individuals want to work.
  • Example: Increase leads to 120 individuals seeking jobs (20 more than previous 100).

• Unemployment Due to Minimum Wage:

  • Unemployment arises from surplus of labor (more people want jobs than available positions).
  • Example: Surplus of 70 workers between 120 wanting jobs and 50 positions available.

Conclusion

• Minimum wage laws create a surplus of labor known as unemployment in this context.
• Understanding the relationship between wage rates, supply, and demand is crucial for analyzing labor markets.

Questions for Review

1. How many workers were fired due to the minimum wage?
2. How many new workers entered the industry at the higher wage?
3. What is the total number of unemployed workers due to the new law?

• Answers:
  • Workers fired: 50
  • New entrants: 20
  • Unemployed: 70

• This concludes the discussion on the resource market and minimum wage. Remember these key points to understand labor market dynamics.