Impact of Minimum Wage on the Market for Dog Walkers
Minimum Wage and its Consequences
Consider the market for dog walkers that is currently in equilibrium. If the government institutes a minimum wage that is below the market wage, what will be the consequence for dog walkers?
Select the correct answer below:
- A. there will be a shortage of dog walkers
- B. there will be a surplus of dog walkers
- C. the wage in the market will be unaffected
- D. not enough information is provided
Question
What will be the consequence for dog walkers if the government institutes a minimum wage that is below the market wage?
Answer:
C. the wage in the market will be unaffected
Explanation:
Market for 'Dog Walkers' is a case of 'Labour market'. In Labour markets, employees are sellers & firms buyers of the labour skills.
- Firm's labour demand curve is downward sloping due to inverse relationship between price (wages) & labour demanded.
- Employees labour supply curve is upward sloping due to positive relationship between price (wages) & labour supplied.
- Equilibrium wages are where Market Demand for labour = Market supply of labour.
- Price (Wage) Floor is the minimum mandated wage by government, below which wages are not allowed to be kept.
Government imposition of minimum wage (base price) below the market wage is not a binding price floor, as it causes no change in the equilibrium wage, since equilibrium wage rate is already above the government laid down price floor.