Minimum Wage Effects on Labor Market

Steps:

• Identify the labor market equilibrium where supply equals demand, setting wage and employment levels.
• Introduce national minimum wage above equilibrium, creating a price floor.
• Analyze wage impact: minimum wage forces employers to pay at least that level, raising wages for affected workers.
• Analyze employment impact: in competitive markets, excess supply may occur, but empirical evidence shows no significant employment fall due to monopsony power or other factors.

Why A is correct:

• Minimum wage acts as a binding price floor, raising wages while studies (e.g., Card and Krueger) indicate no employment decline in many cases.

Why the others are wrong:

• B: Wages rise, not fall, as minimum enforces higher pay.
• C: Wages rise, not fall; employment doesn't rise due to higher costs.
• D: Employment may not rise; wages do change by increasing.

Final answer: A