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Documented Problem Solving: The Impact of a Minimum Wage

Linda Wilson, The University of Texas at Arlington
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Summary

During the lecture, labor demand and labor supply were discussed and were used to determine the equilibrium wage rate. Then, the concept of a minimum wage rate was introduced and the impact of the wage rate on the labor market was demonstrated graphically.

Learning Goals

Students will:

Context for Use

This exercise is primarily focused on Principles of Economics course, but it could be used as a review for an advanced Microeconomics course or a Labor Market course. In order to benefit from this activity, students need to understand how labor demand and labor supply determine the equilibrium wage rate. Students can then build on that understanding to determine the impact of a minimum wage.

Description and Teaching Materials

For this exercise, all that is needed is a MC, T/F or short answer question that involves analytical thinking skills. One example is given below.

Assume that the equilibrium wage is $5.50 per hour. Ceteribus paribus, if a minimum wage is set at $6.50, the quantity of labor demanded will _______ and the quantity of labor supplied will _______.

(a) increase; increase.

(b) increase; decrease.

(c) decrease; decrease.

(d) decrease; increase.

answer: d

Teaching Notes and Tips

Students will have a much better chance of arriving at the correct answer if they use a graph of the labor market to help them determine the outcome. In addition, some students are confused about which entity demands labor. Because consumers demand goods and services in the product market, they have a hard time remembering that businesses demand labor in the labor market.

Assessment

Students are asked to write a documented problem solution for the above question. Be sure to focus on the thought process that students use to determine the answer rather than just the answer itself. Below is an example of one appropriate answer including all the steps that students should use.

References and Resources

Angelo, T.A. and Cross, K.P. (1993). Classroom Assessment Techniques: A Handbook for College Teachers. San Francisco: Jossey-Bass.


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