Understanding Minimum Wage Policy Minimum wage is one of the most classic price floor policiesthat g

Understanding Minimum Wage Policy Minimum wage is one of the most classic price floor policiesthat governments use in practice. Suppose the following demand andsupply curves describe the labor market for bus drivers inEndor. Demand:
P = 20 – 0.75
Q Supply:  
P = 2 + 0.25
Q where
P is the wage per hour, and
Q representsthe number of bus drivers hired, in thousands (e.g. Q = 1 means that 1,000 drivers have been hired). a) Calculate the equilibrium wage and the number of drivershired. Illustrate on a graph. b) After a brief rebellion, bus drivers in Endor successfullyargue for a minimum wage law. The minimum wage law requires that all bus drivers earn atleast $8 per hour. How many drivers will be employed under this new minimum wage?Illustrate on a graph. c) Using your graphs from (a), calculate the consumer surplusand producer surplus at the initial equilibrium price and quantity from part (a). d) Calculate the new consumer surplus and producer surplus withthe minimum wage of $8 (part b). e) How does the total consumer and producer surplus in part (c)compare to the total consumer and producer surplus in part (d)? What explains thedifference in these two figures? Please explain intuitively. . . .

 

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