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<h2>Price Floor</h2> <p>This diagram illustrates the difference between an ineffective price floor and an effective price floor, as well as their effects on the price, quantity and total revenue.</p> <h4>Concepts involved:</h4> <ul> <li>Price Floor</li> <li>Surplus</li> </ul> <h4>Instruction:</h4> <p>1) Try to move the horizontal “Price Floor” line up or down to see the changes in price, quantity and total revenue.</p> <p>2) Drag the “Gain in Total Revenue” and “Loss in Total Revenue” blocks over to the correct colored areas. If you drop the block to the correct area, the block will be filled with the corresponding color.</p> <h4>Questions:</h4> <p> The Hong Kong government has imposed a minimum wage policy for workers, which is the Price Floor. </p> <p> 1) If the government imposed the “Price Floor” above the equilibrium, what would have been the changes in price/wage, quanity and total revenue? </p> <button class="btn btn-sm btn-danger mb-2" type="button" data-toggle="collapse" data-target="#ans1" aria-expanded="false" aria-controls="ans1"> Show Answer </button> <div class="collapse" id="ans1"> <div class="card card-body"> <p>Because the equilibrium price was forcibly raised to the minimum price/wage set by the “Price Floor”, this is an effective price floor. The price would increase while the quantity would decrease; the change in total revenue of labor is uncertain as it depends on the elasticity of demand.</p> </div> </div> <p> 2) If the government imposed the “Price Floor” below the equilibrium, what would have been the changes in price/wage, quanity and total revenue? </p> <button class="btn btn-sm btn-danger mb-2" type="button" data-toggle="collapse" data-target="#ans2" aria-expanded="false" aria-controls="ans2"> Show Answer </button> <div class="collapse" id="ans2"> <div class="card card-body"> <p>Because the equilibrium price was already above the minimum price set by the “Price Floor”, this is an ineffective price floor. The price, quantity and total revenue of labor would not have changed.</p> </div> </div> <p> 3) How would the labor market be affected if the "Price Floor" imposed was effective? </p> <button class="btn btn-sm btn-danger mb-2" type="button" data-toggle="collapse" data-target="#ans3" aria-expanded="false" aria-controls="ans3"> Show Answer </button> <div class="collapse" id="ans3"> <div class="card card-body"> <p>Due to the increased wage, employers will hire less workers even though more people want to work. The labor market will experience a surplus, which is more unemployment. </p> </div> </div>
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