Chapter 5, Problem 5P

To determine

European governments tend to make greater use of price controls than does the U.S government. For an example, French government sets minimum starting yearly wages for new hires who have completed le bac, certification roughly equivalent to a high school diploma. The demand schedule for new hires with le bac a supply schedule for similarly credentialed new job seekers are given in the accompanying table. The price here given in euros, the currency used in France is same as the yearly wage.

1. In the absence of government interference, depict the equilibrium wage and the number of graduates hired per year by using a graph. State the presence of any involuntary unemployment at the equilibrium wage rate
2. When the government sets a yearly wage of 35,000 euro, will there be any involuntary unemployment and if yes then state the number through a graph.
Using a diagram show the situation when the minimum wage is set at 40,000 euro per year
3. Using the answer in part b and the information in the table, find the relationship between the level of involuntary unemployment and the level of minimum wage. State the beneficiaries, the losers, and the missed opportunity because of this policy.

Concept Introduction:

Involuntary Unemployment:

When an individual is willing to work at the prevailing wage rate but fails to secure a job, it is known as involuntary unemployment.