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1. Suppose the equilibrium wage for unskilled workers in New Jersey is $7 perhour. How will the wages and employment of unskilled workers in New Jerseychange if the state legislature raises the minimum wage from $5.15 per hour to$6 per hour?
2. Refer to problem 8. How much would it cost the government each day to providean earned-income tax credit under which workers as a group receive thesame economic surplus as they do under the $12 per hour minimum wage? (Assumefor simplicity that the earned-income tax credit has no effect on laborsupply.)
Ans-1 There will be no change in the equilibrium wage and employment after the state legislature raises ate minimum wage from $5.15 to $6 because the constraint is non binding as the equilibrium wage is already above the minimum level, so it does not alter the equilibrium wage and employment. 2. under the minimum wage of $12 per hour, each individual worker will…

save on $5, thus if the state wants to give the same economic surpus to the workers, they have to provide an earned income tax credit of $5 to each individual worker assuming that the earned income tax credit does not affect the labour supply.


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