In the scenario in the link below, what will happen to employment in this market if a union is formed and wages are set at $10 per hour?

Expert Answers
pohnpei397 eNotes educator| Certified Educator

In this scenario, there will be a surplus of drivers if the wage is set at $10.  Price floors always result in surpluses.

If the wage is set at $10 per hour, many people will want to drive taxis.  According to the table, 800 people will offer their services at that wage.  However, the higher price will reduce the quantity demanded for taxi drivers.  According to the table, only 500 drivers will be demanded at that wage.  This means that there will be a surplus of 300 drivers in this situation.

To show this graphically, draw the supply and demand curves using the data shown in the table.  Then draw a horizontal line out from the $10 level on the price axis (vertical axis).  This should cross the demand curve at the quantity 500 (in the horizontal axis) and it should cross the supply curve at the quantity 800.  Go to this link to see an example that uses different numbers.