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# PERECON  REVIEWER

CHAPTER 2
5. From Table 2.2, the CPI (with a base of 100 in 1982–1984) rose from 130.7 in 1990 to 201.6 in 2006.
The federal minimum wage (nominal hourly wage) in 1990 was \$3.80, and it was \$5.15 in 2006. Calculate
the minimum wage in real (1982–1984) dollars. Did the federal minimum wage increase or decrease in real
dollars from 1990 to 2006?

Real hourly minimum wage in 1990 = nominal wage in 1990/CPI in 1990
= (\$3.80/130.7) * 100
= \$2.91
Real hourly minimum wage in 2006 = nominal wage in 2006/CPI in 2006
= (\$5.15/201.6) * 100
= \$2.55
The federal minimum wage decreased in real dollars from 1990 to 2006.
7. From the original demand function in Problem 6 (see table), how many cashiers would have jobs if the
wage paid were \$8.00 per hour? Discuss the implications of an \$8 wage in the market for cashiers.

If cashiers are being paid \$8.00 per hour, they are being paid more than the market equilibrium
wage for their job. At \$8.00 per hour, employers will hire 110 cashiers, but 175 workers are available
for work as a cashier. There are 65 workers who would like a job as a cashier at a wage of \$8.00 per
hour but cannot get such a job. Because a labor surplus exists for jobs that are overpaid, a wage
above equilibrium has two implications. First, employers are paying more than necessary to produce
their output; they could cut wages and still find enough qualified workers for their job openings. In
fact, if they did cut wages, they could expand output and make their product cheaper and more
accessible to consumers. Second, more workers want jobs than can find them. If wages were reduced
a bit, more of these disappointed workers could find work.