Since the lost consumer surplus is greater than the additional producer surplus, social surplus falls.

Chapter 4

1. Changes in the wage rate (the price of labor) cause a movement along the demand curve. A change in

anything else that affects demand for labor (e.g., changes in output, changes in the production process that

use more or less labor, government regulation) causes a shift in the demand curve.

2. Changes in the wage rate (the price of labor) cause a movement along the supply curve. A change in

anything else that affects supply of labor (e.g., changes in how desirable the job is perceived to be,

government policy to promote training in the field) causes a shift in the supply curve.

3. Since a living wage is a suggested minimum wage, it acts like a price floor (assuming, of course, that it is

followed). If the living wage is binding, it will cause an excess supply of labor at that wage rate.
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