Economics: Minimum Wage, Price Controls, and the Law of One Price

Vocabulary flashcards covering the economic analysis of the minimum wage, relevant historical policies and studies, the law of one price, and market arbitrage.

Price Floor

A government-imposed legal limit that prevents a price from falling below a specified level, illustrated by the minimum wage in labor markets.

Minimum Wage

An example of a price floor where the government increases the hourly wage rate; its economic effects fall almost entirely on low-skilled workers with little or no job experience.

Fair Labor Standards Act

The federal legislation signed into law by President Roosevelt in late 1938 (November 1938) that created the first national minimum wage and remains the statute governing federal minimum wage adjustments.

1977 Minimum Wage Study Commission

A research group created by President Jimmy Carter that brought together top economists over four years to evaluate the minimum wage, concluding that the textbook economic model accurately predicted employment reductions.

Card and Krueger

Researchers whose widely cited economic publication concluded that the standard textbook model is incorrect and that the minimum wage does not produce the predicted negative employment effects.

Federal Minimum Wage Level (2009)

The legal minimum wage rate of $\$7.25$ per hour, which was enacted by Congress and has remained at that level since 2009.

Otis Elevator Company

An elevator manufacturer that championed the early 1960s federal minimum wage hike to make manually operated elevator operators too expensive to employ, thereby encouraging building owners to buy its automatic elevators.

Law of One Price

The economic observation that, at any given time, identical or nearly identical goods sold by different merchants tend to trade at approximately the same price.

Arbitrage

The practice of buying a good or asset at a lower price in one location or market and reselling it at a higher price in another.

Marginal Utility

The value or usefulness extracted from an additional unit of a resource, which market arbitrage reallocates from low-value applications to higher-value applications.