In Heartland, the minimum wage is currently $4.00 per hour and the fast-food industry is the only industry that pays the minimum wage.50% of the workers in the industry are between 16 and 21 years old. The president of Heartland, concerned about decreasing the proportion of families with incomes below the poverty line, proposes increasing the minimum wage by 20%.

1. Assume the labor market for low skilled workers is perfectly competitive. Explain why an increase in the minimum wage might reduce employment in the fast-food industry.
2. Suppose the price elasticity of demand for workers in the fast-food industry is 0.25. What effect will a 20% increase in the minimum wage have on the number of units of labor hired in the fast-food industry? (Explain your answer using the Formula for Price Elasticity of Demand)
3. Use supply and demand analysis to describe the likely effect of this increase in the minimum wage on the price and quantity sold of meals at fast-food restaurants?