Walter Williams asks some economic questions about what happens when prices or wages change by 25%:
“In his State of the Union address, President Barack Obama proposed raising the minimum wage from $7.25 an hour to $9 an hour. That would be almost a 25 percent increase. Let’s look at the president’s proposal, but before doing so, let’s ask some other economic questions.
“Are people responsive to changes in price? For example, if the price of cars rose by 25 percent, would people purchase as many cars? Supposing housing prices rose by 25 percent, what would happen to sales? Those are big-ticket items, but what about smaller-priced items? If a supermarket raised its prices by 25 percent, would people purchase as much? It’s not rocket science to conclude that when prices rise, people adjust their behavior by purchasing less.
“It’s almost childish to do so, but I’m going to ask questions about 25 percent price changes in the other way. What responses would people have if the price of cars or housing fell by 25 percent? What would happen to supermarket sales if prices fell by 25 percent? Again, it doesn’t require deep thinking to guess that people would purchase more.”