Question

With the aid of a diagram, discuss the welfare effect of the new legislation if the minimum wage is (1) below the equilibrium wage and (2) above the equilibrium wage rate with labour hours as your quantity variable

Answer 1

Answer:

In such markets, a minimum wage that is about the equilibrium wage that would otherwise result will reduce the quantity of labor demanded by firms, increase the quantity of labor supplied by workers, and cause reductions in employment (i.e. increased unemployment)