With the aid of a diagram, discuss the welfare effect of this new legislation if the new minimum wage is (1) below the equilibrium wage and (2) above the equilibrium wage rate with labour hours as your quantity variable.
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hey give the diagram then i will answer the question
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Welfare effect of this new legislation if the new minimum wage
Explanation:
(1) If wages are "lower than equilibrium", then the "demand for labour" is much "higher than supply", because for "low wages" few workers will agree to perform the "specified amount of work".
(2) If wages are "higher than equilibrium", then the "demand for labour" is "much less than supply", since owing to high wages, only a few "entrepreneurs" would be able to pay for this labour.
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