Question

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?

Answer 1

Explanation:

If the new minimum wage is set below the equilibrium, then there will be no impact on the labour market equilibrium.

However if the minimum wage is set above the equilibrium, the supply exceeds demand and less workers will be employed for jobs and there can be an imbalance in labour market, some would get good wage while others won’t have the work to do.

Answer 2

The welfare effect of this new legislation.

Explanation:

• In this kind of market place, a minimum salary that is about the equilibrium salary that would otherwise result will decrease the volume of labor needed by companies, Raise the volume of labor supplied by workers, and cause a decline in employment that results in increased unemployment. A payment standard set above the equilibrium payment allowance would cause an excess supply of labor.

Learn more: Supply of labor

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