Question

With the aid of the diagram discuss the welfare effect of the new legislation if the new minimum wage is below the equilibrium wage

Answer 1

New minimum wage

Explanation:

• Minimum wage refers to the lowest paid amount to employees. This is the legally set wage by the government. That atleast this much must be paid.
• In a situation where minimum wage is set by the government below the minimum wage rate there won't be any definite effect.
• There is no effect.

The employers will hire as much employees as they want. Its their choice. They will simply lay off employees.

However, if there is a surplus the effect will be different.

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