Answer to Question #111559 in Macroeconomics for boitumelo bakoko

Question

effect of minimum wage below and above equilibrium

Answer 1

When the minimum wage rate is lower than the equilibrium wage rate in the market, usually, there is no effect. The market operates as if there is no minimum wage rate set. However, if the minimum wage rate is above the market equilibrium wage rate, the quantity of labor supplied is much more than what employers require. Therefore, employers will hire less labor than the quantity they would hire when there are no regulations and this leads to unemployment.