Answer to Question #111486 in Microeconomics for Andrew

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

If the minimum wage is established above the equilibrium, the supply exceedes demand and less warkers will be employed.

But if the minimum wage is established below the equilibrium, then there will be no impact on the labor market equilibrium.