Answer to Question #88991 in Microeconomics for helen

Question

In the labour market for carpenters, the current market clearing market clearing rate is R 800 per day. With aid of a diagram, discuss the welfare effects of government intervention in the form of legislation sets the minimum wage rate for a carpenter at R1000 per day

Answer 1

If the minimum wage rate for a carpenter at R1000 per day is set, then there will be a surplus of labour, because the quantity of labour demanded will be higher than the quantity of labour supplied, so the market will become inefficient and the deadweight loss will be created.