Exercise 2 (WS-PS Framework)

Question 1

During the annual celebration of Labor Day in the Philippines, the country’s labor sector always asks for an increase in the minimum wage. Using the WS-PS framework, graphically illustrate and explain the effects of this demand of the sector on price, real wage and the natural rate of unemployment. Label your graphs properly

What happens to the WS-PS graph?

Answer 1

The WS curve would remain the same while the PS curve would shift upward

Question 2

During the annual celebration of Labor Day in the Philippines, the country’s labor sector always asks for an increase in the minimum wage. Using the WS-PS framework, graphically illustrate and explain the effects of this demand of the sector on price, real wage and the natural rate of unemployment. Label your graphs properly

What are the effects of the graph? Why did this happen?