minimum wage

Question 1

analysis for imposing a minimum wage

Answer 1

• the effect of minimum wage can force the wage rate up from WR1 to Wmin1
• employers must now pay workers Wmin1 or above
• this effectively creates a new labour supply curve W2minS2
• this means that according to the model, employment falls from QL1 to QL2 as some workers will benefit from higher wages
• others will become unemployed as they is a contraction in demand for labour
• this aims to correct market failure caused by the free magnet wage that doesn’t guarantee a sufficient standard of living
• if unaddressed will increase workers poverty and inequality of incomes and wealth overtime