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5. Under what condition(s) would the efficiency loss associated with the imposition of the minimum wage...

5. Under what condition(s) would the efficiency loss associated with the imposition of the

minimum wage outweigh gains to workers? Please show graphically and describe factors

determining this outcome (efficiency loss outweighs gains).

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Answer #1

5)

Since Minimum wage leads to the fall in employment opportunities. Fall in employment opportunities causes fall in seller and buyers surplus.

Following is diagram:

In above diagram, After setting minimum wage higher than the equilibrium ones, There will deadweight loss in form of reduced surplus of sellers and buyers.

Minimum wage leads to rise in cost of production so the rise in the price level. Thus, real wage does not rise as result of rise in minimum wage.

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