Question

d. Explain why the minimum wage creates a surplus of labor and state its size. (5pts)...

d. Explain why the minimum wage creates a surplus of labor and state its size. (5pts) e. How many people get jobs? What is the benefit to those people? Explain. (5pts) f. How many people are laid off as a result of the minimum wage? Explain why they are laid off. (6pts) g. Label and calculate the deadweight loss created by the minimum wage (2pts)

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d) Minimum wage is generally imposed by government above the equilibrium wage rate. At minimum wage of Wm, labor supplied is more than labor demanded which result in surplus of labor equal to Ls - Ld.

e) As labor demanded in the market is Ld, they get a job at this wage rate. People are able to find a job will get benefit of this situation because they will now work at higher wages.

f) There occurs unemployment when labor supplied is more than labor demanded. I have highlighted the unemployment of people due to minimum wage.

g)

Deadweight loss is the area of white triangle in the above figure.

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