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Diagram a model of supply and demand for a competitive labor market with a minimum wage...

Diagram a model of supply and demand for a competitive labor market with a minimum wage in effect and identify a group that gains and a group that looses when a minimum wage is imposed.

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Answer #1

In a free market equilibrium is reached at e where labor demanded is equal to labor supplied at L* at wage rate w*.

With minimum wage in effect, number of workers demanded us Ld and number of workers supplied is Ls. This creates a surplus of workers equal to Ls - Ld that becomes unemployed after minimum wage .

This means employers are worse off because they have to higher wage rate. The workers who are unemployment after imposition of minimum wage, are also worse off. The workers who got the job at higher wage, that is Ld are the only ones who are better off.

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