Question

. Using an appropriate graph explain the effect of a minimum wage law on employment if the labor market is competitive.

Answer 1

here, the market is at an equilibrium at the wage of Pm and the quantity is Q, the market equilibrium is at a point A. After setting the minimum wage the wages will increase to $15 and at that wage the supply of the labor will increase to 100 and the demand will be 50, the remaining surplus of 50 will be unemployed.

Minimum wages in the market will cause involuntary unemployment in the market.