Suppose there is a discussion about the minimum wage policy. A group of people argue that...

a. What would this probably mean for the labor market for the college-educated skilled workers? Will that market be affected? Will the equilibrium wage change for the skilled workers? Show using our regular tools of supply and demand. (5 points)

b. What about unskilled labor? How are they going to be affected if a new minimum wage law is implemented? What would happen in the labor market for unskilled workers? Again, show using our regular tools of supply and demand. (15 points)

c. Opponents of the proposed minimum wage policy argue that demand for unskilled labor is not as inelastic as proponents of the policy believe. Now, suppose you do not know whether the demand curve is relatively elastic or inelastic. Using two different demand curves on a single graph (one relatively inelastic and the other relatively elastic), show the effects of a minimum wage policy in both cases. Which case had more detrimental effects on efficiency and employment? Compare results on the graph. If the opponents’ belief about demand is correct, should the government re-consider the proposed minimum wage policy?

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Rahul Sunny answered 1 year ago

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