Draw and upload a graph with supply and demand curves, and a written explanation, explaining the...

Draw and upload a graph with supply and demand curves, and a written explanation, explaining the impact of a minimum wage.

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Expert Solution

Answer: Government impose the minimum wage for the workers who is getting very low. It is similar to price floor because minimum wage price is set above the equilibrium wage.

In this figure, d is demand for labour and S is supply for labour. W is a market wage rate where D and S of labour are in equilibrium. When government impose the minimum wage rate. Supply will increase to Q1 to Q3 but demand for labour will decrease to Q1 to Q2 because at high wage rate people don't want yo hire the labour. So excess supply will be there results In unemployment . AB is the available unemployment in an economy.

Increase in minimum wage would also increase the cost of production due to which aggregate supply cyrve will shift to left. As shown in figure-

When minimum wage increase leads to increase in price level leads to higher inflation rate . Thus shift the SRAS curve leftward from SRAS1 to SRAS2 . Real gdp will declines.

Rahul Sunny answered 1 year ago

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