(Two part question) explain why the concept of elastics to an understanding the impact of the...

(Two part question) explain why the concept of elastics to an understanding the impact of the minimum wage? Graph will be necessary

Expert Solution

Elasticity of demand is the responsiveness of quantity demand due to change in price. It is important to take elasticity into consideration when measuring the effects of minimum wages.

Similar to elasticity of demand is elasticity of supply, which is, the responsiveness of quantity supplied due to change in price.

When we say the demand/supply is relatively elastic, the demand/supply curve is (quite) FLATTER.

When we say the demand/supply is relatively inelastic, the demand/supply curve is (quite) STEEPER.

Clearly, the impact of minimum wage in the market is more where there is elastic demand/supply. The excess of workers is more in the left panel (Qs - Qs) as compared to the right panel, where the impact is less (QE - Qi).

This is so because when the demand/supply is elastic, the quantity reponds more than the change in price. So the economy would be worse off with such a regulation if the demand/supply are relatively elastic. This policy regulation would work better where the demand/supply curves are inelastic, the loss of efficiency would be less.

Rahul Sunny answered 2 years ago

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