Question

1. Draw the labor market for workers with a minimum wage above the market rate.
   1. Label on your graph the minimum wage, quantity demanded, quantity supplied, and the price set by the market.
   2. Is there a shortage or surplus of workers? How do you know? Show on your graph.
   3. Show the area of consumer surplus.
   4. Show the area of producer surplus.
   5. Show the area of the DWL.
   6. Show the area of the potential loss from job search.

Answer 1

In the above graph, W and L is the equilibrium wage and labor employed respectively

When a minimum wage of Wm is imposed above the equilibrium wage,then it is a price floor which will cause the labor demanded to decrease to Ld and labor supplied to increase to Ls so there exist a surplus in the market because quantity supplied of labor is greater than quantity demanded.

the area denoted by letter C = consumer surplus

letter P = producer surplus

Potential loss from job search = Ls-Ld that is the surplus created as Ls is the labor supplied who are willing to work but Ld is the demanded which will be employed at the given minimum wage so it creates unemployment.

letter DWL = deadweight loss