Trace through the effects a minimum wage might be expected to have, for two cases: (a)...

Trace through the effects a minimum wage might be expected to have, for two cases:

(a) the demand for output produced by workers is perfectly elastic.

(b) the demand for output is not perfectly elastic (and, therefore, slopes down).

For each case, make qualitatitive predictions about the effects of increasing the minimum wage on wage rate, output price, and the quantities of labor hired and output produced

Solutions

Expert Solution

Here, the concepts of law of demand and law of supply has been applied in both the output market as well as the labour market. Further, we assume that the minimum wage imposed is binding and that the labour supply curve is upward sloping (rather than backward bending).

Rahul Sunny answered 2 years ago

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