Question

With the aid of a diagram, discuss the welfare effect of this new legislation if the new minimum

wage is (1) below the equilibrium wage and (2) above the equilibrium wage rate with labour

hours as your quantity variable.

Answer 1

1) If the minimum wage is lower than the equilibrium wage, then we can say that the society has a good tendency to increase welfare (the company receives more income)

2) If the minimum wage is higher than the equilibrium wage, then we can say that in society there is a negative tendency for welfare to fall (society receives less income)