Answer to Question #110254 in Microeconomics for Michelle

Question

According to department of Labour's new rates domestic workers working in area A (bigger metropolitan areas)who work more than 27 ordinary hours per week, must be paid minimum wage of R13,69 per hour. Workers who works fewer than 27 hours per week must be paid a minimum wage of 16,03 per hour. With the aid of a diagram, discuss the welfare effects 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 wages are lower than equilibrium, then the demand for labor is much higher than supply, since for low wages few workers will agree to perform the specified amount of work.

2)

f wages are higher than equilibrium, then the demand for labor is much less than supply, because with high wages, only a few entrepreneurs will be able to pay for this labor.