Answer to Question #110961 in Microeconomics for Shantani

Question

With the aid of a diagram, discus above the equilibrium wage rate with labour hours as your quantity variable

Answer 1

Typically, the minimum wage in a particular market is determined by the intersection of labor supply and labor demand. Firms will hire workers for labor is an input of production. However, companies only hire workers when the wage rate is at the minimum level to reduce the cost of production but increase the production output and ultimately have a maximum profit.

When the minimum rate goes above the equilibrium wage rate, companies decrease the number of people they can hire at a time to reduce the production cost. As a result, an increase in the wage rate above the equilibrium increase the unemployment rate for the supply of labor becomes more than the demand.