Answer to Question #111872 in Microeconomics for Keolebogile Matsime

Question

According to the Dept of Labour's new rates, domestic workers working in Area A who work more than 27 ordinary hours per week must be paid a minimum of R13,69 per hour.
Workers who work fewer than 27hours per week must be paid a minimum of R16,03 per hour.
This means that a domestic worker who works 45hours per week will now earn a minimum of R2 669.24 a month.

With the aid of graph 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

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. If 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.