Answer to Question #307602 in Microeconomics for afsana

Question

Now suppose the minister for employment proposes an increase in the minimum wage. What effect would this increase have on employment? Does the change in employment depend on the elasticity of demand, the elasticity of supply, both elasticities, or neither?

Answer 1

An increase in the minimum wage will make employers employ few persons hence it will reduce the demand for labor causing an increase in unemployment. this leads to an increase in the price level.

This change depends on the elasticity of demand since if the demand is elastic it results in a greater change in the employment