Answer to Question #246450 in Economics for Badshah

Question #246450

Elections are near in the Gotham city. The incumbent government, therefore, decides
to finally implement the long-awaited and much needed labor reforms. One of the most
crucial reform has been the enactment of the Minimum Wage Law. In accordance with the
law, the government of Gotham city decided to impose a minimum wage of 1000 Deltas
(Delta is the official currency), with an intent to earn the vote bank of the workers.
(a) Before the implementation of the minimum wage law, the market wage was 1200
Deltas. Critics say that the minimum wage law is nothing but a political gimmick,
as for the public it creates an impression that it is helping workers while at the same
time, it keeps the capitalists happy with absolutely no bearing on the free market
efficiency. Are they correct? Explain with the help of a diagram

Expert's answer

The minimal wage rate below the equilibrium wage rate will have no effect on the equilibrium, as it can be counted as non-binding price floor.

The minimum wage law can be effective only if it is imposed above the equilibrium wage rate.