Answer to Question #89065 in Economics for Ncumisa Mlata

Question

1.5 In the labour market for carpenters, the current market clearing wage rate is R800 per day. With the aid of a diagram, discuss the welfare effects of government intervention in the form of legislation that sets the minimum wage rate for a carpenter at R1000 per day. (20 marks)

Answer 1

Such government intervention will create a surplus of carpenters because the quantity of labour demanded will be lower than the quantity of labour supplied. Moreover the total surplus will decrease because the deadweight loss occur, that’s why the labour market for carpenters will be inefficient.