The diagram shows the effect of a minimum wage (Wmin) set above the equilibrium wage in a labour market. The distance between points A and B represents
Question 1 Report
The diagram shows the effect of a minimum wage (Wmin) set above the equilibrium wage in a labour market. The distance between points A and B represents
Answer Details
The correct answer is the level of unemployment created by the minimum wage.
When a minimum wage (Wmin) is set above the equilibrium wage, it creates a gap between the quantity of labour demanded (point A) and the quantity of labour supplied (point B). At Wmin, firms want to hire fewer workers (the demand curve gives a lower quantity at a higher wage), while more workers are willing to offer their labour at the higher wage. The horizontal distance between points A and B represents this excess supply of labour, which is the unemployment caused by the minimum wage.
The number of workers employed at Wmin corresponds to the quantity at point A alone, not the distance between A and B. The number of workers willing to work at Wmin corresponds to the quantity at point B alone. The equilibrium wage rate is a price level, not a distance on the quantity axis.
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