FIGURE 14- 2
-Refer to Figure 14- 2. Suppose the labour market is perfectly competitive. If a minimum wage of W5 were then established, the predicted effect would be which one of the following?

Question

Quizplus · Accepted Answer

In a perfectly competitive labour market, the equilibrium wage and quantity of labour will be at point E, where the supply and demand curves intersect. If a minimum wage of W5 is established, it creates a surplus of labour, as the quantity of labour supplied (Q4) exceeds the quantity demanded (Q1). As a result, employment would fall by the amount Q1Q4, and there would be an increase in unemployment equal to Q2Q3. Therefore, choice C is the best answer.

FIGURE 14- 2 -Refer to Figure 14- 2. Suppose the Labour Market Is