Question
A common government policy intervention in markets is the minimum wage, which mandates a wage, w,above equilibrium.Suppose that this market can be described with two
A common government policy intervention in markets is the minimum wage, which mandates a wage, w,above equilibrium.Suppose that this market can be described with two equations:LD=40- 2*wforLabourDemand(LD)andLS=-4 + 2*wforLabourSupply (LS).
a.Using correct values for this labor market discuss the consequences for all interested parties as a result of firms moving from the neo-classical labor market to a monopsony labor market. (10marks)
b.Suppose that a minimum wage of $12 is introduced to the market.Discuss the resulting changes in both market structures as a consequence of the minimum wage at this level.(8marks)
c.Discuss why, in this case, market structure is irrelevant to the effect of this minimum wage.(3marks)
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