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Assume that the labor market is competitive, where the labor demand curve is strictly downward sloping and the labor supply curve is strictly upward sloping.
Assume that the labor market is competitive, where the labor demand curve is strictly downward sloping and the labor supply curve is strictly upward sloping.
(a) Suppose the government imposes a minimum wage on this labor market. Why would the minimum wage cause a deadweight loss (welfare loss)? In what sense is it a loss?
(b) How does the deadweight loss depend on the elasticities of the demand and supply curves? Explain.
(c) If the minimum wage created a deadweight loss, why would the government impose it? Discuss.
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