Suppose government increases the minimum wage from $11.40per hour to $15per hour. Also assume the equilibrium market wage rate for low-skilled workers is $11.40per hour to answer the following questions. Make up numbers for quantities of labour i.e. number of low-skilled workers.

a. In the market for low-skilled workers, illustrate the effect of the higher minimum wage on the quantity of labour employed. Does the change in employment depend on the elasticity of demand for labour, elasticity of supply of labour or both elasticities? Explain your answer.

b. Now show the effect of the higher minimum wage on unemployment. Does the change in unemployment depend on the elasticity of demand, elasticity of supply or both elasticities? Explain your answer.

c. Is it possible that total earnings accruing to all low-skill workers can fall after the higher minimum wage? Explain and illustrate your answer using a new diagram.