Minimum Wage Legislation: Impact on Surplus and Welfare

MINIMUM WAGE LEGISLATION 1
MINIMUM WAGE LEGISLATION
By (Name)
Name of the class (course)
The Course instructor (Professor)
The Institution
The City and State location
The Date

MINIMUM WAGE LEGISLATION 2
Q1.
Minimum wage falls under the category of price control known as a price floor. This type of
price floor stipulates the lowest wages an employee can receive as compensation for labor
provided (Case et al., 2014, p.54). Therefore, the enactment of minimum wage legislation is
meant to protect the interest of workers so that the employers do not exploit them. For minimum
wage to bind, it must be set above the market equilibrium wage rate. If it set below the market
equilibrium, it will be ineffective and will not influence the market due to the price mechanism.
Q2.
Australia’s minimum wage rate is 18.93 dollars per hour (Fair Work Ombudsman, 2018).
Q3.
At equilibrium, Quantity supplied (Qs) equals the Quantity demanded (Qd)
Qd = 1,500,000 – 60,000W
QS = 120,000W – 1,200,000
Therefore,
1,500,000 – 60,000W = 120,000W – 1,200,000
Collect the like terms together
-60,000W - 120,000W = – 1,200,000 - 1,500,000
-180,000W = -2,700,000
W = -2,700,000 / -180,000

MINIMUM WAGE LEGISLATION 3
W = 15
Equilibrium wage rate = $15 per hour
Substitute 15 in any of the equations to obtain equilibrium quantity of labor.
Qd = 1,500,000 – 60,000W
W = 15
Therefore,
Qd = 1,500,000 – 60,000(15)
Qd = 1,500,000 – 900,000
Q = 600,000
Equilibrium quantity = 600,000 hours
We will choose values of wage rate and calculate Qs and Qd at each value and then graph the
results in excel.
Wage rate per hour 10 15 20 25
Hours of labour supplied. 0 600,00
0
1,200,000 1,800,000
Hours of labour
demanded
900,000 600,00
0
300,000 0

MINIMUM WAGE LEGISLATION 4
-500000 0 500000 1000000 1500000 2000000 2500000 3000000
0
5
10
15
20
25
30
35
Demand and supply of labor
Hours of labour supplied Hours of labour demanded
Quantity (labor)
Wage rate per hour
Q4.