Question

Discuss the pros and cons of imposing minimum wage policy, make sure to draw a relevant diagram of price control and use demand and supply analysis.

Answer 1

Pros	Cons
Raises the standard of living of impoverished workers	Increases potential for layoff(employers may not afford to pay more and thus lays off some employees)
Reduces income inequality	Encourages employers to invest more in capital and capital and less in human resources
Increases economic growth (high income leads to high consumption, and thus high GDP)	poor work environment
Reduces government spending (encourages more people to work, reduces the payment government makes as unemployment benefits)	Increased job outsourcing and unemployment.

In the above diagram,the equilibrium wage is Weq where the demand for labour is equal to the supply of labour.The amount of labour hired is Neq.

In case the government introduces a minimum wage,the wage rate rises to Wmin.At this wage rate the demand for labour is less than the supply of labour which leads to surplus labour.