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The country of Timbuktoo is introducing a minimum wage for the first time in its history....

The country of Timbuktoo is introducing a minimum wage for the first time in its history. It is above the market-clearing wage rate for unskilled workers. The effect of the minimum wage would be to ( give me detail reason for the answer, i also want to know why option 'A" cant be a correct answer )

A) reduce the equilibrium real wage rate.

B) reduce the level of output.

C) shift the labour demand curve to the right.

D) shift the labour supply curve to the left.

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Answer #1

As shown in the diagram,if the minimum wage is above the market clearing wage,then there is a movement along the labor demand and labor supply curve(they are not shifting),so option C and D are ruled out.Moreover,it is mentioned in the question that minimum wage is above the market-clearing wage rate for unskilled workers, so option A is also ruled out.

Therefore, correct option is B.

Note that level of output falls due to a reduction in the demand of labor at this higher wage.

If you have any doubt,feel free to ask.

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