Question

State and explain any two (2) favorable or unfavorable effects of a relatively large increase in the minimum wage on demand or supply for goods and services in your city or state should the legislature in your state increase the minimum wage by say 60 percent.

Answer 1

Suppose initial there is a minmum wage of w where number of workers demanded is N'd and number of workers supplied is N's . There is unemployment of N's- N'd.

When minimum wage increases from w to w'. Unemployment also increases to Ns - Nd.

Thus favourable benefit to minimum wage is that workers are hired at higher wage. And another benefit is that it increases worker's productivity because workers are motivated by higher wage.

But it also results in increase in unemployment. Those who were earlier employed are now unemployed. This rather worsens the situation.

Thus state should not increase minimum wage.