Question

Your assignment has two parts: story and diagram. Your story should describe and explain the elements of the story in supply and demand terms. It should be typed, double-spaced, between 7 and 1 page long. It should provide a summary of the story, and then an analysis in supply & demand terms. The supply & demand diagram illustrating your story may be hand-drawn or created on your computer. If it is hand-drawn, you should take a Criteria: • The diagram makes sense. • The story makes sense. • The diagram matches the story. Points off if you... • Cut the story short too soon. • Confuse terms (e.g. demand vs. quantity demanded). • Explain behavior as “irrational" or "crazy." use simple demand and supply terms like supply, demand, equilibrium, Quantity supplied, Quantity demanded , surplus etc...

Answer 1

In the country, there is a problem of lower wages given to the workers and it has led to the problem of income inequality. A big problem, associated with the economy where the market forces decide the equilibrium level of wages paid to the workers and demand and supply of workers at that particular wage level. A higher wage, leads to the higher quantity of workers supplied and vice versa. In contrast to it, a higher wage, causes lower number of workers demanded and vice versa. Since the market clearing wage rate is lower as perceived by the government and a major issue that people are unable to spend on different products and services. In the light of it, government is thinking to apply the price floor measures to correct the problem. Under the price floor measure, the government has fixed the minimum wage program for the workers that is to be paid by the companies to the workers so that they can have a higher wage. The intention of the government is to make workers in good stead by earning higher wages. It is shown as following graph.

Wage Wm Minimum Wage Quantity of workers Q2

In the above graph, the government has applied minimum wage that is Wm and it is above the market clearing wage that is W. It has made the workers to get a higher wage.

But, the above policy of the government has created the problem to those workers who are non-skilled or semi-skilled workers. Since minimum wage is increased the cost of the production, then firms have reduced their demand of workers to offset the cost. Hence, they are demanding less workers at Q1, though the supply of workers due to minimum wage is at Q2 level. It means that increased level of unemployment that is (Q2-Q1) is created in the economy and it is the non-skilled or semi-skilled workers who are the major sufferers.

Here, government should not only work to increase the minimum wage, rather they should work to increase the skills sets of the workers so that they can attain a higher wage. Not doing so, the policy of increasing the minimum wage will not be somewhat effective in nature.