Figure 4-9 discusses the changes to a labor market equilibrium when the government mandates an employee benefit for which the cost exceeds the worker's valuation (panel a) and for which the cost equals the worker's valuation (panel b).
(a) Provide a similar graph to those in Figure 4-9 when the cost of the benefit is less than the worker's valuation, and discuss how the equilibrium level of employment and wages have changed. Is there deadweight loss associated with the mandated benefit?(b) Why is the situation in which a mandated benefit would cost less than the worker's valuation less important for public policy purposes than when the cost of the mandated benefit exceeds the worker's valuation?