EXAMPLE OF QUESTION 3

Question 5 (15 marks): Create and provide the solution to your own numerical problem based on any of the first 5 modules of the course. Feel free to choose the concept(s) and method you want to illustrate on 5 your own. Since the question is worth 15 marks, the only requirement is to make the question's level of difficulty and amount of work required to solve it according to your estimation roughly similar to Q3 above. Question 3 (15 marks): Suppose we analyze a labor market that is characterized by low wages and for which the government is contemplating adopting minimum wage legislation. The minimum wage law under consideration requires employers active in this labour market to pay workers at least a $15 hourly wage. For simplicity, assume homogeneity is the L-productivity on the market, i.e. that all workers are equally productive. The current unregulated market equilibrium wage rate is $10 per hour, and at this market clearing wage there are 600 employed workers. Suppose that under the minimum wage legislation, only 550 workers would be employed, and 200 workers would be unemployed. Assume that the market demand and supply curves are linear and that the market reservation wage, the lowest wage at which any worker in the market would be willing to work, is $5. The higher minimum wage reduces the need for social assistance for 'working poor' employed workers by $300. Finally, suppose the workers who lose their jobs are equally distributed along the linear labour supply curve between the reservation wage and the market wage. Represent the problem graphically and clearly label all elements. From a cost-benefit perspective, what is the value of the impact of this minimum wage policy on employers, on workers, and on society as a whole? >