Discuss how the results for minimum wage change

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1. If demand elasticity is -0.25 and the minimum wage rises 60%, what happens to employment (in % terms)? Show your work. Put this result in an S&D diagram (from the initial wage, w1, you can show a "60% rise" to w2 ... and do something similar with q1 and q2). What is the trade-off you are illustrating? Comment on why you think this trade-off is "worth it" or not.

2. Show and discuss how the results for a minimum wage change if the price elasticity of demand is more inelastic than the example above. That is, compare the outcome when elasticity is (-0.25) with a more inelastic reality in an S&D diagram (easiest if you show two demand curves - and one supply curve - in the same diagram). In which case is the minimum wage more effective, and why?

Reference no: EM133519745

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