Effects of price floors on minimum wages on employment and the production possibility curvу

Document Type:Essay

Subject Area:Economics

Document 1

Setting a minimum wage price floor can have two possible outcomes. When the price floor is set below the market equilibrium, it creates employment as less people will be willing to work at the wage offered and employers will be needing more labor. However, this is not the cases most of the times the government sets a price floor. Most of the times the price floor is set above the market equilibrium. This has the effect of creating unemployment. Setting a minimum wage price floor can have two possible outcomes on the production possibility curve. If the price floor is set below market equilibrium, the curve will be outward as more will be produced since the labor is adequate. The curve curves inwards when the price floor is above market equilibrium as less people are employed leading to low production.

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