Suppose the minimum wage is above the equilibrium wage in the market for unskilled labor. Using a supply-and-demand diagram of the market for unskilled labor, show the market wage, the number of workers who are employed, and the number of workers who are unemployed. Also show the total wage payments to unskilled workers.
Mickey
Draw supply and demand curves for unskilled labor. Y axis is the wage rate, X axis is quantity number of workers. Label on the Y axis the equilibrium wage, label on the X axis, the equilibrium quantity of workers.
(I would put hours worked on the X axis. But this is just a refinement, and does not change the basic analysis).
Now, draw a flat (horizontal) line above the equilibrium wage rate. Where this line crosses the demand curve, label this quantity as the number of employed workers. Where the line crosses the supply curve, this is the number who want to work and receive the minimum wage. The difference between these two quantities is the number of unemployed.
Total wage payments is wage*workers, represented by the box formed in your graph -- borders are x-axis, y-axis, wage horizontal line, number employed vertical line.
To illustrate the situation described, let's draw a supply and demand diagram for the market for unskilled labor. On the Y-axis, we'll have the wage rate, and on the X-axis, we'll have the quantity of workers.
First, we'll plot the supply curve for unskilled labor, which is upward sloping because as the wage increases, more people are willing to supply their labor. Next, we'll plot the demand curve for unskilled labor, which is downward sloping because as the wage increases, firms are willing to hire fewer workers.
Now, we need to label the equilibrium wage rate and the equilibrium quantity of workers. The point where the supply and demand curves intersect represents the equilibrium. We'll label the wage rate at this point as the equilibrium wage and the quantity of workers as the equilibrium quantity.
Next, we need to draw a flat (horizontal) line above the equilibrium wage rate. This line represents the minimum wage, which is set above the equilibrium wage by the government. We'll label the point where this line intersects the demand curve as the quantity of employed workers. This is the number of workers that firms are willing to hire at the higher minimum wage.
Similarly, we'll label the point where the minimum wage line intersects the supply curve as the number of workers who want to work and receive the minimum wage. This represents the number of workers who are willing to supply their labor at the higher minimum wage.
The difference between the number of employed workers and the number of workers who want to work is the number of unemployed workers. These are individuals who are willing to work at the minimum wage but cannot find employment.
To calculate the total wage payments to unskilled workers, we need to multiply the minimum wage by the number of employed workers. This can be represented by the box formed by the X-axis, Y-axis, the horizontal line at the minimum wage, and the vertical line at the quantity of employed workers.
By following these steps and understanding the concept of supply and demand in the labor market, you can visualize the market wage, the number of employed and unemployed workers, as well as the total wage payments to unskilled workers.
In the market for unskilled labor, suppose the minimum wage is set above the equilibrium wage. Here is a step-by-step explanation on how to represent this scenario using a supply-and-demand diagram:
1. Draw a graph with the Y-axis representing the wage rate and the X-axis representing the quantity of workers.
2. Plot the supply curve, which slopes upward from left to right. This curve represents the number of workers willing to work at each wage rate. Label the equilibrium wage where the supply and demand curves intersect.
3. Plot the demand curve, which slopes downward from left to right. This curve represents the number of workers demanded by firms at each wage rate.
4. Draw a horizontal line above the equilibrium wage rate. This line represents the minimum wage set by the government.
5. At the point where the minimum wage line intersects the demand curve, label the quantity as the number of workers employed. This represents the number of workers that firms are willing to hire at the minimum wage.
6. At the point where the minimum wage line intersects the supply curve, label the quantity as the number of workers who want to work and receive the minimum wage. This represents the number of workers willing to work at the minimum wage.
7. The difference between the number of workers employed and the number of workers who want to work and receive the minimum wage represents the number of unemployed workers.
8. Finally, calculate the total wage payments to unskilled workers by multiplying the minimum wage by the number of workers employed. This can be represented by the rectangular box formed between the horizontal line at the minimum wage, the vertical line at the quantity of workers employed, and the axes.