How it can be possible for increases in the minimum wage, Microeconomics

Assignment Help:

The minimum wage was increased in 1996 amid cries by various economists that it would cause unemployment. Critics shown that the last time the minimum wage went up the similar dire predictions from economists were made, but more people were employed after the minimum wage increase. The similar, they argued, would occur again. Using isoquant-isocost analysis, analyze this situation and illustrate how it can be possible for increases in the minimum wage to have little impact on employment levels.

ANSWER:  The confusion arises over what the minimum wage increase could do in the short run versus  the long run. In the short run, capital is assumed to be fixed. As a result, the firm probably could continue to employ the same number of individuals as before the wage increase until the relatively cheaper capital would be obtained to substitute for the relatively more expensive labor. In the interim, if the demand for the  roduct increased, the firm might find it profitable to expand output and therefore hire more capital and more labor. In the isoquant-isocost graph below, the firm is initially at point A. If the price of labor increases, the budget line pivots in to line BB´. To maintain production at the similar level as before, the firm must increase its budget allocation to allow it to return to point A. This is the optimum position in the results and short run in no decrease in the employment level. Thus, in the long run the firm will move toward point C as capital becomes available. If demand increases warrant a move to isoquant II, then it is seems that more labor  and more capital will be employed even though the price of labor increases.

2392_How it can be possible for increases in the minimum wage.png


Related Discussions:- How it can be possible for increases in the minimum wage

Production possibility curve, what are things you need to look in manner of...

what are things you need to look in manner of functions,elements,purpose,types and definitions?

Demand and supply, (1) The demand curve for oranges is given by the equatio...

(1) The demand curve for oranges is given by the equation P = 5 – Q/200. The supply curve is given by P = Q/800. Q is measured in oranges per day and price is measured in dollars p

Indifference curve.., a consumer consumes only two goods x and y is in eqil...

a consumer consumes only two goods x and y is in eqillibrium price of x falls explain the reaction of consumer through utility analysis

What is working of world bank, Q. What is working of world Bank? An int...

Q. What is working of world Bank? An international financial organization formed after World War II and based in Washington D.C. Its supposed purpose is to promote economic dev

Agricultural growth and productivity trends, AGRICULTURAL GROWTH AND PRODUC...

AGRICULTURAL GROWTH AND PRODUCTIVITY TRENDS: Despite a steady decline in the share of agriculture in the Gross Domestic Product (GDP) of India, this sector continues to remain

Introduction about bounce fitness, About Bounce Fitness Bounce Fitnes...

About Bounce Fitness Bounce Fitness provides a range of services and arrange various sessions and programs in the area of fitness that helps to the people to be healthy. The

Effect of an increase in uncertainty on dollar exchange rate, As stock mark...

As stock markets have crashed, and uncertainty has increased, consumers move their money to the safest currencies and countries in the world.  Predict the effects of an increase in

Economics, Economics- Definition Economics is the study of how societie...

Economics- Definition Economics is the study of how societies utilize limited resources to make valuable commodities and allocate them among diverse people. Microeconomics h

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd