标题: Eco doubt from CFAI text pg 76 [打印本页] 作者: slackeranalyst 时间: 2011-7-11 18:32 标题: Eco doubt from CFAI text pg 76
Inefficiency of minimum wage.
I understand that when minimum wage is imposed it results in inefficiency due to the deadweight loss created. My doubt is isn't this deadweight loss created due to excess supply of labour ie, overproduction. looking at the graph on pg 76the minimum wage is imposed at a wage rate of 5. At this wage rage the qty supplied would be 22 hours whereas the efficient qty is 21 hrs. This means the deadweight loss is due to over production. So shouldn't the dead weight loss appear on the right side of the equilibrium point in the graph ( as it appears for over production) than on the left side?
Can someone help me clear my doubt?
Thanks作者: Flok 时间: 2011-7-11 18:32
With the wage rate set higher then what the market asks for those who would regularly get a job at the market rate are not able to find employment so part of the deadweight loss can be attributed to the time spent to find a job that isn't available becasue the wage rate is artificially higher.
Essentially if there isn't a floor on the wage all available positions are filled efficently. however the floor makes it inefficent and therefore less labour hours are availalbe. Inturn shifting the equilibrium leading to the deadweight loss and usually excess capacity, not over production.
