Equilibrium Price
AnswerQuestion A.Equilibrium Price (Wages)LD = 120-10WLS = 20W=LD=LS=120 – 10W = 20W=120 = 20W + 10W=120 = 30W=W = 120         30W = RM 4 Equilibrium quantity of Labor: = LS = 20W= LS = 20(4)= LS = 80 Million person hours                The impact minimum wages of RM 3.35 per hour on the free marketLD = 120 – 10W LD = 120 – 10(3.35)LD = 120 – 33.5LD = 86.5 Million person hoursLs = 20W LS = 20(3.35)LS = 67 Million person hoursThe impact of minimum wage cause of excess labor Demand of 19.5 million person hours of labor. The impact would increase the wages rate in a free market and the market would attain its free market equilibrium.    Question B.The impact of the new minimum wages of RM5 LD = 120 – 10W LD = 120 – 10(5)LD = 120 – 50LD = 70 Million person hoursLS = 20W LS = 20(5)LS = 100 Million person hoursThere is an excess supply of 30 million person hours of labor. The impact would be unemployment when the minimum wages is at RM5Graph[pic 1][pic 2]Question C. [pic 3]Worker’s and producer’s surplus before the minimum wage change[pic 4][pic 5][pic 6][pic 7][pic 8][pic 9][pic 10][pic 11][pic 12][pic 13]Producers Surplus @ RM4Worker Surplus @ RM4Area (ABE)½ (12 – 4)(80)Area (ACE)½ (4)(80)½ (8)(80)½ (320)½ (640)= 160= 320Consumer’s and Producer’s surplus after the minimum wage change[pic 14][pic 15][pic 16][pic 17][pic 18][pic 19][pic 20][pic 21][pic 22][pic 23]Producers Surplus @ RM5Worker Surplus @ RM5 Area (ABC)½ (12-5)(70)½ (7)(70)½ (490)= 245Substitute 70 in Ls70=20wW=3.5WS1=(5-3.5)*70=RM105WS2=0.5*(3.5)*(70)=RM122.5Total WS= RM105+122.5=227.5Comment Based on the depth thinking, with the gain of minimum remuneration of RM5, the producer’s excess is in region ABC. It clearly shows that the proletarian lose the area H. However those who are still workings getting higher earnings. The consumer /proletarian surplus growth for those that are able to still find the business, however not everyone is able to take the advantage of this increment. The employment fall by 10 million people per hours. The unfortunate like unskilled workers lose their jobs would be better off without the minimum wage increase, since they can’t partake in the newly increased worker’s surplus.

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