Task 1:

When the government imposes a minimum wage policy for workers in factories that produce
computers, there are two possible outcomes:

If the government imposes minimum wage that is below the equilibrium level, we obtain the scenario
will happen in Panel a). In this case, the equilibrium level is above the minimum wage, so the wage of
the computer workers is not binding. In short run, this policy has no effect to the wage of computer
workers. In long run, labour market will naturally move the minimum wage to the equilibrium level in
the future because the market has to take account of changes in the economic condition, such as the
rate of inflation.

On the other hand, if the government imposes minimum wage that is above the equilibrium level, as
it is shown in Panel b), the quantity of labour supplied exceeds the quantity of labour demanded. In
short run, it leads to a surplus number of people looking for jobs and create some of the negative
effect to those who is attracted to earning money. For example, when the minimum wage increases,
some teenagers or students who are still attending school may drop out and choose to have a job. The
number of labours supplied goes up while the number of labours demanded still stays or drops down.
Therefore, this leads to an increasing number of unemployment in the society. However, the minimum
wage policy can benefits workers who have high skills and experience in producing computers. As they
have many years of experience in that field, their productivity will be above the average level, they
are able to create more profit for the business. Therefore, their wage has to be raised as the minimum
wage is higher. They may have more superior level of income. Although the minimum wage policy
increases the income of those workers who have jobs and experienced skills, it decreases the
likelihood of being employed of those who have not found a job yet. In long run, a surplus number of
workers are able to produce higher number of computers for the market which increases the quantity
of supplies for computers. This left the supply curve to the right. The original equilibrium point moves
along the demand curve to the right and creates a new equilibrium points at the position where results
an increasing number in equilibrium demand and a lower equilibrium price of computers, as it is
shown in Panel c). If the government imposes the minimum wage that is higher than the equilibrium
level, the computers’ price falls which leads to more quantity of computers sold.

Panel a) A minimum wage that is not binding. It is below the

equilibrium level, so the minimum wage has no effect. The
equilibrium level adjusts to balance supply and demand.
Panel b) A labour market is bond by minimum wage. Therefore,
it creates a surplus because the quantity of labour supplied
exceeds the quantity of labour demanded, which results
unemployment.

Panel c) The event that increases the quantity supplied of

computers shifts the supply curve to the right from S1 to S2. It also
adds to the quantity of computers sold and reduces the price of
the products.

When the government does not impose minimum wage policy to the workers that produce
computers’ accessories, this can lead to undesirable pay rate, or underpay, from the employer to their
workers. As it is shown in Panel d), the number of labours demanded from the employer is more than
the number of labours supplied from the market. In short run, this leads to a shortage number of
workers who produce computers’ accessories in the market because no one would be happy to work
at that pay rate. For people who are underpaid, they can only afford an inadequate standard of living,
which may lead to some of the negative aspects such as poverty or criminal involvement. In long run,
as the number of labours demanded exceeds the number of supplied, a small number of workers
cannot produce the quantity of products required. Therefore, the productivity of the workers
decreases which leads to lower quantity of accessories produced. Unproductive workers reduce the
supply of computers’ accessories that shift the supply curve to the left. The original equilibrium point
moves along the demand curve to the left and creates a new equilibrium points at the position where
results a higher equilibrium price of the products and decreases the quantity sold (shown in Panel e).
If the government does not compel the minimum wage policy to the workers that produce computers’
accessories, there is a shortage number of workers in the market as they are paid with lower wage.
This issue leads to the products’ price goes up as the quantity of demanded falls.

Panel d) The workers who produce computers’ accessories may

suffer underpaid from the employers. Thus, there is a shortage
number of workers who is willing to work at that pay rate.

Panel e) The event that reduces the quantity supplied of computers’

accessories shifts the supply curve to the left from S1 to S2. The
equilibrium price of the products rises and the equilibrium quantity
falls.

In addition to the shortage of computers’ accessories supplies, the quantity of computers’ accessories
will decrease. Therefore, it leads to the demand of computers also decreases. This event shifts the
demand curve for computers move to the left. In this case, we obtain the scenario in Panel f). The
initial equilibrium point moves along the supply curve to the left and creates a new equilibrium point
at the position where results a lower equilibrium price of computers and smaller quantity of products
sold. If the government does not compel the minimum wage policy to the workers that produce
computers’ accessories, it leads to the decreasing demand of computers and the products’ price falls.

Panel f) The event that decreases the quantity demanded of computers

shifts the demand curve to the left from D1 to D2. Both the equilibrium
price of the products and the equilibrium quantity falls.