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Show how a binding minimum wage affects the labor market. Make sure to show the “surplus”...

Show how a binding minimum wage affects the labor market. Make sure to show the “surplus” of labor on your graph.

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Answer : The affects of minimum binding wage in labor market is shown in following picture's diagram.

Labor Market hom Surplus 3 Minimum Binding wage emand • L L Labon DWL = Deadweight LossIn above picture's diagram the equilibrium wage rate is W and equilibrium number of labor is L. W1 is the minimum binding wage rate. At W1 wage rate the labor demanded is less than the labor supplied. Hence at W1 wage rate the labor market faces surplus situation. Due to minimum binding wage rate the labor market faces deadweight loss. In above graph the shaded area is the deadweight loss area. L1 is the number of employed labor at minimum binding wage rate.

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