Economics 1021A/B Lecture Notes - Lecture 6: Price Floor, Social Cost, Labour Economics

• School: Western University
• Department: Economics
• Course: Economics 1021A/B
• Professor: Michael Parkin

Document Summary

Read the textbook to notice why it may not cause unemployment: inefficiency of a minimum wage. A minimum wage leads to an inefficient outcome. The quantity of labour employed is less than the efficient quantity. The supply of labour measures the marginal social cost of labour to workers (leisure forgone). The demand for labour measures the marginal social benefit from labour (value of goods produced): workers surplus is below, a deadweight loss arises, firms surplus is above. Competition is caused because of a shortage in jobs: every minute is an opportunity cost. If you happen to be one of those people who are lucky enough to land one of those jobs, then you are happy and then you believe is fair: taxes. Everything you earn and most things you buy are taxed. It isn"t obvious who pays a tax and that lawmakers don"t decide who will pay.