Question on: JAMB Economics - 2012

Here's the breakdown:

• Understanding the Diagram: The diagram depicts a labor market, with a supply curve (S) and a demand curve (D) for labor. The minimum wage (OW) is set above the equilibrium wage.

• Impact of Minimum Wage: When a minimum wage is set above the equilibrium wage:

  • The quantity of labor demanded decreases (employers hire fewer workers because labor is more expensive).
  • The quantity of labor supplied increases (more people are willing to work at the higher wage).
  • This creates a surplus of labor, which is unemployment.

• Why other options are incorrect:

  • A. Full employment of resources: The minimum wage actually causes unemployment, so this is incorrect.