- The diagram below shows supply and demand in a labour market
assumed to be perfectly competitive.
a. At the free-market equilibrium, and show what
areas represent consumer and producer surplus.
b. Describe in words what consumer and producer surplus
mean in this case.
c. Now suppose the government establishes a minimum
wage at Show this on the diagram and label the new
level of employment in this case.
d. In the situation of part (c), what areas now represent
consumer and producer surplus? Is the outcome
alloctively efficient? Explain.
5. The diagram below shows the demand, marginal cost, and
marginal revenue curves for a monopolist. Redraw the diagram
for yourself to be able to answer the following questions.
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