When government decides that the equilibrium wage in a labor market is too low it often sets a "minimum wage" or "wage floor," manadating that the market wage can be no lowrr than the minimum wage. Many critics of the policy contend that it is inffective and counterproductive for two reasons: (1) it creates unemployement among the lo-wage, mostly poor workers it was supposedly designed to help, mand (2) it lowers the total earnings (WxL) recived by the low-wage workers who are still employed.

Assuming that the labor marget for low-wage workers is perfectly competitive and all low-wage industries are covered by minimum wage laws, briefly discuss and illustrate the circumstances under which the minimum wage would (1) not lead to unemployement, amd (2) not cause a reduction in the total earnings of low-wage workers who are still employed.

Note: The demand for labour in a perfectly competitive industry is ndetermined by the value of the marginal product of labor," or VMP where VM = pxMP, with p=the price of the product th elabor is used to produce, market research has revealed that in most cases the lemand for low-wage labor is relatively inelastic.