Macro Foundations · intermediate
What moves on the Aggregate Supply – Aggregate Demand diagram
Higher mandated wages raise unit labor costs, shifting SRASSRASShort-run aggregate supply: what firms produce at each price level while wages and input costs are still sticky. left.
Start at equilibriumequilibriumThe point where opposing forces balance, quantity supplied equals quantity demanded, so there's no pressure for price to change..
A higher minimum wage raises labor costs for firms employing minimum-wage workers.
Unit production costs rise. SRASSRASShort-run aggregate supply: what firms produce at each price level while wages and input costs are still sticky. shifts left (modestly; only a fraction of workers are affected).
New equilibriumequilibriumThe point where opposing forces balance, quantity supplied equals quantity demanded, so there's no pressure for price to change.: slightly higher price level, slightly lower output.
Examiners ask this as: minimum wage increase, wage floor rises, labor cost increase, award wage rise.
Other scenarios on Aggregate Supply – Aggregate Demand