Discuss the effects of an introduction of a minimum wage on the labour market.

Firstly, you should define a minimum wage as a price ceiling set above the equilibrium wage level (where demand equals supply). It can be introduced into markets where wages are too low, as a government intervention to solve market failures.  In the analysis for this question, a demand/ supply diagram should be used with the wage set above the equilibrium wage. The diagram will show that an excess supply of labour has been created. This is because more workers are willing to supply their labour; removing voluntary unemployment. The quantity demanded also decreases as wages are a cost to firms and an increase in wages raises the costs to firms. This creates unemployment.  To evaluate this, you can consider the impact of the elasticities of demand and supply. For example, the demand of a firm can be inelastic in the short run as labour cannot be easily substituted for capital. You can draw an inelastic demand curve to further express this point. Another evaluation point to consider is that this model assumes that the government has perfect information regarding the conditions of the market. As this can be a potential 20 marker, it is important to have a strong conclusion which gives a clear judgement about the effects of minimum wage such as questioning the impact of time lags.