Label the letters in the graph correctly. What is the overall negative consequence (effect) of setting a higher minimum wage on employment? cost of production?

Here's the solution to the extended response question:

a)
The labels for the graph are:

• I. Unemployment (or Excess Supply of Labour)
• II. Supply of Labour
• III. Demand for Labour

b)
The overall negative consequences of setting a higher minimum wage are:

• i. employment? A higher minimum wage leads to a decrease in employment (or an increase in unemployment) because firms demand less labor at the higher wage, while more people are willing to work.

• ii. cost of production? A higher minimum wage leads to an increase in the cost of production for businesses, as they have to pay more for their labor inputs.