**7. Policy application: Minimum wage**

Minimum wage is a government-mandated lowest wage rate an employer can pay an employee. If the minimum wage is below the market equilibrium wage, it is not binding and will not impact the market equilibrium. When the minimum wage is above the market equilibrium wage, the hourly wage rate cannot legally fall below the minimum wage rate.

**Figure 12** shows the economic impact of the minimum wage. Before the minimum wage, the equilibrium wage rate is \$20 per hour, and the total employment is 300. When the government implements the minimum wage, the lowest wage rate the firms can offer is \$25 per hour. The workers are willing to supply 350 hours at the mandated minimum wage the firms only demand 250 hours. That is, there is an excess supply of labor in the labor market.
