Labour demand falls as wage rises (firms hire less at higher cost); labour
supply rises as wage rises (more people want to work). The market clears where
the two surfaces intersect. A binding minimum wage above that point creates a
gap: quantity supplied exceeds quantity demanded — unemployment.
Qd(w) = D₀ − a·w (demand slopes down)
Qs(w) = b·w (supply slopes up, b = elasticity)
Equilibrium: Qd(w*) = Qs(w*) → w* = D₀ / (a + b)
If w_min > w*: surplus = Qs(w_min) − Qd(w_min)
- Labour demand — how many workers firms want to hire at wage zero (shifts the demand curve).
- Supply elasticity — how strongly the workforce responds to wage changes.
- Minimum wage — a legal floor; when it exceeds equilibrium it creates excess labour supply (job seekers who can't find work).
- Cubes below the equilibrium plane are workers employed; red cubes above it are unemployed job-seekers when a binding floor is active.