The coefficients have been chosen so that these outcomes resemble a real economy. We should refrain from making our conclusions too specific though, since the coefficients are arbitrary.
Graphs
We consider two regimes, one With l (i.e. the minimum wage M is not binding), and one Without l (with M binding, causing unemployment and lower national income). Subsequently, the model is run with the computer program listed in the appendix; see chapter 37 for another appli[cation of the computer routine (and additional explanations of terms).]
Figure 34 plots the production possibility curves and the SWF indifference maps of the two situations. The regime with a binding minimum wage - and less workers - indeed has lower production and lower utility. The drop in production in the sheltered sector is larger than in the exposed sector.
Figure 34: Production Possibility Curves & Indifference Maps
Figure 35 plots the Edgeworth-Bowley diagram for factors h and m, with Sheltered in the lower left and Exposed in the upper right. The movement is upwards along the contract curve. The highly productive workers in the second regime become relatively scarce, and command a relatively higher share of national income. [ [103]