Minimum wage refers to an economic principle affecting the incomes of citizens within a nation. They apply such policies to ensure that persons can maintain possible quality of life. It is binding when the amount is set above the equilibrium wage.
Question 2
The national minimum wage per hour in Australia for an adult worker is $18.93 before taxes.
Question 3
D=1,500,000-60,000W S=120,000W-1,200,000
At Equilibrium Demand for labour hours=Supply
1,500,000-60,000W=120,000W-1,200,000
1,500,000+1,200,000 = 120,000W+60,000W
2,700,000=180,000W
W=2,700,000/180,000
W=15
The equilibrium wage rate =$15
The quantity of unskilled labour employed = 1,500,000*60,000(15)
=2,400,000
Question 4
Calculation:
Consumer/Firm Surplus
=1/2*600,000*10
=3,000,000
Producer/ Worker Surplus
=1/2*600,000*5
=1,500,000
Total surplus = Consumer surplus + producer surplus
=3,000,000+ 1,500,000
=4,500,000
Question 5
At the rate of $19 per hour, the supply of labour would be: S=120,000(19) -1200, 000
= 2,280,000- 1,200,000
=1,080,000
The demand would be: D = 1,500,000- (60,000*19)
= 1,500,000-1,140,000
= 360,000
Exchange hours= (1,080,000-600,000) + (600,000-360,000
= 720,000 hours
There would be a surplus of supply of labour hours of 1,080,000 and a deficit of demand of 360,000 hours.
Question 6
Wages (per hour):
Supply curve
A Unemployment
19 Minimum wages
B C
E.P 15
D E
New Demand Curve
F
Demand Curve
1,080,000
360,000 EQ =600,000 Quantity
A: Consumer surplus
(B+D+F): Producer surplus
(C+E): Deadweight loss
Consumer/ Firm surplus =1/2*360,000*6
=180,000*6
=1,080,000
Producer/Worker surplus= (360,000*4) +1/2(360000)*3
= 1,440,000 + 540,000
= 1,980,000
Total Surplus = Producer Surplus + Consumer surplus
= 1,980,000 + 1,080,000
= 3,060,000
Resources lost in job search = 4,500,000 – 3,060,000
= 1,440,000
Deadweight loss = Area C + Area E
= (½*240,000*4) + (1/2*240,000*2)
= 480,000 + 240,000
= 720,000
Question 7
Following the introduction of the minimum wage,
(i) Imposition of a minimum wage at $19 per hour affects the profitability of the firm since workers employed have to be paid at increased fees as compared to the position of the organization in free market competition. The step, therefore, leaves the firm in a position that it is unable to pay for the labour hours it could previously afford. The company is therefore not well-off following the setting of minimum wage thresholds.
(ii) Labourers are better off following the increase in the minimum wage to $19.The workers that retain their jobs get paid at better rates increasing their standards of living. Others, however, lose their jobs and use the resources available to look for a position; hence, the unemployment rates rise while only a few workers earn more wages and can achieve better standards of living.
(iii) The society is better off following the setting of minimum wages by the government. The disposable income available for consumption by individuals and households increases contributing to improved livelihoods in the community. The change is, however, not significant since other clients lose their jobs as a result of excess labour supply exceeding labour demand.
Question 8
Consumer/Firm surplus = 480,000+1,080,000+1,440,000
= 3,000,000
Producer/Worker surplus = ½*600,000*5
= 1,500,000
Total Surplus = 1,500 000 + 3,000,000
=4,500,000
Deadweight loss = Zero since all the resources lost are taken over by producers.
Question 9
Based on the calculations on question 8; the welfare of the firm, the consumers and the society changes significantly following the setting of the minimum wage at $19. The firm will be better off since the resources used in job search by consumers end up in the hands of producers who can use these resources to increase their production and hence its profitability. The welfare of consumers, on the other hand, reduces significantly since the loss of jobs reduces their standards of living. Additionally, the need to use other resources in the job searching process further exposes them to economic vulnerabilities. The society by extension is affected by the deteriorating living standards of consumers who are unable to get any employment opportunities. The community is therefore left at a not-better-off state.
Question 10
From a consequentialist approach, the introduction of a principle is not ethically justified. While the move seeks to better the lives of individuals in this economic setting, it results in negative outputs. The step requires corporations to pay more for working hours supplied in the market, thus increasing income with the demand reducing since enterprises are not willing to spend more. The move does not add value to the financial situation of the players involved since it further causes skewness in the distribution of resources. The move is in favour of unskilled labourers who retain their employment status. It has adverse effects however on the business owners and the unskilled labourers who are rendered unemployed by the move. In overall, the imposition of minimum wages does not lead to efficiency in the distribution of resources hence the step is not ethically justified.
Question 11
From the consequentialist technique, the look-out towards improving the standards of living of individuals in the economy through the imposition of minimum wage thresholds is not fair. The move results in the excessive supply of labour hours in the market than what could be paid for by the firms leaving some of the consumers without any employment opportunities. The unemployed ones have to look for other chances further using more resources than necessary. While they require occupation to develop their well-being, the prospects available are few since the producers’ ability to pay is adversely affected by the setting of minimum wages by the government. Instead of improving the standards of lives of individuals in the society, the regulations on minimum wages affect them adversely hence the move is not ethically justified.
Question 12
The establishment of regulations on minimum wage thresholds is an issue that needs to be considered comprehensively before the policy is put in place. When the government interferes in the activities of a competitive market through regulatory frameworks and strategies, the impact is significant and affects all spheres of the economic units including individuals, households, and firms. The imposition of minimum wage thresholds causes instability of market forces and consequently surpluses and deficits which lasts for some time as the market tries to adjust to the changes.
When the situation continues for long, the market is negatively affected by the leading players in the market facing financial difficulties and resulting in poor conditions of lives. To help the case, the government and regulatory bodies, while regulating the market, should also offer subsidies and put in place other policy measures that ease the adjustment of producers to the imposition of thresholds on the minimum wages. It is, therefore, not ethical to set the minimum salaries without making all the necessary preparations for its functionality.
