Minimum Wage Flashcards
(2 cards)
1
Q
State + explain the micro effects of a minimum wage.
A
- Income, Inequality, Equity: min W can deal with inequality as a market failure + promote equity.
- Higher P, Lower Consumer Surplus: pass higher CoPs on - due to min W - onto consumers via higher P - reduces consumer surplus - allocative inefficiency.
- Producer Revenue / Profit: particularly if they absorb higher CoPs.
- Individual Impact of Job Losses: if individual workers are losing jobs / being replaced by capital - reduces living standards, etc.
2
Q
State + explain the macro effects of a minimum wage.
A
- Unemployment: job losses (real wage unemployment diagram).
- Inflation: higher Cost-push inflation if W are being driven up.
- Competitiveness + Trade: worsening competitiveness - supply side cause of CA deficit.
- Government Finances: if gov is major employer of min W workers - worsens gov finances. While if they aren’t the main employer + the private sector is - actually there’s a tax revenue benefit.
