Econoimcs
Hi, this A level economics question from Paper 31, Oct. 2022 is driving my crazy. It is question 17. I can't post the question here becuase there is a graph and I can't post the image. The answer is D, both wages and employment rise. I have spent two days on this and I can figure it out... any help would be much appreciated. Below is a link to the exam.
https://pastpapers.papacambridge.com/papers/caie/as-and-a-level-economics-9708
https://pastpapers.papacambridge.com/papers/caie/as-and-a-level-economics-9708
The introduction of a minimum wage may affect wages and employment levels differently depending on the specific industry and the characteristics of the labor market in question. However, based on economic theory, marginal wage, marginal revenue product, and average revenue product graphs can provide insights into why wages and employment may increase if a minimum wage is introduced.
Marginal wage refers to the additional wage that an employer must pay to hire an additional worker. Marginal revenue product (MRP) measures the additional revenue that an employer earns from hiring an additional worker. Average revenue product (ARP) is the total revenue earned by a firm divided by the number of workers employed.
If the minimum wage is introduced, it is likely to increase the wage rate above the equilibrium wage rate. This is because the equilibrium wage rate is determined by the intersection of the demand and supply curves for labor. The demand for labor is determined by the MRP curve, which represents the additional revenue generated by hiring additional workers. The supply of labor is determined by the marginal cost of labor curve, which represents the additional cost of hiring additional workers.
If the minimum wage is set above the equilibrium wage rate, it will increase the marginal cost of labor and decrease the quantity of labor demanded, leading to a decrease in employment. However, if the minimum wage is set below the equilibrium wage rate, it will increase the wage rate and increase the quantity of labor demanded, leading to an increase in employment.
In addition, the introduction of a minimum wage can also increase productivity, as workers who are paid a fair wage may be more motivated to work harder and be more productive. This can lead to an increase in MRP, as well as a decrease in turnover rates and associated training costs. As a result, the ARP curve may shift upward, indicating an increase in total revenue per worker.
Overall, based on economic theory and the analysis of marginal wage, marginal revenue product, and average revenue product graphs, the introduction of a minimum wage may lead to an increase in wages and employment levels, particularly if the minimum wage is set below the equilibrium wage rate.
Courtesy of ChatGPT
Marginal wage refers to the additional wage that an employer must pay to hire an additional worker. Marginal revenue product (MRP) measures the additional revenue that an employer earns from hiring an additional worker. Average revenue product (ARP) is the total revenue earned by a firm divided by the number of workers employed.
If the minimum wage is introduced, it is likely to increase the wage rate above the equilibrium wage rate. This is because the equilibrium wage rate is determined by the intersection of the demand and supply curves for labor. The demand for labor is determined by the MRP curve, which represents the additional revenue generated by hiring additional workers. The supply of labor is determined by the marginal cost of labor curve, which represents the additional cost of hiring additional workers.
If the minimum wage is set above the equilibrium wage rate, it will increase the marginal cost of labor and decrease the quantity of labor demanded, leading to a decrease in employment. However, if the minimum wage is set below the equilibrium wage rate, it will increase the wage rate and increase the quantity of labor demanded, leading to an increase in employment.
In addition, the introduction of a minimum wage can also increase productivity, as workers who are paid a fair wage may be more motivated to work harder and be more productive. This can lead to an increase in MRP, as well as a decrease in turnover rates and associated training costs. As a result, the ARP curve may shift upward, indicating an increase in total revenue per worker.
Overall, based on economic theory and the analysis of marginal wage, marginal revenue product, and average revenue product graphs, the introduction of a minimum wage may lead to an increase in wages and employment levels, particularly if the minimum wage is set below the equilibrium wage rate.
Courtesy of ChatGPT
