Question

Define a price floor. Explain what problems are created. Explain why the minimum wage could be considered a price floor. What are the consequences of raising the minimum wage? Investigate two other aspects of raising the minimum wage: the ripple effect and stealth tax and explain how they would affect raising the minimum wage. Can economists say definitively that the minimum wage should be raised? Why or why not?

Answer 1

PRICE FLOOR

Price Floor is part of Price control and it is defined as limit or control on low prices by the Government or a group.Mostly it is higher than the equilibrium price that is formed by the market forces like demand and supply. This technique is prevent the prices from falling a certain level and it is mainly fixed by the Government in favor of the producers. Here the Producers are mainly the farmers who producing the Goods and services.

Price cieling and Price floor are the main example of Price controles by the Government Price cieling is another side of Price floor which is maximum amount of price for goods and services to keep the price in favour of the consumers.

The term MINIMUM WAGE is considered as the lowest remuneration of employers.This minimum wage is an example of Price floor this is the main relation between these two.Here the workers who willing to work in minimum wage are taken by the emploee and this is too low than the emploers in the equilibrium level. First one is minimum price and second is minimum wage rate.The hike in minimum wage is discussed subject in many countries it has several positives and negatives.The main arguments in favor of hike in minimum wage generall it is increases the standard of living of labors in getting rise in minimum wage but it has long term conseuences.

Becouse increasing the minimum wage rate will affect the emploees and the will reduce the rate of employers and reduce the work hours it will lead to svere unemploment among oung and others.In short run it will be beneficial but in longrun it will affect many economic variables. And also leads to increasing price for consumers through cost push inflation.

RIPPLE EFFECT in minimum wage rate is , the minimum wage rate is high then the wage recieved by the workers aslo high above the minimum wage, Ripple effect have multiplier effect on macro economics.

Stealth tax is a tax levied by the Government and it is to increase their revenue and it is not even knowing the consumer how much they pay it is not visible as other taxes.It will increase the cost of consumers and demand will decreases and also the demand for labor and minimum wage rate.