Question

In the town of Redding, red saffron grows plentifully. Big Red Spices (BRS) is the only firm in town, and they employ people to cultivate saffron. Suppose the government imposes a minimum wage at the perfectly competitive wage.

On a piece of paper (separate from question 13), explain in words and/or show graphically the impact of the minimum wage on BRS' profit.

Answer 1

Answer:

MInimum Wages Law:

A minimum wage is the lowest remunerationthat employers can legally pay their workers—the price floor below which workers may not sell their labor. Most countries had introduced minimum wage legislation by the end of the 20th century.

Supply and demand models suggest that there may be welfare and employment losses from minimum wages. However, if the labor market is in a state of monopsony (with only one employer available who is hiring), minimum wages can increase the efficiency of the market. There is debate about the full effects of minimum wages.

The movement for minimum wages was first motivated as a way to stop the exploitation of workers in sweatshops, by employers who were thought to have unfair bargaining power over them. Over time, minimum wages came to be seen as a way to help lower-income families. Modern national laws enforcing compulsory union membership which prescribed minimum wages for their members were first passed in New Zealand and Australia in the 1890s.

Although minimum wage laws are in effect in many jurisdictions, differences of opinion exist about the benefits and drawbacks of a minimum wage. Supporters of the minimum wage say it increases the standard of living of workers, reduces poverty, reduces inequality, and boosts morale. In contrast, opponents of the minimum wage say it increases poverty, increases unemployment because some low-wage workers "will be unable to find work...[and] will be pushed into the ranks of the unemployed" and is damaging to businesses, because excessively high minimum wages require businesses to raise the prices of their product or service to accommodate the extra expense of paying a higher wage.[9]