Where must a minimum wage be set relative to the equilibrium wage for it to have any effect?

It must be set above the market equilibrium wage; a minimum below equilibrium is not binding and changes nothing.

Describe what a binding minimum wage does in a competitive labour market diagram.

At the higher wage the quantity of labour supplied exceeds the quantity demanded, and the horizontal gap between the two curves measures the resulting unemployment.

Give two reasons a minimum wage rise may not cause the job losses predicted by a simple competitive model.

Employers may absorb the cost through lower profit, higher prices or lower staff turnover, and better pay can raise productivity enough to offset much of the rise in the wage bill.

Why are minimum wages far lower in developing countries than in developed ones?

Productivity and average incomes are much lower, so a high minimum would price a large part of the workforce out of formal employment altogether.

Edexcel A-Level Economics B 9EB0

Scarcity, Choice and Potential Conflicts

Topic overview Scarcity and the economic problem Choice, trade-offs and opportunity cost Profit maximisation, sales maximisation and satisficing Survival, market share and other business objectives Stakeholders and their objectives Stakeholder conflicts and corporate social responsibility

Enterprise, Business and the Economy

Topic overview The entrepreneur and creative destruction Adding value Entrepreneurial motives Factors of production Division of labour and specialisation The wider economic environment and the firm

Introducing the Market

Topic overview Consumer objectives and the demand curve Movements along and shifts of the demand curve Producer objectives and the supply curve Movements along and shifts of the supply curve Equilibrium price and quantity Excess demand, excess supply and market forces Shifts in demand and supply in real markets Limitations of the supply and demand model Functions of the price mechanism Mass markets, niche markets and market growth Market research and consumer insight Market segmentation Market mapping and competitive advantage Adding value, pricing decisions and dynamic markets

The Role of Credit in the Economy

Topic overview Banks and the channelling of savings into investment Bank lending, interest rates and collateral Risk in business decision-making Limited and unlimited liability Loans, overdrafts and trade credit Venture capital, share capital and leasing Owner's capital, retained profit and other sources of finance Challenges in obtaining credit and the impact of credit on the economy

Market Failure and Government Intervention

Topic overview Private, external and social costs Private, external and social benefits Externalities in production and consumption Strengths and weaknesses of the market economy The purpose and methods of government intervention Government failure

Revenue, Costs, Profits and Cash

Topic overview Sales volume and sales revenue Fixed, variable, total and average costs Percentage change in revenue, costs and profit Contribution and the break-even point Margin of safety and the limitations of break-even analysis Profit as an incentive: market entry and exit Gross, operating and net profit Profit margins and how firms increase profit Cash flow, cash-flow forecasting and business survival

Business Growth and Competitive Advantage

Topic overview Objectives of business growth Internal and external economies of scale Diseconomies of scale and the problems of growth Corporate culture in a growing business Organic and inorganic growth Horizontal, vertical and conglomerate integration Innovation, research and development and competitive advantage State funding for research and development The product life cycle and extension strategies Market information in the digital economy Digital technology and the supply side of business The long tail and wider geographical markets Costs, prices and firm survival in a digital market How small firms compete

Firms, Consumers and Elasticities of Demand

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Productive Efficiency

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Life in a Global Economy

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The Economic Cycle

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Introduction to Macroeconomic Policy

Topic overview The main macroeconomic objectives Fiscal policy Monetary policy and interest rates Supply-side policies Exchange rate policy under a floating rate Conflicts between macroeconomic objectives Choosing policy instruments and their unintended consequences

Globalisation

Topic overview The growing economic power of China and India Africa and other emerging markets Rising incomes, firms and shifting employment patterns Nominal and real values Index numbers Trade liberalisation and economic growth Specialisation and comparative advantage Foreign direct investment and growth Trade creation and trade diversion Trading blocs and the single market Trading blocs, firms and growing interdependence Protectionism: tariffs, quotas and other trade barriers Trade negotiations and international institutions Exchange rate changes and the Eurozone

Economic Factors in Business Expansion

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Impact of Globalisation on Global Companies

Topic overview Globalisation and glocalisation Ethnocentric, polycentric and geocentric approaches to global markets Price and non-price competition in global markets Branding and differentiation in global markets Cultural and language barriers in global markets Adapting marketing strategy for niche and mass markets

Impact of Globalisation on Local and National Economies

Topic overview Multinational corporations and local labour markets Multinational corporations and local firms Multinationals, the local community and the environment Foreign direct investment, growth and the balance of payments Technology transfer, skills and business culture Multinationals and consumers Tax revenues and transfer pricing Stakeholder conflicts, pay and working conditions Emissions, waste disposal and supply chain ethics Ethical marketing: labelling and promotion Controlling multinational corporations

Global Labour Markets

Topic overview Growth of the global labour force and structural change The demand for and supply of labour Skills, training and education Global competition, recession and redundancies Trade unions and professional bodies Minimum wage legislation, skill shortages and migration

Inequality and Re-Distribution

Topic overview Absolute and relative poverty and how they are measured Measuring inequality: the Lorenz curve and the Gini coefficient Reducing poverty: growth, development and international aid The impact of inequality on individuals, firms and the economy Re-distribution of income and wealth through taxation and services

Competition and Market Power

Topic overview Market structures across the spectrum of competition Perfect competition and what the model explains Market structure, pricing strategies and consumers Non-price competition and the limitations of perfect competition Contestability, ease of entry and barriers to entry Barriers to entry, market structure and economies of scale Concentration ratios, interdependence and tacit agreement Price discrimination Average and marginal cost, revenue and profit Contribution, business objectives and pricing strategies Productive and allocative efficiency Productivity, market orientation and interrelated markets

Market Power and Market Failure

Topic overview Cartels, collusion and restrictive practices Monopsony, natural monopoly and power in the labour market The implications of market failure for firms, consumers and government Promoting competition: anti-competitive practices, mergers and privatisation Regulating natural monopolies and protecting consumers and employees The Competition and Markets Authority and EU competition policy The benefits and costs of regulation

Market Failure Across the Economy

Topic overview Merit and demerit goods Factor immobility and information failure Externalities and social costs and benefits Environmental externalities and environmental change Policies to correct market failure

Macroeconomic Policies and Impact on Firms and Individuals

Topic overview Aggregate demand and its components Aggregate supply, full capacity output and the output gap The multiplier effect Shifts in AD and AS: inflation, unemployment and growth Fiscal policy: government spending and taxation Monetary policy: the Bank of England, interest rates and quantitative easing Demand-side policies on the AD/AS diagram: investment, jobs and prices Time lags, policy conflicts and the limits of demand-side policy Market-based supply-side policies Interventionist supply-side policies Supply-side policies on the AD/AS diagram: strengths and weaknesses Comparing macroeconomic policies and judging their success

Risk and the Financial Sector

Topic overview Risk and uncertainty in business decisions Economic shocks and their impact on firms Exchange rate risk and forward markets Insurance and the management of business risk Mobilising savings and lending for business investment Assessing creditor risk and lending to individuals Payments, equity markets and the exchange of goods and services The central bank: the MPC, monetary policy and financial regulation The Global Financial Crisis and banking regulation

Global Labour Markets

Minimum wage legislation, skill shortages and migration

3 things to know
Papers 2 and 3

Overview

The national minimum wage and where it binds, its effects in competitive and monopsony labour markets, why job losses may not follow, minimum wages in developing countries and informal sectors, inequality, calculating a pay rise, skill shortages and their costs and remedies, internal and international migration, remittances, brain drain, and inequality as an incentive.

What you need to know

Answer each one before you reveal it.

Your recallNot started

Key term

Explain two ways a skill shortage damages a country's international competitiveness.

Key term

What is a national minimum wage?

Key term

Why may a minimum wage raise employment where the employer is a monopsonist?

Questions from this subtopic

Each one with the model answer underneath.

1
What is a national minimum wage?
Model answer
A national minimum wage is a legally enforced lowest hourly rate that an employer may pay.
2
Where must a minimum wage be set relative to the equilibrium wage for it to have any effect?
Model answer
It must be set above the market equilibrium wage; a minimum below equilibrium is not binding and changes nothing.
3
Describe what a binding minimum wage does in a competitive labour market diagram.
Model answer
At the higher wage the quantity of labour supplied exceeds the quantity demanded, and the horizontal gap between the two curves measures the resulting unemployment.
4
Why may a minimum wage raise employment where the employer is a monopsonist?
Model answer
The monopsonist was paying below the competitive wage and deliberately hiring too few workers, so a minimum set between the two levels raises both the wage and the number employed.
5
Give two reasons a minimum wage rise may not cause the job losses predicted by a simple competitive model.
Model answer
Employers may absorb the cost through lower profit, higher prices or lower staff turnover, and better pay can raise productivity enough to offset much of the rise in the wage bill.
6
Why are minimum wages far lower in developing countries than in developed ones?
Model answer
Productivity and average incomes are much lower, so a high minimum would price a large part of the workforce out of formal employment altogether.

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