What is a minimum price and why do governments impose minimum prices in markets?
In this essay I am going to evaluate the statement if “the unintended consequences of minimum prices often far outweigh the benefits of imposing them”. After having read many articles about these it becomes clear to me that minimum wages have both positives and negatives to all the parties concerned in this issue. For the employers (“A legal entity that controls and directs a servant or worker under an express or implied contract of employment and pays (or is obligated to pay) him or her salary or wages in compensation.”1) these might include loss of employees (workers in a company or industry that are hired to fulfill a need and are then paid for their service) due to job cuts, bankruptcy, collapse as well as the loss of profit. The benefit for this stakeholder group is that they might keep only the best performing employees and may therefore conclude to higher productivity. For the Employees the benefits seem quiet obvious as there is higher earning potential and so there is an increase in job security. Negatives though can include the chance of loosing your job and a decrease in chances of a promotion or pay raise. The last stakeholder group is just the overall economy. Also for this group these minimum wages have both positive and negative effects including the unemployment rates and less job creation. Negatives could include less spending on recreational goods and services that occur mostly due to job loss.
This graph shows a graph representing the effect of minimum wages on the number of workers, working in an economy. When the minimum wage is set the number of workers goes down from point a to b creating unemployment in the economy. As a result of this the government would then have to introduce new jobs or the businesses would have to increase their price so they could then afford to hire more workers to increase the demand for labor to reach a new equilibrium point with less unemployment in the economy.
As shown on the graph above Minimum wages
This graph shows a graph representing the effect of minimum wages on the number of workers, working in an economy. When the minimum wage is set the number of workers goes down from point a to b creating unemployment in the economy. As a result of this the government would then have to introduce new jobs or the businesses would have to increase their price so they could then afford to hire more workers to increase the demand for labor to reach a new equilibrium point with less unemployment in the economy.
As shown on the graph above Minimum wages