Micro Economics

 
 

Minimum Wages as a Price Floor

The minimum wage is indeed a price floor. The price below is the minimum price which cannot drop and it is a legally imposed price floor. The minimum wage rate per hour cannot legally be undercut by employers. This applies both to part-time and full-time workers. The minimum price has to be set above the normal equilibrium price, to be effective (Spriggs, 1994). The minimum wage is perhaps the best example of a minimum price. To show the effects, curve analysis of labor demand and supply can be used.

Labor Demand and Supply Curve

Economic Implications of This Action in the Labor Markets

The minimum wage affects the labor market, depending on, when a high (statutory) rate of pay is brought into, what happens to the productivity of labor and also on the circumstances, when a pay floor is introduced, in the labor market. For the possibility of higher employment, there are two main explanations; The Keynesian argument and the Efficiency wage argument.

The Keynesian argument says that many of lower-paid workers have a high marginal propensity to consume higher wage rates, and it will increase the real disposable incomes of the lower-paid workers. This will feed through the circular flow of spending and income and thus they will increase their own spending.

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The efficiency wage argument says that a positive effect on their efficiency and productivity may be possible by raising pay levels for low-paid employees (Flinn, 2006). Businesses may take steps to improve workplace training, production processes etc. if they know that they must pay at least the statutory pay floor in addition to the psychological benefits of being paid more.

Economic Implications

Gains and Losses of International Trade

International trade is a product and a factor of the economic development of nations. For any nation, a major source of economic revenue is the international trade. Without international trade, produced within their own borders, nations would be limited to the services and goods. Crucial to the continuance of globalization is increasing international trade (Johnson, 1958).

The exchange of services, goods and capital across international territories or boundaries is the international trade. A significant share of GDP is represented in most countries. Its political, social, and economic importance has been on the peak in recent centuries, and within the big part of the history the international trade has been present. The vital role in the international trade system belongs to the outsourcing, multinational corporations, globalization, advanced transportation, and industrialization.

Importing and Exporting Countries Tariff

When a commodity crosses a national boundary, the tariff is a duty, or tax, levied on it. The tax imposed on an imported commodity, that is the import duty, is the most common tariff. The tax levied on an exported commodity, that is the export duty, is a less common tariff.

The international distribution of income, the volume of trade, domestic consumption, the value of welfare and production, domestic production, domestic price are what the tariff effects on. Foreign trade, in many other ways, can be restricted by nations (Takacs, 1978). The tariff is not only the instrument of protection, but it is the most common one.

Effect on the Tax Revenues from Doubling of Tax of Gasoline

Since the tax was raised 4 cents per gallon in 1977, the gas tax has not been increased. The gas tax is highly automated, very efficient, and an existing tax to collect. At the point where fuel is delivered to distributors from or importers or refiners, the tax is actually collected from distributors (Terkla, 1984). An immediate increase in revenue collections would result from an increase in the tax rate. As gas prices fluctuate wildly, the gas tax increase might not be noticed much by motorists. A dribble at a time, increased taxes are paid.

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