Types of Pay

• What are national minimum wage and national living wage known as?

  Government laws
• What is National living wage to do with?

  cost of living
• Is living wage mandatory or voluntary?

  Voluntary - wage recommendation
• A rise in the minimum wage may reduce unemployment in a what ways?

  1. Increased consumer spending
  2. Reduced poverty
  3. Improved worker productivity
  4. Reduced worker turnover
  5. Improved work incentives
• How is increased consumer spending a factor of a rise in the minimum wage that may reduce unemployment?

  Workers with higher wages tend to spend more money, which can increase demand for goods and services and create new jobs. Workers on relatively low wages tend to not have a high PROPENSITY TO CONSUME.
• How is reduced poverty a factor of a rise in the minimum wage that may reduce unemployment?

  A higher minimum wage can lift many workers out of poverty and reduce income inequality, which can lead to a more stable and robust economy.
• How is improved worker productivity a factor of a rise in the minimum wage that may reduce unemployment?

  When workers are paid a fair wage, they may be more motivated and productive, which can boost overall economic growth. EFFICIENCY WAGE THEORY approaches the issue from this perspective.
• How is reduced worker turnover a factor of a rise in the minimum wage that may reduce unemployment?

  Higher wages can make it more attractive for workers to stay in their jobs, reducing the need for employers to constantly hire and train new employees.
• How is improved work incentives a factor of a rise in the minimum wage that may reduce unemployment?

  A higher minimum wage increases - the hourly reward from working rather than remaining economically inactive.
• What can negatively occur if there is too steep of a minimum wage increase?

  Too steep if a minimum wage increase can lead to inflation, reduced profits for businesses and potentially decreased job opportunities as companies look to reduce costs.
• What is the efficiency wage theory?

  Efficiency wage theory is an economic concept that explains why firms may choose to pay their workers a wage higher than the market-clearing wage, which is the wage that would balance supply and demand in the labour market.

  the theory suggests that paying a higher wage can have several benefits for a firm.
• What benefits for a firm does the efficiency wage theory suggest can come form paying a higher wage?

  • Improved worker productivity
  • Reduced worker turnover
  • Better work health
  • Improved worker quality
• Why does the efficiency wage theory suggest that improved worker productivity is a benefit for a firm that can come from paying a higher wage?

  When workers are paid a higher wage, they may feel more valued and motivated, leading to an increased effort and productivity.
• Why does the efficiency wage theory suggest that reduced worker turnover is a benefit for a firm that can come from paying a higher wage?


  Higher wages can make it more difficult for workers to leave their jobs, reducing the need for employers to constantly train new employees.
• Why does the efficiency wage theory suggest that better work health is a benefit for a firm that can come from paying a higher wage?


  Higher wages may improve workers’ health, as they are able to afford better nutrition and healthcare.
• Why does the efficiency wage theory suggest that improved worker quality is a benefit for a firm that can come from paying a higher wage?


  By paying a higher wage, firms may be able to attract and retain higher-quality workers.
• What do the effects of efficiency wage theory depend on?

  The level of minimum wage and the elasticity of labour demand and supply.
• What is meant by price capping?

  A government-imposed limit on the price charged for a product - otherwise known as price capping. Often introduced as a way of controlling the monopoly pricing power of businesses with a large amount of market power.
• Explain the process of a price cap?

  • To be effective a price cap needs to be set below the normal profit maximising price for a monopolist.
  • Capping the price leads to an expansion of demand and an increase in consumer surplus. But the level of monopoly profit is lower.
  • Capped prices can improve allocative efficiency but lower profits might limit how much a firm can spend on investment and research which might have consequences for dynamic efficiency in the market.
• Without government regulation such as price caps, what could be the consequences?

  • Without government regulation, monopolies could put prices above the competitive equilibrium. This would lead to allocative inefficiency and a decline in consumer welfare.
• What does the diagram look like following the price cap in a monopoly market?

  DIAGRAM BELOW