The Minimum Wage Policy - Coursework Example

Economics 2nd October Ans.4: The minimum wage policy has both benefits and drawbacks for all three parties involved. In the following paragraphs both advantages and disadvantages of a minimum wage policy for employees, businesses and consumers have been discussed. If one looks at who gets the minimum wage one becomes likely to agree why minimum wage policy needs to exist. Unfortunately, not everybody is born in affluent families to send them to the best schools and universities in order to receive education in the desired field and eventually get a well-paid job. Likewise, there are people who are either physically handicapped or they simply have a low IQ and so they are unable to find employment. One should understand and appreciate the effort made by these people to find employment and not remain dependent on their friends, families or the government. For such people even minor raises in salary or wages is a source of motivation. An amount which is nothing for the affluent can be a source of some nutritious food, better education and rent for a small home. Also, when these people have more money they buy more goods while benefitting the economy. Opponents of the minimum wage policy argue that people who work on minimum wages often work part-time and live in families with more than one bread-winner hence the household wealth does not change much as a result of a change in the minimum wage policy. Even if this is true one can think about why the minimum wage employees work part-time. They do so because they get paid less to do work and hence they have to work harder at more than one job. If the minimum wage policy makes minimum wage higher then workers will become likely to work full-time because doing so will help them save time and transportation cost. Businesses are the entities that pay minimum wage to those employees who are the least capable, and unskilled. Some businesses are large while others are small. For small businesses the minimum wage policy can prove to be a burden. The cost of production can increase and consequently employees might have to be laid off. Moreover, when people will be laid off their consumption of goods will fall hence harming the entire economy. However, arguing against minimum wage policy is not going to help. If costs are increasing it is best to seek help from family members. An example of this is farming done in developing countries like India and Pakistan where a farmer is helped by his wife and occasionally by children to reduce expenses. Minimum wage raises can result in less absenteeism, greater employee morale, and lower frequency of workers turnover. As a result, training costs are reduced and employee productivity rises (Card and Krueger). Moreover, higher wages attract more of both skilled and unskilled people to apply for a job. As a result, there are greater options available for the business and the person most suitable for the job can be hired. As far as benefits and drawbacks of minimum wage policies are concerned with regards to the consumers multiple scenarios are possible. Primarily, it depends on whether consumers want benefit in the short-run or in the long-run. It is possible that a business pays lower than minimum wage to its workers to reduce production costs. As a result the price of the product manufactured remains lower than the business competitors’ products. Consumers who prefer less durable but cheaper goods will most benefit from this. However, in this age of ever increasing scarcity such consumption of cheap goods can prove to be a waste of resources and hence create shortage of raw materials needed for manufacturing in the upcoming days. This can further increase prices of even the less durable goods. Eventually, consumers will have to suffer. Moreover, a higher minimum wage will ensure that better but more expensive products are manufactured which do not create a shortage of resources in the long run. I conclude that overall the minimum wage policy is beneficial for everybody (including taxpayers) in at least the long-run. Governments should ensure that businesses are following this policy and if such is not the case then businesses must be heavily penalized. Ans.8: The question is such that it makes one think why supply and demand concepts exist in the first place. One of the reasons for having a free market is to ensure that the supply becomes equal to demand so that goods and services could be sold at a certain price acceptable to both supplier and buyer. When there is less demand for a good the supplier is forced to sell at the lower price hence decreasing profit earned. On the other hand, when there is more demand supplier can sell same good at a higher price hence increasing profits earned. Considering the aforementioned statements it can be concluded that in the perfectly free markets both consumer and supplier can benefit. However, in the real life markets are not actually “free”. Either suppliers start hoarding in anticipation of sudden rises in prices in upcoming days or government sets minimum or maximum price. Occasionally giving of subsidies or changes in taxes can also have an influence on whether buyer or supplier benefits more. Mentioning hoarding is what reminds one of food. Hard-core inflation has been seen in various countries. Food prices have more than doubled in some countries. One of the various reasons is hoarding. For instance, just before the Islamic festival of Eid in South Asia during which meat is consumed with tomatoes the tomato sellers remove all tomatoes from shelves and sell them on the night before Eid (Abudhoo). The prices of tomatoes become almost twice that of what they were compared to normal days. This shows that if government does not intervene and regulate market the common man will have to suffer unnecessarily. As a result, it is unjust for the buyers to let supply and demand supposedly decide the price of food items. When farmers are told such things they complaint that if supply and demand will not judge prices of food items then they will never be able to recover the losses they have to incur when there are floods or an attack by a pesticides-resistant pests which ruin all crops. Since, many countries are not welfare-oriented the government does not cover the losses or aid the farmers in growing new crops. Although, a lot of research has been done regarding how to kill pests and insects and how to improve crop yields still farmers incur losses. The reason is that the aforementioned techniques do not increase the shelf life of the crops. This shelf-life can only be increased using proper storage techniques just like tomatoes are preserved by the hoarders. As a result farmers have fewer incentives to use expensive high yielding varieties of seeds to grow more crops which they cannot store and people do not currently need. There are costs associated with storage and so hoarders often counter argue opponents of free markets by stating that hoarding is never done because the storage costs are also becoming higher just like all other prices of products. Instead, what happens is that the demand for certain goods becomes so high during times of need or the supply of the demanded product becomes so low (due to high storage costs inventory cannot be maintained by famers) that prices increase themselves. To overcome issues like high food prices and farmers still not being able to grow enough crops to feed ever-growing population subsidies are given to farmers. Certain advantages are associated with a free market for consumers whose demands are not aligned with the majority’s preferences. For instance, while people continue consuming meat and tomatoes and sellers are busy hoarding tomatoes, vegetarians can still buy the relatively cheaper food items (sellers are left with no incentive or space to hoard these items). As far as housing is concerned, it is a matter of long-term choices and needs. Large families need large homes which cost more since more has to be spent constructing them whereas smaller homes accommodate smaller families but cost less. The price of a house also depends on the locality. Certain localities are preferred over others hence making houses in some localities more expensive than similar ones in other areas. Since buyers decide where they want to live they also indirectly decide how much they can pay. People who cannot buy homes can always live in hotels, live with family or friends, become a paying guest or rent a home. Since alternatives are available for both people who can buy homes and those who cannot while real-estate developers cannot really hoard houses or take advantage of buyers in other ways one can conclude that housing can be provided via free markets. Certain medical procedures need high quality surgical techniques such as performing the operation using robots or using micro-camera technology. For such procedures the technology used is very expensive and the cost of buying the equipment needs to be justified. Hence, even if minimal demand or need for medical procedures needing such technology exists the hospital bill is always high. In this case, the dynamics of supply and demand justify the high price charged in order to cover all of the expenses and provide facilities again. Doctors use lifesaving drugs or ventilators for saving lives. While the demand for these drugs or services is relatively inelastic there are people who cannot afford to keep their loved ones alive just because they cannot pay exorbitant hospital or medicine bills. To prevent this from happening government should set a fixed price for lifesaving drugs and NGOs should make hospitals where ventilators are provided regardless of the patient’s ability to pay. As far as medicines being a part of medical care are concerned these are needed by people who are ill. Hence, their demand remains low and relatively stable leaving little incentive for hoarding (medicines also have an expiry date hence hoarding can result in some medicines becoming expired). However, if there is an outbreak of a certain disease which spreads among people quickly than the demand for certain drugs can increase hence causing prices to become higher The demand is more appropriate to be labeled as a need since unlike food or housing certain medicines do not have cheaper substitutes due to patents.. Since, medicine is essential for survival while one specific kind of food has many substitutes high prices of medicine can make it impossible for poor people to recover from diseases. If they do not recover then the disease is likely to spread among the richer people again. This can further increase number of ill people and hence the demand for medicines to rise. To counter this vicious cycle NGOs and government must intervene and supply medicines to the poor people. Another thing noted in some countries is black marketing. When companies find that a certain drug offers less profit per tablet and its demand is low then the companies deliberately stop manufacturing that drug. As a result, chemists or certain distributors start hoarding these drugs and sell them later for a much greater price than what companies could have sold it for. An example of this is Thyroxine, which is essentially a substitute for the hormone Thyroxine produced in the human body. Government should investigate such markets and arrest all distributors involved in such activities. I conclude that free markets should exist while government closely monitors what is going on. Subsidies, taxes and NGOs can ensure that the free market system continues to exits specifically in housing. However, dynamics of supply and demand should not always determine who has food and medical care because these are essential for survival and hence if poor person cannot buy them he or she will die. Human life needs to be valued above profits earned by corporations. Works Cited Abudhoo, Salman. Onion, tomato rates go up as hoarders active. 24 October 2011. 2 October 2012 . Card, David and Alan B. Krueger. Myth and Measurement: The new economics of the minimum wage. New Jersey: Princeton, 1995. Read More