Question 1
In January 2022 the Government of Greece announced plans to raise the national minimum wage by 2% to € 773 per month. However, many restaurant owners are worried about the impact of this increase in the minimum wage on their businesses.
Evaluate the likely microeconomic effects of an increase in the national minimum wage on an industry of your choice.
Illustrate your answer with an appropriate diagram(s).
Indicative content guidance
Answers must be credited by using the level descriptors (below) in line with the general marking guidance. The indicative content below exemplifies some of the points that candidates may make, but this does not imply that any of these must be included. Other relevant points must also be credited.
Quantitative skills assessed:
QS4: Construct and interpret a range of standard graphical forms.
QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms.
- National minimum wage is a price floor below which the wage rate cannot fall/the lowest amount businesses are allowed to pay per month/per hour
- An increase in the national minimum wage would cause the equilibrium wage rate for restaurant workers to increase from W1 to W2 and the level of employment in this market to fall from Q2 to Q4
- Unemployment may increase in the restaurant industry from Q2Q3 to Q4Q5 as firms cannot afford to employ the same amount of labour
- Unemployment will rise as more individuals enter the labour market, incentivised by the higher wage rate, but cannot find employment
Costs/ revenues
- Profits may fall for restaurants from A, B, P, AC to C, E, P 1, AC 1, as labour costs have risen causing AC to rise to AC1 and MC to rise to MC1,
- Businesses may make a loss as restaurants may be labour intensive
- Businesses may face a significant increase in costs and may have to reduce other costs e.g. costs of materials, reducing quality
- Businesses may need to increase prices reducing consumer surplus
- An increase in the informal sector, as businesses try to avoid paying higher wages to workers
Level
Mark
Descriptor
0
No rewardable material.
Level 1
1-3
Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models.
Use of generic material or irrelevant information or inappropriate examples.
Descriptive approach which has no chains of reasoning.
Level 2
4-6
Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models.
Limited application of knowledge and understanding to economic problems in context.
A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.
Level 3
7-9
Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models.
Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer.
Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 4
10-12
Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models.
Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question.
Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.
Evaluation (8 marks) - indicative content
- Higher wages may improve productivity, reducing production costs and
increasing profits
- Many workers are paid above the NMW, therefore the rise will not have an impact on them
- Higher wages would increase standards of living
- If the proportion of costs allocated to wages is low, businesses may absorb the extra cost and unemployment may not rise
- It depends on how labour-intensive the industry is. For more labour-
intensive industries, the impact will be more significant
- If the labour is derived demand the national minimum wage may not significantly impact the demand for labour
- It will depend on the PED of labour as to the size of the impact
Level
Mark
Descriptor
0
No evaluative comments.
Level 1
1-3
Identification of generic evaluative comments.
No supporting evidence/reference to context.
No evidence of a logical chain of reasoning.
Level 2
4-6
Evidence of evaluation of alternative approaches.
Some supporting evidence/reference to context.
Evaluation is supported by a partially-developed chain of reasoning.
Level 3
7-8
Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement.
Appropriate reference to evidence/context.
Evaluation is supported by a logical chain of reasoning.