4.6 The national minimum wage

Question 1

What are the positives of the national minimum wage?

Answer 1

• Encourages people to supply labour
• Reduces inequalities
• Reduces welfare burden
• Increase aggregate demand
• Improves standards of living

Question 2

What are the negatives of the national minimum wage?

Answer 2

• May create unemployment
• Interferes with the workings of the market mechanism leading to the misallocation of resources
• Reduces UK competitiveness
• Lowers aggregate supply

Question 3

What type of diagram can be used to show national minimum wage?

Answer 3

Monopsony labour diagram