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When minimum wage is higher then the equilibrium wage

Categories: Minimum Wage

Part A

Using demand and supply sides, examine the statements in favor and against the minimal pay in UK.

Minimal pay

The national minimal pay rate is a minimal hourly rate for any sort of labor lawfully paid to worker by the employer. It was introduced after the election of the labour authorities in 1997 and came into force in 1999, Adult was paid hourly rate of & A ; lb ; 3.60 and a rate for those aged 18-21 was & A ; lb ; 3.00. From October 2010 lower limit pay rates increased to & A ; lb ; 5.

93 from & A ; lb ; 5.80 for grownups and & A ; lb ; 4.92 from 4.83 for those who are under 18.

Supply of labor

The supply of labor refers to the entire figure of hours that labor is willing and able to provide at a given pay rate. Supply of labor additions with a higher pay rate offered to employees in the market and frailty versa. From the below mentioned diagram supply curve shows that, if you keep increasing the hourly rewards employee will be encouraged to work more but at certain degree falls down because the employee can gain the same income by working less hours.

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The supply curve of labor is upward inclining demoing that at higher rewards, more employees are encouraged to work. At higher pay rate employee can work few hours and gain more. If the rewards rises from W1 to W2 so the employee is encouraged to work more because of higher rewards the employee will lift their hours worked to L2.

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When the rewards rises from W2 to W3 the figure of hours worked would fall from L2 to L3. Because at certain clip when rewards raises people feel better and hence may non experience demand to work every bit many hours. As the rewards rise, the opportunity of cost of luxury rises

Demand of labor

There is opposite nexus between the demand of labor and the pay rate that an industry needs to pay each employee. If the pay rate additions it is more expensive to take up more employees. When rewards are lower labour becomes cheaper as less figure of employees are ready to work at a given pay rate. When pay additions industry demand less labour as house is by and large believed to be react negatively connected to the existent pay.

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In the left figure when there a autumn in the pay rate from W1 to W2, the industry will increase labor from E1 to E2 because the labor has become cheaper for a given degree of productiveness compared to their inputs. Rise in the pay rate from W1 to W3 cause decrease of labor demanded.

Fringy gross productiveness means the alteration in the entire returns from the house as a consequence of selling the sum produced by an excess employee. Marginal gross productiveness of labor will increase when there is an addition in labour productiveness and the demand for the industry ‘s end product which causes higher monetary values and increases the value of finished goods produced by the employee. For a given pay rate, W1 a net income maximising house will use more employees.

When lower limit pay is higher than the equilibrium pay

The minimal pay is a monetary value floor

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Labour supply and demand curve are shown in the above diagram. The equilibrium pay is W1 where demand and supply are equal. Minimal pay rate is at Wmin there will be an overload of labour equal to E3-E2 as the supply of labor will increase more employees are ready to work at the high pay than prior. And the lessening in the demand of labour as the pay rate additions finally consequences into unemployment.

Arguments in favor of lower limit pay

Standard of life rises and the poorness is eradicated as the low paid employees can gain more and the more employees are encouraged to work to acquire higher rewards.

Distribution of net incomes between high paid and low wage may be lessened.

Every employee will be paid reasonably and every bit.

More people are encouraged to work instead than indulging in illegal activities like smuggling of drugs, arms and indulging in condemnable activities.

Work force and adult females will be paid every bit cut downing derived functions which finally reduces poorness and increases the criterion of life,

It helps the authorities to bring forth more gross through revenue enhancement which authorities finally uses for the well being of public like building roads, by supplying better instruction installations, constructing public libraries, and invest in many more things which are utile and unfastened for general populace.

Equal wage for equal work.

Minimum pay will promote quality work force from abroad.

Arguments in against of lower limit pay

It is unjust for mean employee and the employee who works above the norm.

It encourages lesser demand for labour as it is cost for employer

It excludes certain scope of labor.

High pay rate causes monetary value rising prices in the economic system.

It discourages farther instruction among immature people as they are tempted to work and gain.


Some believes that national minimal pay carry out the intent so called nice rewards, to extinguish development, to cut down poorness, and to guarantee equal wage for equal work above mentioned aim does non assist to economic system ‘s prosperity. Continuous development of the economic system will assist to retrieve the benefit of pay earners as the addition prosperity will do possible addition in rewards. A minimal pay can non guarantee the economic enlargement.

Harmonizing to me current minimal pay pay rate that is & A ; lb ; 5.93 is non adequate to last in this universe because if we take illustration of portion clip worker he or she works 80 hours a month and earns approximately & A ; lb ; 480 and full clip worker who works 160 hours a month and earns approximately & A ; lb ; 950 a month is non plenty as we have to pay rent, instruction fees, amusement, and many such assorted disbursals. From this small income it is non possible to pay all the measures and a individual can salvage for the hereafter. For illustration if we are located in zone 5 or zone 6 we have to pay & amp ; lb ; 300 to & A ; lb ; 350 rent a month plus there are other disbursals a individual can non last with this small income every month as nowadays revenue enhancements, and monetary values of all the trade goods are traveling up so to catch up with the economic system and to last there should be at least & A ; lb ; 7 a hr.


Using appropriate examples/scenarios give your appraisal of the following two possible ways of prediction.

Trend extrapolation

Consensus methods

Forecasting helps the concern to foretell the hereafter of the market status. There are assorted methods to of Forecasting such as Genius prediction, Trend extrapolation, Consensus methods, Simulation methods, Cross impact matrix method, Decision trees etc. here we will look into two calculating methods, tendency extrapolation and consensus methods.

Trend extrapolation

Trend extrapolation means prediction technique which helps to foretell the hereafter behavior form of the clip series informations. This method helps to take determination devising and planning for the hereafter comparing the last hebdomad, month and twelvemonth informations although the informations predicted can non calculate wholly but to the extend we can trust on it. This method survey rhythms in historical informations and uses mathematical informations to generalize to the hereafter. Its chief intent is to place the tendencies and rhythms in the informations so that suited theoretical account can be chosen.

Some common types of tendencies are frequently shown diagrammatically as line graphs with the degree of a dependent variable on the y-axis and the clip period on x-axis. There are three general methods to utilize algebraic techniques for tendency line extrapolation. The first measure is to cipher a future period. The 2nd technique is to do usage of specialised maps within a spreadsheet plan or another data analysis plan. The 3rd technique is to utilize a spreadsheet or information analysis plan to build a graph within a tendency line and to automatically widen tendency line to future periods.

Trend extrapolation illustration

Following is the historical gross revenues informations of the Crazy childs since it ‘s established.


Gross saless


& A ; lb ; 49000


& A ; lb ; 78000


& A ; lb ; 119100


& A ; lb ; 119900


& A ; lb ; 137200













Here we have to calculate the gross revenues for the twelvemonth 2010 by actioning arrested development method.Using the arrested development method I have projected the gross revenues for the twelvemonth 2010.

Old ages


Gross saless Yt





& A ; lb ; 49000

& A ; lb ; 49000




& A ; lb ; 78000

& A ; lb ; 156000




& A ; lb ; 119100

& A ; lb ; 357300




& A ; lb ; 119900

& A ; lb ; 479600




& A ; lb ; 137200

& A ; lb ; 686000




& A ; lb ; 139100

& A ; lb ; 834600




& A ; lb ; 149500

& A ; lb ; 1046500




& A ; lb ; 152700

& A ; lb ; 1221600




& A ; lb ; 155200

& A ; lb ; 1396800




& A ; lb ; 162300

& A ; lb ; 1623000




& A ; lb ; 168800

& A ; lb ; 1856800



& A ; lb ; 1430800

& A ; lb ; 9707200



& A ; lb ; 242313

Forecasting gross revenues utilizing arrested development technique

– –

T =66/11=6 y = 1430800/11 =130072.72

x= 12 ( projection of gross revenues for 12th twelvemonth )

b1= n?tYt -?t?Yt


n?t2 – ( ?t ) 2

= ( 11 ) ( 9707200 ) – ( 66 ) 1430800 )


( 11 ) ( 506 ) – ( 66 ) 2

B1 = 106779200 -94432800


5566 – 4356




B1 =10203.636

_ _

b0 = y – bt =130072.72 -10203.636

= 119869.09

T 12 = 119869.09 + ( 10203.636 ) ( 12 )

= 119869.09 + 122443.63

= 242312.72

= 242313

This was represented on the scattered graph as follows:

Beginning: prepared by ego in Microsoft excel.

Following is the historical cost informations of Crazy childs for the past 3 old ages:

Old ages Entire Cost Units produced and sold

2007 & A ; lb ; 130604 28640

2008 & A ; lb ; 123097 27323

2009 & A ; lb ; 132456 30680

Using the high and low method we calculated the fixed cost and the variable cost as follows:

HLM expression Y = a+bx, where:

Y = Total cost

X = any given step of activity

a = the estimated entire fixed cost constituent

B = the estimated variable cost rate per unit of ten

Year ‘s units produced matching cost

Highest Volume 2008 27323 & A ; lb ; 123097

Lowest Volume 2009 30680 & A ; lb ; 132456

Therefore the variable cost per unit is calculated as follows:

Variable cost per unit = ( 132456 – 123097 ) / ( 30680 -27323 )

Therefore variable cost ( B ) = 2 per unit

Fixed cost can be calculated utilizing the HLM expression utilizing sums for the twelvemonth 2009 as follows ;

Y = a+bx

132456 =a + 30680*2

Therefore fixed cost ( a ) = 132456 -61360 = 71096


Making recommendations based on the available prognosiss demands an apprehension of the stairss involved in the prediction procedure itself. Without this it ‘s non possible for a director to measure the hazard associated with the determinations. Obviously, if the prognosiss are concerned with low hazard markets and are based on good quality informations, determinations will be easier to take. It would nevertheless necessitate a strong trough to move upon long scope prognosiss within a volatile market.

Recommendations can merely be realistically made if the suitableness of the market conditions matches the dependability of the prognosis and its clip span.

B ) . Consensus methods

Consensus method is a signifier of determination devising procedure used for calculating. This method is concerned chiefly with that procedure. In this method there is group determination doing procedure non merely favor but consent is given to minor and and proper declaration is taken on determination approved. Consensus determination devising is besides a replacement to exceed down determination devising patterns in hierarchal groups.

The result of this method include better determinations through the input of all stakeholders, better determination is taken as the procedure includes all major stakeholders and bring forth as much understanding as possible for greater cooperation in implementing the resulting determinations. The Delphi method is based on the premise that group determinations are more valid than single judgements. This method is straightforward attack in making research in the country of prediction and for constructing consensus. This technique can be adapted for usage in face to confront meetings. This method of prediction is designed to foretell the likeliness of future events.

This is one of the simplest methods of prognosis used by panel of experts. This method is used to calculate twenty-four hours to twenty-four hours activities like foretelling whether, gross revenues for peculiar trade good etc.

The drawback of this prognosis is commission utilizations questionnaire alternatively of discoursing issues in existent life the questionnaire is prepared with the aid of future informations gathered by the group of experts on merely which we can non trust of taking any of import determination as the different people have different sentiment.


Trend extrapolation and Consensus methods have different signifiers of calculating with their ain advantages and disadvantages based on the historical informations stored by different organic structures. It does non give accurate consequence but to the big extend helps to foretell the hereafter for the market to take necessary determinations based on the prediction.

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