4.1.6.6 The National Minimum Wage Quiz: AQA Economics, Unit 1

The 20 questions

1. A national minimum wage is:

   • The average wage paid by firms in the economy, calculated each year from official earnings data across all sectors of work
   • A wage that unions negotiate for their members, agreed through collective bargaining with employers in each sector of the economy
   • A wage set by government for public sector workers only, which applies to nurses
   • A legally set lowest hourly wage that employers must pay

2. In a perfectly competitive labour market, a minimum wage set above the equilibrium wage is likely to cause:

   • Unemployment, as more workers seek jobs than firms wish to employ
   • No change in employment, since the government pays the wage rise to employers and firms therefore keep their workforce at the same size
   • A fall in unemployment as firms compete for scarce labour, since the higher wage floor pulls more people into work across the economy
   • A shortage of workers, as firms hire more at the higher wage than they did at the equilibrium and so the number of jobs on offer

3. Which is a possible advantage of a national minimum wage?

   • It eliminates monopsony power in every labour market
   • It guarantees full employment in every industry, since employers are forced to hire every worker who applies at the legal minimum rate
   • It reduces the wage of all workers above the minimum
   • It can reduce poverty and raise incomes for low-paid workers

4. A possible disadvantage of a national minimum wage is:

   • It always raises employment for low-skilled workers
   • It removes the need for any other labour market policy, so that governments can stop funding training
   • Firms may reduce employment or hours, particularly for low-skilled workers
   • It reduces labour supply to all occupations

5. A monopsonist faces a minimum wage set just above its current wage but below MRP. What is the likely effect?

   • Both wage and employment fall as the monopsonist exits
   • Employment falls to zero because the monopsonist cannot afford the wage
   • Both the wage and employment may rise towards the competitive level
   • The wage falls to the minimum and employment is unchanged

6. A minimum wage of £9 is introduced where the competitive equilibrium wage is £8 and workers supplied at £9 exceed demand. Which is correct?

   • The equilibrium wage moves to 9 with no unemployment
   • Employment rises above the equilibrium because wages are higher
   • Labour supplied exceeds labour demanded at £9, so there is unemployment
   • Labour demanded exceeds labour supplied at 9, so there is a shortage of workers

7. Which group is most likely to be affected by a minimum wage change?

   • Self-employed workers who set their own prices
   • Highly paid senior managers in large firms
   • Workers in occupations with fixed pay scales set by law only, such as those whose pay is decided by statute and not by the market
   • Low-paid, low-skilled workers in sectors where pay is near the minimum

8. Why might the employment effect of a minimum wage be smaller where labour demand is inelastic?

   • Minimum wages have no effect when demand is inelastic
   • Employers cannot easily cut employment when labour demand is inelastic, so the wage rise reduces jobs by less
   • Inelastic labour demand means workers accept any wage on offer
   • Labour demand is always perfectly elastic

9. A minimum wage rises by 10% and employment in an industry falls by 2%. The elasticity of employment with respect to the minimum wage is:

   • +0.2, so employment rises with the wage
   • -0.2, so employment is relatively inelastic to the wage rise
   • -0.02, so employment is perfectly inelastic to the wage rise
   • -2, so employment is relatively elastic to the wage rise

10. The main efficiency argument for a minimum wage in a monopsony labour market is that it:

    • Ensures every firm earns normal profit, since a minimum wage removes all variation in costs and so fixes profit at the normal level
    • Always lowers employment to protect workers' jobs
    • Can correct monopsony power, raising wages and employment towards competitive levels
    • Has no effect on the wage in a monopsony, because the single buyer of labour sets pay at the same level whatever the legal minimum

11. A minimum wage is set at £7 when the equilibrium is £6, and unemployment results. What advantage do supporters claim?

    • The minimum wage eliminates monopsony power in all markets
    • Higher pay for those who keep jobs, which can reduce poverty and increase spending power
    • Labour supply falls to zero, removing unemployment, since workers who earn the minimum no longer have any reason to seek work
    • Employment rises at the higher wage because firms expand their output to make use of the extra pay that workers bring to the market

12. Evaluate the advantages and disadvantages of a national minimum wage for workers, employers and the economy.

    • It has no effect on any group because wages are fixed by law, so the minimum wage simply confirms the rate that the market already sets
    • Gains for low-paid workers may be offset by job losses and higher costs for some employers, so the net effect depends on the wage level
    • It is always beneficial for all parties with no costs
    • It harms workers in every case without any benefit

13. Employers respond to a minimum wage rise by cutting hours rather than jobs. This is best described as:

    • A reduction in labour hours, one way firms adjust to higher labour costs
    • A shift in the labour demand curve to the right, since firms want more hours from each worker after the minimum wage has been increased
    • An increase in labour productivity caused by the wage rise
    • A movement along the labour supply curve to the right

14. A minimum wage is best classified as:

    • A tax on labour supply
    • A subsidy paid to employers
    • A price floor in the labour market
    • A price ceiling on the product market

15. A minimum wage of £10 applies to a monopsonist whose MRP is £12 and who currently pays £8. The likely effect is to:

    • Lower employment to zero, since 10 exceeds MRP minus 2 and the monopsonist cannot afford any workers at that rate
    • Raise the wage towards MRP and possibly raise employment, narrowing the exploitation gap
    • Cut the wage below the current 8, because the minimum wage acts as a ceiling that stops employers paying more than the legal floor
    • Leave the wage and employment unchanged because the wage is below MRP and so the monopsonist has no reason to change its hiring

16. A minimum wage increases workers' incomes but reduces hours for some. What is the total effect on workers' welfare?

    • It has no effect because pay is set by law, so a change in the legal minimum makes no difference to how much workers earn in practice
    • It always reduces welfare because hours fall, which means that every worker loses income whatever the hourly rate happens to be
    • It always increases total welfare for all workers, since every worker who keeps a job receives higher pay and so gains from the change
    • It depends on the balance between higher hourly pay and fewer hours or jobs for some workers

17. Which is a disadvantage of a minimum wage for employers?

    • Higher labour costs that may reduce profits or lead firms to cut hiring
    • Guaranteed access to skilled labour at no cost
    • Lower labour costs that raise profits in every case
    • Greater flexibility in setting wages for all staff

18. Which is the best description of a minimum wage's effect on the labour market's equilibrium?

    • Supply of labour shifts left to match the minimum wage
    • The market no longer clears, creating a surplus of labour where the wage is above equilibrium
    • The equilibrium wage falls below the minimum
    • Demand for labour shifts right to offset the minimum wage

19. Why might a minimum wage's effect on employment differ between sectors?

    • Minimum wages affect every sector identically because wages are set by law
    • Sectors with no low-paid workers are the most affected
    • Differences in labour demand elasticity, the share of low-paid workers and product competition mean effects vary by sector
    • Minimum wages have no effect on sectors with unionised labour

20. A minimum wage rise leads employers to invest in technology that raises productivity. Which concept describes this response?

    • Predatory pricing against low-paid rivals
    • Collusion among employers to set wages, which means that firms agree a common rate of pay in order to avoid competing for staff
    • Substitution of capital for labour to reduce the impact of higher wage costs
    • Price discrimination among workers with different skill levels

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