Drawing and interpretation of diagrams illustrating national minimum wages

Microeconomic Decision‑Makers – Workers

What is a National Minimum Wage?

The national minimum wage is the lowest hourly rate that employers are legally allowed to pay workers. Think of it as a safety net that ensures everyone gets at least a small “fair share” of the money they earn. 💰

How Workers Respond to a Minimum Wage

When the minimum wage is set above the market equilibrium wage, it changes the supply and demand for labour. Workers (supply) are willing to work for more hours at the higher wage, while employers (demand) may want fewer workers because each one costs more. The result is a new equilibrium that can be visualised with a simple diagram. 📈

Diagram: Supply & Demand with Minimum Wage

Below is a text‑based “graph” that shows the supply (S) and demand (D) curves and the effect of a minimum wage (MW). The arrows illustrate the direction of the curves. The intersection of S and D is the market equilibrium (E). When MW is set above E, the new equilibrium (E_MW) is found where the demand curve meets the horizontal line at MW. The area between the curves and the MW line represents the excess supply of labour (unemployment). 👇

Interpretation:

• The ↑ arrow shows the Supply curve: as wages rise, more workers are willing to work.
• The ↓ arrow shows the Demand curve: as wages rise, firms want fewer workers.
• The horizontal line at the minimum wage (MW) is the legal floor.
• Where MW intersects the demand curve gives the new employment level (E_MW).
• The area between the supply curve and MW above the new equilibrium represents unemployment caused by the minimum wage.

Mathematical Representation

Supply and demand can be expressed with simple linear functions:

$S(w)=a+bw$
$D(w)=c-dw$

Where w is the wage, a, b, c, d are constants. The equilibrium wage w_e is found by setting $S(w)=D(w)$:

$w_e = \frac{c-a}{b+d}$

If the minimum wage w_m is greater than w_e, the new employment level is given by $D(w_m)$, and the number of unemployed workers is $S(w_m)-D(w_m)$. 📊

Real‑World Analogy

Imagine a school fair where kids trade stickers for snacks.

• The stickers are like wages.
• Kids who want to trade stickers for snacks are the workers (supply).
• Kids who want snacks are the employers (demand).
• If the teacher sets a rule that every trade must give at least 3 stickers, that’s the minimum wage.
• Some kids might not trade because they don’t want to give up 3 stickers, leading to fewer trades (unemployment).

Key Take‑aways for IGCSE

1. The minimum wage is a legal floor that can shift the labour market.
2. When set above equilibrium, it can increase unemployment for low‑skill workers.
3. Use the supply and demand diagram to show the new equilibrium and the excess supply area.
4. Remember the formulae for supply, demand, and equilibrium wage to calculate the effects numerically.
5. Think of everyday examples (like the school fair) to explain concepts to classmates.