Question

Define: a. wage rate b. derived demand c. minimum wage law

Short answer

The wage rate is the compensation a worker receives per unit of work, usually per hour. Derived demand is the demand for a good not for its own sake but for its use in the production of another good. Minimum wage law sets a legal lower limit on the wages that can be paid to workers.

Step-by-step solution

Definition of Wage Rate

The 'wage rate' is a basic concept in economics, referring to the amount of compensation a worker receives for each unit of work done, typically per hour. It is determined by the market forces of supply and demand for labor.

Definition of Derived Demand

The term 'derived demand' refers to the demand for a good or service that arises not for its own sake, but due to its use in the production of another good or service. That is, the demand is 'derived' from the demand for some other product or service.

Definition of Minimum Wage Law

The 'minimum wage law' is a piece of legislation that sets a floor for wages that employers can legally pay their workers. The aim is to protect workers from exploitation and assure a basic standard of living.

Key concepts

Derived Demand

When we buy a cup of coffee from our favorite café, we're not just paying for the coffee; we're indirectly supporting the jobs of the baristas, the coffee bean growers, and everyone else involved in getting that cup of joe to our table. This is an example of 'derived demand', a term in economics used to describe the demand for labor or other factors of production that results not from the direct appeal of the product or service itself, but from the goods and services it helps to produce. In other words, the need for certain jobs or resources exists because there is a demand for the final output they contribute to creating.

Derived demand can be influenced by many factors, such as the consumer preferences for the end product, technological advancements, and the overall health of the economy. For instance, if electric vehicles become more popular, the demand for battery engineers, lithium miners, and electricians to install charging stations will rise due to this derived demand.

Minimum Wage Law

Imagine working full time and still not being able to meet the basic needs like food, shelter, and clothing. To prevent such scenarios, many countries adopt a 'minimum wage law'. This law mandates the lowest hourly, daily, or monthly remuneration that employers are required to pay their workers. Its primary goal is to establish a standard of living above the poverty line, aiming to reduce income inequality and protect low-income workers from exploitation.

The introduction of a minimum wage can have various impacts on the economy. While it might uplift the living standards of workers, it could also lead to employers hiring fewer workers or increasing prices to compensate for the higher wage costs. It's a delicate balance that policymakers have to negotiate, ensuring the minimum wage is adequate to support workers but not so high that it discourages hiring or hurts the economy.

Market Forces of Supply and Demand

Understanding the 'market forces of supply and demand' is like learning the ABCs in the language of economics. These forces are the invisible hands that guide the free market, determining the price and quantity of goods and services in the economy. The 'supply' represents how much the market can offer, while 'demand' refers to the quantity of a product or service that consumers are willing to purchase at various prices.

Imagine you're at an auction with a rare comic book up for grabs. If there are many avid collectors (high demand) and only one book (low supply), the price will likely skyrocket. Conversely, if that book isn't so popular (low demand) or there are many copies available (high supply), you could snag it for a bargain. The interaction between supply and demand determines the wage rate, affecting how much workers are paid. When there's a high demand for a particular skill set and a low supply of qualified workers, wages go up. On the other hand, if few employers need a skill that many workers have, the wage rate for that job will typically be lower.