Economics concepts and applications

Economics Case

Buyers Perspective

The case focuses on how a minimum wage increase in LA will affect it and neighboring cities. From a buyers point-of-view, by increasing the minimum wage the buyers collective would have more money to spend and would consume more.

Concepts: The central concepts involved in this circumstance can be thought of in terms of income and spending. The increase in wages will give a number of buyers more buying power which will increase their demand for goods and services.

Behavior: The buyers' behavior for people earning minimum wage will be significantly impacted and their consumption will increase. It is also likely that the increased wage will attract more businesses into the local market to meet this demand. Some producers who will be attracted to the new economic conditions will be likely to enter the LA market.

Explanation: The increase in the minimum wage will provide buyers a great income which will increase their purchasing behaviors. However, some of these gains will likely be lost overtime through increases in prices and a new equilibrium will emerge.

Conclusion: Raising the minimum wage will have a number of effects on LA and new market equilibrium will begin to emerge. Buyers who are now are afforded greater incomes due to their rising wages will purchase more goods and services from the local community.

Sellers Perspective

Introduction: The case focuses on how a minimum wage increase in LA will affect it and neighboring cities. From a seller's perspective, some have argued that by increasing the minimum wage this could cause some businesses to move out of the city to avoid paying the increased minimum wage to workers.

Concepts: A seller will naturally want to limit their cost of capital as much as possible. If the wages go up in LA and there are cheaper labor pools to be found close by, then this might provide a strong economic incentive for them to move production. However, if the business's operations are not able to be relocated, a seller might instead raise prices to offset the rising wages they must pay. For example, it would be difficult to relocate a restaurant in LA because it would have to develop a new model.

Behavior: The sellers' behavior for people earning minimum wage will be significantly impacted and they have different options to deal with the proposed legislation. Some producers who can mobilize their production capabilities will likely move production facilities while others who are not as mobile will stay in LA. Other might raise prices or decrease their total labor to respond to the wage increases.

Explanation: The increase in the minimum wage will introduce a new local market equilibrium that will affect different groups in different ways. Some sellers who are face competition that have access to cheaper labor markets might be at a disadvantage. Most can simply increase prices to offset the labor rate.

Conclusion: Raising the minimum wage will have a number of effects on sellers depending on their industry. Some sellers might be impacted negatively because they will face higher costs in labor and they might not have the option to increase prices because of competitive pressures.

Governments Perspective

Introduction: The case focuses on how a minimum wage increase in LA will affect it and neighboring cities. Some argue that by increasing the minimum wage this could cause some businesses to move out of the city to avoid paying the increased minimum wage to workers.

Concepts: The central concepts involved in this case can be thought of in terms of supply and demand of both production and consumption. The increase in wages will give a number of buyers more buying power which would increase their demand for goods and services. This is being considered as a policy tool to address poverty and create a more livable wage to the cities inhabitants.