Table of Contents
QUESTION 1.................................................................................................................................................2
1.1 Introduction...........................................................................................................................................2
1.2 Minimum wage..................................................................................................................................2
1.3 Effects of a Minimum Wage...............................................................................................................3
1.3.1 Unemployment...........................................................................................................................3
1.3.2 Deadweight loss..........................................................................................................................3
Question 2...................................................................................................................................................7
2.1a Effects of a tax..................................................................................................................................7
b) THE EFFECTS OF A R2 SUBSIDY ON A SCOOP OF ICE CREAM...................................................................8
2.1b Subsidy.............................................................................................................................................9
2.2b How subsidies affect market outcomes...........................................................................................9
2.3b Effects of subsidies.........................................................................................................................10
2.4b Conclusion.........................................................................................................................................10
Question 3.................................................................................................................................................10
3.2. Approaches of Regulating Monopolies...........................................................................................11
3.3 What are this Approaches...............................................................................................................11
3.3.1 Specific Tax...............................................................................................................................11
3.3.2 Lump Sum Tax..........................................................................................................................12
3.3.3 Privatization of Natural Monopolies.........................................................................................12
3.4 Conclusion...........................................................................................................................................13
4 Reference List.........................................................................................................................................14
Tehillah Niselow. 2018. Ramaphosa: 'Historic' minimum wage to come into effect on January 1 2019,
Mail & Guardian, South Africa, 7 December. Available at: https://mg.co.za/article/2018-12-07-
ramaphosa-historic-minimum-wage-to-come-into-effect-on-january-1-2019..........................................14
1
, QUESTION 1
1.1 Introduction
President Ramaphosa declared in late early December 2018 that the long awaited National
Minimum Wage would take effect on the 1st of January 2019. Soon after the announcement, the
Labor Unions such as the National Union of Mineworkers (NUM) and COSATU hailed such a
move by arguing that it was long overdue and that it was a first step towards the right direction
as South Africa (Niselow, 2018) . The new minimum wage was set R20 per hour translating into
R3500 a month has been seen as a fundamental move towards reduction of severe labour
exploitation by employers. Therefore, this essay wishes to address the effects of the minimum
wage on the South African economy and how it also affects the total wage payments given an
elastic demand for unskilled labor.
1.2 Minimum wage
According to (Grimshaw, Bosch and Rubery, 2014) minimum wage is a specific price of wage
that is placed above the equilibrium wage in a labor market by government via regulatory
policies. Critics of minimum wages argue that individual employees, especially those who are
unskilled or inexperienced, are often at a disadvantage when negotiating with managers.
Thereby, minimum wages are put to avoid the problems of employee exploitation by their
employers (Isaacs, 2016).
When the government carry out a minimum wage, firms are not allowed to pay any amount that
is less than wage mandated by the government. Assuming that the market equilibrium wage is
R15 per hour, but the government now authorizes a minimum wage stating that all firms must
pay at least R20 per hour. At this wage, supply does not equal demand. Figure 1 below illustrates
what happens.
2
QUESTION 1.................................................................................................................................................2
1.1 Introduction...........................................................................................................................................2
1.2 Minimum wage..................................................................................................................................2
1.3 Effects of a Minimum Wage...............................................................................................................3
1.3.1 Unemployment...........................................................................................................................3
1.3.2 Deadweight loss..........................................................................................................................3
Question 2...................................................................................................................................................7
2.1a Effects of a tax..................................................................................................................................7
b) THE EFFECTS OF A R2 SUBSIDY ON A SCOOP OF ICE CREAM...................................................................8
2.1b Subsidy.............................................................................................................................................9
2.2b How subsidies affect market outcomes...........................................................................................9
2.3b Effects of subsidies.........................................................................................................................10
2.4b Conclusion.........................................................................................................................................10
Question 3.................................................................................................................................................10
3.2. Approaches of Regulating Monopolies...........................................................................................11
3.3 What are this Approaches...............................................................................................................11
3.3.1 Specific Tax...............................................................................................................................11
3.3.2 Lump Sum Tax..........................................................................................................................12
3.3.3 Privatization of Natural Monopolies.........................................................................................12
3.4 Conclusion...........................................................................................................................................13
4 Reference List.........................................................................................................................................14
Tehillah Niselow. 2018. Ramaphosa: 'Historic' minimum wage to come into effect on January 1 2019,
Mail & Guardian, South Africa, 7 December. Available at: https://mg.co.za/article/2018-12-07-
ramaphosa-historic-minimum-wage-to-come-into-effect-on-january-1-2019..........................................14
1
, QUESTION 1
1.1 Introduction
President Ramaphosa declared in late early December 2018 that the long awaited National
Minimum Wage would take effect on the 1st of January 2019. Soon after the announcement, the
Labor Unions such as the National Union of Mineworkers (NUM) and COSATU hailed such a
move by arguing that it was long overdue and that it was a first step towards the right direction
as South Africa (Niselow, 2018) . The new minimum wage was set R20 per hour translating into
R3500 a month has been seen as a fundamental move towards reduction of severe labour
exploitation by employers. Therefore, this essay wishes to address the effects of the minimum
wage on the South African economy and how it also affects the total wage payments given an
elastic demand for unskilled labor.
1.2 Minimum wage
According to (Grimshaw, Bosch and Rubery, 2014) minimum wage is a specific price of wage
that is placed above the equilibrium wage in a labor market by government via regulatory
policies. Critics of minimum wages argue that individual employees, especially those who are
unskilled or inexperienced, are often at a disadvantage when negotiating with managers.
Thereby, minimum wages are put to avoid the problems of employee exploitation by their
employers (Isaacs, 2016).
When the government carry out a minimum wage, firms are not allowed to pay any amount that
is less than wage mandated by the government. Assuming that the market equilibrium wage is
R15 per hour, but the government now authorizes a minimum wage stating that all firms must
pay at least R20 per hour. At this wage, supply does not equal demand. Figure 1 below illustrates
what happens.
2
