Posted: March 29th, 2016

Would you expect demand conditions to be different? Why or why not?

Read attachment 4. Assume that the labour market in Australia is perfectly competitive. a) Suppose the government does not regulate the wages paid in hospitality industries on weekdays and weekends. Consider the market for labour on weekdays and the market for labour on weekends. Would you expect the equilibrium wage rate to be different across these two markets? In other words, would you expect the supply decisions to be different on weekdays and weekends? Would you expect demand conditions to be different? Why or why not? Explain using the demand/supply model with diagrams. (1 mark) b) Now suppose that the government decides to impose a minimum wage. Moreover, suppose that the government decides to have a penalty policy and sets the minimum wage to be paid on weekends higher than the minimum wage to be paid on weekdays. What happens to the equilibrium wage and quantity traded of labour in each of the two markets? Explain using the demand/supply model with diagrams. (1 mark) c) The article talks about a recommendation by the Productivity Commission to reduce the penalty rate paid by employers on the weekends. It is stated that labour unions objected strongly to such a recommendation. Suppose that the government decides to remove the penalty rate completely, which equalizes the minimum wage paid on weekdays and on weekends. Using the demand/supply model with diagrams, explain why labour unions would object to such a move. Whose welfare do they have in mind? In your answer, consider only the weekend market for workers. (2 marks) d) How would you expect the policy change to affect the prices in the hospitality industry? Consider, for example, a hotel that charges different rates for weekday and weekend stays. How would its weekend rates change as a result of the change in the government’s policy? Explain using the demand/supply model with diagrams. (1 mark)