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QUESTION 
Minimum wage
 
By reference to Figure 15, work out what happens when a minimum wage M, higher than the existing 
rate W, is imposed. 
ANSWER 
The supply curve for labour is now the line MXY. 
Demand for labour from employers will fall to Q
m
, but Q
m
workers will at least earn a higher wage. 
However, 
ceteris paribus
, the imposition of the minimum wage would create unemployment at Q
w
– Q
m
. 
 
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PART A: THE BUSINESS ORGANISATION, ITS STAKEHOLDERS AND THE EXTERNAL ENVIRONMENT 
 
116
 
In practice, there may be a temptation for firms to ignore the floor price, for example by establishing 
informal arrangements with workers whereby they work for less than the minimum wage. However, 
while this would provide employment for the workers, it raises ethical issues about their treatment. 
 
9
Competition and restrictive practices 
9.1 Types of competition 
The way in which firms are structured in an industry and the way they compete with each other are 
often described using the – terms perfect competition, imperfect competition, monopoly, oligopoly or 
monopolistic competition. 
The following table explains the various types of market and competition. 
Type of market 
/ competition 
Comment 
Perfect 
competition 
A perfectly competitive market has many firms producing the same (ie homogeneous) 
goods or services. The market is easy to enter and exit. 
Under perfect competition producers and consumers have all the information they 
require – they have 'perfect knowledge' of the market. The price and level of output 
under perfect competition tends towards the equilibrium point. Producers attempting 
to sell at a higher price will not sell anything, and producers attempting to sell as a 
price below equilibrium would obtain 100% market share. 
The demand 'curve' is horizontal – it is 'perfectly elastic'. There are few, if any, truly 
perfectly competitive markets in the real world. Some financial markets in which 
information is freely available are probably as close as we get to a perfectly 
competitive market.