Question

Microeconomics: How small businesses will be impacted by higher wages? 150 words.

Answer 1

When minimum wages rise in the market where small business firms operate then they react by charging a higher price for the product. There are fewer turnovers as now workers are getting more wages so they will enhance their productivity and in order to maintain their revenue small businesses would pass some portion of the hike in wage to consumers. Generally, higher minimum wages lead to greater economic activity implies greater production but a higher cost needs to be compensated somewhere in form of changing the business model to increase profit margins from other alternatives. In some cases, it hurts small businesses by incurring losses and instead of operating at negative profits they prefer to shut down or increase the turnover rate to reduce the cost of production.