Explain why the UK have different minimum wage rates for different age groups

• In perfectly competitive markets, equilibrium in the labour markets is determined by the demand and supply of labour. For one particular firm, the supply of labour is determined by labour supply curve in the market, given the firm is too small to affect the overall market output. • The demand for labour is a derived demand, which means that the demand for a firm's product will ultimately impact how many workers a firm needs, e.g. demand for dairy ice cream influences the number of employees in the factory.• At a firm level, a key question for firms and entrepreneurs is how many workers we need in order to maximise profits and achieve our goals and our shareholder's objectives?• The Marginal Revenue Product of Labour theory states that profit maximising firms will hire additional workers if the incremental revenue product is higher than the marginal cost of hiring additional workers. This means, new workers will be paid the marginal revenue product to the firm, which is the marginal physical product produced multiplied by its price.• The productivity of labour of the incremental worker needs to be higher than the marginal cost to the firm.• The minimum wage is a reflection of a worker’s productivity. In the context of the question, younger people have lower productivity given not reaching higher education yet and lack of employer training and experience• It is important to consider the impact of different minimum wage rates.• Generally, minimum wage is an example of market failure. If the minimum wage is above the equilibrium wage there will be excess supply of labour, or a number of people that would like to have a job but no one can hire them at the higher rate. They could also drive them to move to different areas or countries where minimum wage is higher, although not necessarily applicable for very young people. Minimum wage laws push out people at the lowest end of the wage leading to unemployment, which is market failure, or the market is not clearing at that level of labour supply so the economy is below its productive potential.• The introduction of benefits existing workers by protecting their wages and increasing their standard of living leading to higher aggregate demand for the economy, which in turn could reduce inequality. Firms could relocate to countries with lower minimum wages to become more competitive, which has a positive impact on the economy.