Answer to Question #285967 in Macroeconomics for Snow

Question

Identify what sort of effects the following listed events have. You are required to define the market under study (for example: the labour market, oil market, etc). Explain whether the event acts on the demand or supply side, and whether the event leads to a quantity or price change, or leads to a shift in demand and/or supply. Make sure to explain what sort of assumptions you are making on the elasticities of demand and supply. a) An increase in oil prices as a consequence of a price dispute in the world oil markets b) The implementation of a minimum wage c) The implementation of subsidies to milk producers in Australia d) The implementation of a Carbon tax in the economy. A Carbon tax is charged according to the level of emissions of greenhouse gases in an economy. e) The implementation of an increase in tuition in University studies

Answer 1

a)This is the price factor of the supply: a sharp rise in the price of oil provokes a rise in inflation in the global economy, the supply of oil is rather inelastic and the price elasticity of demand is low.

b)The introduction of the minimum wage increases unemployment: this will affect the demand in the labor market: the labor demand curve is elastic

с)Therefore, the introduction of a commodity subsidy to a firm means an increase in supply (a shift in the supply curve to the right-down: The introduction of subsidies leads to the fact that the costs of producers for the production of products are reduced. The amount by which the costs of producers will be reduced is equal to the volume of monetary units per unit of goods.. This part of the expenses is now covered from the state budget. This leads to a parallel shift of the supply line down by an amount equal to the size of the commodity subsidy, the supply is elastic

d)The introduction of the tax will entail an increase in the costs of producers and this will contribute to an increase in prices for goods and services: this is an indirect tax, the direct payers to the state budget are sellers. However, in this case, the supply line is shifted by the amount of tax to the left-down. This means that the buyer will have to pay more than before the introduction of the tax. But the seller will not win either. After all, from the sale price of each product, he will have to give the state an amount equal to the amount of tax.

e)The increase in tuition fees at the university will reduce the demand for training services: fewer qualified specialists will come to the economy

Price factors: a), e)

Non-price factors: b), c), d)