Policy Analysis and Economic Perspectives

This assignment requires students to analyze various policy-related topics, including the economics of fair trade, policy analysis concepts, and practices. It also involves reading and understanding research articles on topics such as deindustrialization, regional economic transformation, school choice, and the case against it. Students are expected to critically evaluate the ideas presented in these articles and provide a summary or analysis of the key points. The assignment is likely to test students' ability to understand complex policy-related concepts and practices, as well as their critical thinking skills.

Running head: ECONOMICS ASSIGNMENT
Economics assignment
Name of the student:
Name of the University:
Author note

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Table of Contents
Introduction:....................................................................................................................................2
Analysis of governmental policy of price flooring and price ceiling:.............................................2
Bright side of government’s interventionist policy:........................................................................4
Dark side of market interventionist policy by government:............................................................5
Analysis of Australian government’s minimum wage abolishment plan:.......................................5
Recommendations for gauging the situation:..................................................................................7
Conclusion:......................................................................................................................................8
Reference:......................................................................................................................................10

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Introduction:
Economies around the world now a day are indulging with each other through
international trade in order to achieve sustainable growth and to gain mutual prosperity in their
respective countries. During last three decades a new idea termed as free trade has been
germinated, which argues in favour of barrier less international trade between countries in order
to provide higher level of growth in the trade participating economies (Rodwin and Sazanami
2017). However, often government use policies like price floor or price ceiling in order to restrict
the market failure. There have been plenty of researches on the efficiency frontier of the price
ceiling and price flooring; however previous researches provide diversified view regarding these
policies. Some researches argue these policies are essential in order to restrict the market failure,
whereas some researches highlights that under price ceiling and price flooring, resources are not
allocated optimally (Bond and Goldstein 2015). In a real life scenario, when it comes to
Australia, then minimum labour wage can be considered as the practical example of the price
ceiling. Now, this report is aimed to discuss these aforementioned government’s market
intervention polices under an open market scenario in order to trace their efficiency. In addition
to this, the report will discuss whether government of Australia should abolish the minimum
wage policy or keep it as it is as a protectionism policy from the government.
Analysis of governmental policy of price flooring and price ceiling:
Trade participating nations often use the price flooring and price ceiling practice in order
to blockade the market from breaking down. According to the Balassa (2016), government uses
these policies, when there are discrepancies in the price level in the importable or exportable. For
instance, if a good is sold at lower price compared to its substitute, then the government set a
price floor with a higher price compared to existing equilibrium market price. From figure 1 it

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can be seen that the initial equilibrium price is P0 and the market demand it Q0, which is
assumed to be lower than the international market price. Under this situation government will set
a higher price, which will enhance influence the producers to produce more leading to excess
supply. Domestic market now can sell the excess produce at lower price compared to the
international price, leading to fall the international price too; thus saves the market.
Figure 1: Price Flooring
Source: (Dragusanu, Giovannucci and Nunn 2014)
on the other hand if a certain good or service is being sold at higher price compare to the
prevailing domestic market price, then government uses the price ceiling. From figure 2, it can
be seen that if government sets price ceiling at Pmax, which is lower than the prevailing market
price, then it will lead to excess demand of the said goods and services. With higher demand

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price it will enhance the consumer surplus thus aids the welfare of the society (McCombie and
Thirlwall 2016).
Figure 2: Price ceiling
Source: (Chernoff 2015)
Therefore, it can be seen that government intervention can effectively blocks the market
failure; however, it is also true that it can lead to dead weight loss (Perkis et al. 2016). In
addition to this, with higher market intervention, it can affects the labour market, thus generating
demand-supply gap it can also results in inefficiency in resource allocation (Baumol and Blinder
2015).
Bright side of government’s interventionist policy:
There have been various researches that argue in favour of the government’s market
interventionist policy. According to them, bright side of government’s interventionist policy is as
follows (Nepal and Jamasb 2015):
F0

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It enables the small firms to become competitive
Consumer surplus can get enhanced
Scope of negative externality get reduced
Restricts the firms to have monopoly power
Dark side of market interventionist policy by government:
Various researches have highlighted the negative impact of the government’s
interventionist policy. Some of the dark side of market interventionist policies by the government
are as follows (Smith and Meier 2016):
It leads to reduction in scope of job employment for the unskilled and semi skilled
labours.
Bureaucracy in the market gets highly enhanced in presence of government’s intervention
in the market.
Restricts the growth of small firms, due to lack of incentive for the producer to hire
labour at higher cost.
Analysis of Australian government’s minimum wage abolishment plan:
Since 2005, Australian government has introduced an ambitious project known as
minimum wage policy in order to reduce the disparity in wage level of different region Gasper et
al. (2016). Under the Australian Fair Pay Commission, government of Australia tried to
implement minimum wage policy, which in turn is aimed to reduce the differentiation in the
price level in different regions of the country (Buchanan and Oliver 2016). Since its implication,
there has been various researches regarding this topic, thus the effect of minimum wage rate on
the economy is well documented. According to the Iyengr et al. (2016), it has been found that

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through minimum wage policy government tried to bring in parity in the labour wage in different
region of the country, however, it has failed to provide stimuli to the labour force. Lack of
incentive for the producer to employ labour at higher cost has reduced the labour demand leading
to fall in the overall employment level. according to the unemployment data of Australia, it can
be seen that, though there were some amount of reduction in the unemployment level since 2005
to 2008, however, since then it has been rising, highlighting that the economy has lost some
amount of employment.
On the other hand, unified minimum wage around the country has restricted the growth of the
firm in northern territory of Australia (Mavromaras et al. 2015). Due to prevailing backwardness
in the northern territories of the country has shortened the labour employment in the region,
because during last few years’ subsequent rises in the minimum wage level is beyond the
manageable scope of these firms. Moreover, rise in the wage level has reduced the labour
demand leading to fall in the labour supply, which in turn can lead the economy to the
destruction (Hirsch et al. 2015). now, it has been observed that only the skilled labour are getting
employed, where as unskilled or semi skilled, which is accounted for 85% of total labour force in
Australia are not having any job due to rise in wage rate (Evans 2016). on the other hand it has
been observed that, rise in demand in the skilled labour due to minimum wage policy has
enhanced the country’s total skilled workforce leading to better prospect for future of the
economy (Leigh and Blakely 2016). Australia has the highest minimum wage compared to the
other countries that have minimum wage policy. This excessive wage rate has caused demand-
supply gap in the Australian labour market causing loss in the employment and the surplus.

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Recommendations for gauging the situation:
Above analysis has highlighted that there has both the bright and dark side of the
protectionism policy from government. According to Weimer and Vining (2017), through
comparative analysis of the price government’s protectionism policy under an open market
scenario it has been found that government aims to provide stimuli with their market
interventionist policy; however, through improper resource allocation it fails to do so.
Considering the case of the Australian government it can be seen that unified minimum wage
rate has hampered the labour employment rather than enhancing it (Pradella 2015). On the other
hand, it is wise to acknowledge that, government’s intervention in the labour market has aided it
to have higher amount of skilled labour with which Australia is now facing tech metal mining
boom. Considering the circumstances, where a government intervention in market has both the
positive and negative effect, being the economic policy advisor to the government following are
the recommendation to gauge the situation:
Government need to perform market survey effectively in order to assess the present
situation and apply those interventionist policy where necessary, rather making them
general.
Price ceiling and price flooring can hamper the labour market of a country rather than
stimulating it. Optimal way to gauge this is to introduce differentiated price depending
upon the region.
Government need to apply the protectionism policy depending upon the market scenario
while considering the effect of protection on bilateral trade and country’s budget.
Liberalisation of the minimum wage policy is highly required in order to provide ample
scope to the small firm to mature. Otherwise, protectionism of the government will bring

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in oligopoly market that will lead to price curtailing reducing the consumer surplus of the
buyers.
Minimum wage policy of the Australian government is general in nature, which are same
all around the country. Thus government, need to set differentiate price depending upon
the region in order to bring in parity in the market.
Minimum wage policy of Australian government has reduced the labour demand in the
market for quite a long time. Thus to provide stimuli to the market, government need to
bring in vocational training programs or skill development workshops to produce higher
amount of skilled labour.
Conclusion:
The report has tried to assess the efficiency and the validity of government’s
interventionist policies in order to protect the market from failure under the open market scenario
considering the economic theories and previous researches. Through the analysis it has been
found that, government’s intervention in the market economy is highly essential in order to bring
in stability in the market, however, it is also true that sometimes it leads to market inefficiencies
due to improper allocation of the resources. In addition to this, policies like price ceiling and
price flooring bring in the deadweight loss to all the parties indulged into the business. Though it
enhances government’s revenue generation, yet it reduces consumer as well producer surplus
leading to poor market condition than open economy. In addition to this, the report has found
that, when it comes to Australian minimum wage law, then it need to be reformed depending
upon the requirement of various zones. Diversified wage policy can provide better effect on the
labour market and thus aid the government to achieve what it desires to achieve. To conclude it

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can be said that efficiency of price ceiling and price flooring is subjective and whether it is valid
or not it depends upon the market condition that the government needs to trace through surveys.

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2016. ‘Fair Work’and the Modernization of Australian Labour Standards: A Case of Institutional

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