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(Solved) Economics assignment PDF

   

Added on  2021-04-17

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Running head: ECONOMICS ASSIGNMENTEconomics assignmentName of the student:Name of the University:Author note

1ECONOMICS ASSIGNMENTTable of ContentsIntroduction:....................................................................................................................................2Analysis of governmental policy of price flooring and price ceiling:.............................................2Bright side of government’s interventionist policy:........................................................................4Dark side of market interventionist policy by government:............................................................5Analysis of Australian government’s minimum wage abolishment plan:.......................................5Recommendations for gauging the situation:..................................................................................7Conclusion:......................................................................................................................................8Reference:......................................................................................................................................10

2ECONOMICS ASSIGNMENTIntroduction:Economies around the world now a day are indulging with each other throughinternational trade in order to achieve sustainable growth and to gain mutual prosperity in theirrespective countries. During last three decades a new idea termed as free trade has beengerminated, which argues in favour of barrier less international trade between countries in orderto provide higher level of growth in the trade participating economies (Rodwin and Sazanami2017). However, often government use policies like price floor or price ceiling in order to restrictthe market failure. There have been plenty of researches on the efficiency frontier of the priceceiling and price flooring; however previous researches provide diversified view regarding thesepolicies. 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 notallocated optimally (Bond and Goldstein 2015). In a real life scenario, when it comes toAustralia, then minimum labour wage can be considered as the practical example of the priceceiling. Now, this report is aimed to discuss these aforementioned government’s marketintervention polices under an open market scenario in order to trace their efficiency. In additionto this, the report will discuss whether government of Australia should abolish the minimumwage 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 orderto blockade the market from breaking down. According to the Balassa (2016), government usesthese policies, when there are discrepancies in the price level in the importable or exportable. Forinstance, if a good is sold at lower price compared to its substitute, then the government set aprice floor with a higher price compared to existing equilibrium market price. From figure 1 it

3ECONOMICS ASSIGNMENTcan be seen that the initial equilibrium price is P0 and the market demand it Q0, which isassumed to be lower than the international market price. Under this situation government will seta higher price, which will enhance influence the producers to produce more leading to excesssupply. Domestic market now can sell the excess produce at lower price compared to theinternational price, leading to fall the international price too; thus saves the market. Figure 1: Price FlooringSource: (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 price it will enhance the consumer surplus thus aids the welfare of the society (McCombie and Thirlwall 2016).

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