It affects the distribution of real income, people on fixed incomes suffer as the purchasing power of their incomes decrease as price levels rise. Secondly, purchasing power od households on fixed income decline, as inflation tends to result in more unequal distribution of income as those on lower incomes find their wages do not rise as quickly as those on higher incomes. In times of high inflation household tend to purchase real assets that retain their real value since their prices rise faster than the inflation rate. Finally, another negative impact is the income tax earners suffer from fiscal drag pay rises to combat inflation put them into higher marginal tax brackets. This means as employees’ nominal wages increase with inflation their real wage (purchasing power of nominal wages) may remain constant.
The relationship between a change in the complimentary goods price and the demand of another good is a negative relationship if the price of one goes up then the demand goes down of the other. 25. Law of diminishing marginal utility: The more you consume of a certain good the less satisfaction you will get from it. 26. Demand curve: Shows the relationship between price and quantity demanded.
However, a failure of the market can occur when the price system fails to take into account all of the costs and benefits involved, leading to an inefficient allocation of scarce resources in the free market. Externalities are often regarded as a source of market failure because the occurrence of externality leads the market to produce too much, over production, or too little of a good or service, under production. The externality can be divided into two types: positive externality and negative externality. While the negative externality is a cost caused by that market activity, the positive externality is a benefit that occurs as a consequence of the market activity, resulting in beneficial impact on bystander not involved in the production or consumption of a good. Both externality can be commonly found in everyday life.
The Trans Mountain pipeline has characteristics or properties of Natural Monopoly, so it falls into the products of natural monopoly. When there is an economic of scale, that is, average cost decreases as quantity increases, the natual monopoly occurs. As a result, one firm is able to supply total amount of the products at a lower cost in the market than two or more firms. If the govenment does not regulate the Natural Monopoly, it may not benefit the social welfare and the optimal outcomes. In other words, they will produce much less and charge a higher price than social optiaml lead to a high price,low average costs and high profits.
Such a cut-down affects the industry and anyone related to this sector. On the other hand, inflation rates have a negative effect on the growth of the advertising industry. Inflation rates affect the prices of goods and services which also affects the purchasing power. If the purchasing power of the consumers decline, manufacturing industries will experience low returns. They will shift the burden to the advertising industry by reducing investment in the industry and therefore affecting growth.
A binding minimum wage, a minimum wage set above the market wage, leads to a reduction in employers’ profits. If there is monopolistic competition in the market, meaning there are no exit barriers, then some employers will be forced to exit out of the market. Employer exit has a negative effect on overall employment through the loss of employment opportunities. Therefore, minimum wages have two conflicting effects, the employment-increasing “oligopsony” effect and the employment-reducing “exit” effect. The overall effect of a minimum wage depends on which of the effects dominates.
DETERMINANTS OF SUPPLY CURVE 1. COST OF PRODUCTION: An increase in the cost of inputs of production such as sugar, caffeine and colors causes an increase in the cost of production. This means that an increase in cost will cause the supplier less willing to supply at a given rate. An increase in cost resulting from shortage of ingredients or disruption of supply is one of the common reasons why the suppliers cannot supply the product at a given price thus shifting the supply curve from S1 to S2.Adverse climatic fluctuations results in low productivity of agriculture which in turn affects Coca Cola. 2.
The tax is an extra cost for suppliers and so they will decide to decrease the amount of junk food supplied moving the supply curve to the left. If the supply decrease there will be excess of demand and there will be an increase in prices leading to a decrease in the demand till a new equilibrium is reached. Furthermore there will be a division on the payment of the
Indeed, the government imposes price controls as it is not satisfied with the market price.A price ceiling creates a shortage when the legal price is below the market equilibrium price, but has no effect on the quantity supplied if the legal price is above the market equilibrium price. A price ceiling below the market equilibrium price creates a shortage that causes consumers to compete vigorously for the limited supply. Supply is limited because suppliers are not getting the prices that would allow them to earn a
The effect of a maximum price could create a shortage as it could lead to demand exceeding supply for that particular good. Price floors however are minimum prices that the government sets when the prices of products are too low and they think producers are in need of assistance. Besides that, direct provision is another method of government intervention. The main economic justification for the provision of these goods is that, they may not be produced by the market otherwise since zero monetary profit would be made from its