Research and analyze the effects of the following government policies on the mar

Question

Research and analyze the effects of the following government policies on the market equilibrium. Increases in the Minimum Wage Restrictions on International Trade Pollution Controls Natural Monopolies and Antitrust Regulation When analyzing these policies, include some discussion of the following points when appropriate: What is the purpose of the policy? Why is the policy necessary? The welfare of consumers, producers, and society (the winners and losers) before and after the policy The distribution of costs and benefits Does government intervention improve the situation? 750 minimum words with an introduction and a conclusion please

Explanation / Answer

1.Increases in the Minimum Wage The government announced in March that the minimum wage would rise by 11p. This 1.8% rise is slightly lower than the typical rise in earnings and the current rate of inflation, which represents the rising cost of living. The freeze in the minimum wage for those aged under 21 means that: The rate for 18 to 20-year-olds remains at £4.98 an hour The rate for 16 and 17-year-olds remains at £3.68 an hour However, the rate for apprentices rises by 5p to £2.65 an hour The minimum wage was introduced in 1999 at £3.60 an hour for adults. The latest setting for minimum wage levels mirrors recommendations from the Low Pay Commission. 2.Restrictions on International Trade International sanctions, tariffs, quotas, and trade restrictions encourage those in the domestic industries to produce less efficiently and make more money selling their goods. It also leads to less world output, less trade, less production, and less wages. (National Council, 2008) The benefit of specialization and free trade, including absolute and comparative advantages, is that world output is maximized and the world's producers are producing at maximum efficiency. These sanctions, tariffs, quotas, and trade restrictions limit that maximum output and efficiency. For example, American shoemakers are not as efficient as Chinese shoemakers, so the U.S. may put a tariff on the Chinese imports and give a subsidy to the American shoemaker, where the American shoemaker may be able to work more efficiently in another industry or another faction of the shoe industry. These subsidies will allow the American shoemaker to produce at a lower cost, but possibly at the expense of quality. 3.Pollution Controls There is general agreement that we must control pollution of our air, water, and land, but there is considerable dispute over how controls should be designed and how much control is enough. The pollution control mechanisms adopted in the United States have tended toward detailed regulation of technology, leaving polluters little choice in how to achieve the environmental goals. This “command-and-control” strategy needlessly increases the cost of pollution controls and may even slow our progress toward a cleaner environment. 5.Natural Monopolies A natural monopoly is a distinct type of monopoly that may arise when there are extremely high fixed costs of distribution, such as exist when large-scale infrastructure is required to ensure supply. Examples of infrastructure include cables and grids for electricity supply, pipelines for gas and water supply, and networks for rail and underground. These costs are also sunk costs, and they deter entry and exit. In the case of natural monopolies, trying to increase competition by encouraging new entrants into the market creates a potential loss of efficiency. The efficiency loss to society would exist if the new entrant had to duplicate all the fixed factors - that is, the infrastructure. It may be more efficient to allow only one firm to supply to the market because allowing competition would mean a wasteful duplication of resources. 6.Antitrust regulation Antitrust regulation is legislation designed to disband or prevent the formation of monopolies. Its purpose is to protect small businesses from being destroyed by unfair tactics, and to protect the public by ensuring better prices through competition. Rules designed to prevent or limit monopolies, also known as cartels, exist in most countries throughout the world. In the United States, the first antitrust regulation was a result of a phenomenon which occurred in the late nineteenth century. Large companies joined together to form trusts by signing a trust agreement. Representatives from the companies appointed trustees who were given the power to set prices and maximize profit by eliminating competition. The effect was the creation of large monopolies that would use below-cost pricing and other unfair practices to drive the competition out of business, and then sell their products at the highest price they could command. This resulted in a few large monopolies controlling a significant portion of the consumer market.

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