“Markets, International Trade, and the Government

“Markets, International Trade, and the Government

            Scenario 1: Assume that the government imposed a price ceiling on gasoline in order to prevent prices from getting too high. What are the economic implications of this action in the gasoline markets? Use graphs as needed and explain your answers thoroughly.”

A price cap on the oil sector will hold the appetite for petrol solid enough to stay a feasible choice for customers. With a price limit, it works not just for the customer but also for the oil market (Mankiw, 2018). While holding it inexpensive enough, it watches out for the oil sector, where it will not push the customer to vest in cheaper substitutes. The price limit causes production to be equal to or greater than availability if placed below the point of equilibrium. Unless the price limit is set well above the equilibrium level, it does not adequately fulfill its function by holding up competition for fuel as well as production (Mankiw, 2018). By implementing a price limit on the gasoline industry, it makes further use and not just the customer. If output slips below the equilibrium level, think about inflation or price increase.

“Scenario 2: Assume that the government imposed a price floor on wages (minimum wage) in order to make sure that workers can earn a living wage. Is this a price floor? What are the economic implications of this action in the labor markets? Use graphs as needed and explain your answers thoroughly.”

A price floor is not allowing a product or, in this case, minimum wage to fall beneath a specific dollar amount even if the demand falls beneath the rug (Mankiw, 2018). Holding the market level at a point beyond equilibrium would create a job surplus. The surplus is the workers laid off due to the increase in the wage, but the companies must compensate. So, the price floor produced an increase in supply and a decline in demand. The economic repercussions for the labor markets will be infinitely more workers would be out of jobs, but this may not hold in reality with every government. On paper and shown in the graph below, an increase in the minimum wage may appear to harm the professional laborers by throwing them out of jobs. The equilibrium level of today’s economy could be higher than the existing price floor placed by the US government, and a more upper minimum wage price floor would have little or little impact on today’s labor markets.

“Scenario 3: What are the gains and losses of international trade? What happens when tariffs are imposed, in terms of the importing and exporting countries? Use graphs as needed and explain your answers thoroughly.”

While responding to losses and gains, it is essential first to consider that International trade permits for goods from anywhere to be imported and exported (Mankiw, 2018). It allows for greater competition within markets to force a more price-friendly atmosphere for the consumer in most cases. A significant gain to international trade is the accessibility to goods your nation does not have or is not able to produce. A substantial loss to global trade could be companies within your country losing profit due to cheaper options due to international trade. When a customs tax is imposed on goods produced outside your nation and sold nationally, it is a tax executed on that good or service. It would create a higher price regarding Imported Products and would force the consumer to buy locally and support the nation’s GDP. A tariff would decrease the demand for imported goods but increase the demand for items produced within the country.

“Scenario 4: If the government doubled the tax on gasoline, would the tax revenues increase or decrease? Why? Use graphs as needed and explain your answers thoroughly.”

If the country increased the duty on gasoline, on paper, you must see a reduction in tax revenues.  It would create a decrease in demand for Igasoline because people will not do it as they could before. They would vest their money in alternative modes of transportation to avoid spending the excessive amount on gasoline, thus causing a decrease in tax revenues.

Summary

• The price ceiling on gasoline market does not allow it to rise above a certain point by keeping it affordable for the consumer.
• Price floor on wages (minimum wages) ensures that labor gets paid at least this much to ensure they can make a living wage.
• International trade can be beneficial to a nation by introducing new goods but can hurt the nation’s economy by entering more competition from aboard.
• Tariffs on imported goods can create a higher demand for domestically produced products or services instead of introducing them.
• Doubling gasoline tax would decrease commercial sales due to diminution in demand for gas because of higher prices.

References

Mankiw, N. G. (2018). Principles of economics. Cengage Learning.