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In each case below, identify the effect on the market for coal - Essay Example

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This makes the process of production cheaper (Mankiw, 2012, p. 31). The graph below shows how this change affects the mining market.
As shown in the graph above, a reduction…
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In each case below, identify the effect on the market for coal
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In each case below, identify the effect on the market for coal

Download file to see previous pages... Equilibrium quantity supplied and demanded will increase from QE to QE*. Therefore, for the market to clear, a new, lower cost mining technic will lead to a lower equilibrium price and a higher equilibrium demand quantity for the coal market to clear
An increase in wages paid to coal miner’s increases cost of mining and thus leads to an increase in cost of production. This is because raw materials’ cost will increase as a result of the high costs of wages to coal miners. When the cost of inputs increases due to increased wages, the process of production becomes more costly (McEachern, 2010, p. 51). The graph below shows how these dynamics affect the mining market.
As shown in the graph above, an increase in the cost of production associated by increased wage cost to firms will result to a shift of the supply function from S to S*. Firms in the coal market will be willing supply relatively less quantities of coal at the previous price (PE). A shift of the supply function to the left leads to an increase in the equilibrium price from PE to PE*. Equilibrium quantity supplied and demanded will decrease from QE to QE*. Therefore, for the market to clear, increase in wages paid to coal miners will lead to a higher equilibrium price and a lower equilibrium demand quantity for the coal market to clear (Mansfield, 1979, p. 29).
An imposition of a $2 per ton tax on coal results to heavier costs burdens to producers of coal. Due to rational self-interest, the producers will try to shift this burden to consumers of coal (Krugman & Wells, 2010, p. 52). This is done by increasing the price by $2 for every tone sold. The effect of this tax can be shown in the graph below.
Before implementation of the tax, the equilibrium supply curve was S. After the implementation of the tax, the new supply curve becomes St increasing the price from P to Pt. However, the producer receives Pt’. The amount of tax ...Download file to see next pagesRead More
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