• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Economics Macro commentary

Extracts from this document...


COMMENTARY 1 Title: Ferry operators ask for Subsidy Source: The Jakarta Post Date of publication: 06th February 2009 Section of the syllabus: Microeconomics Word Count: 711 The article talks about the Ferry operators in Indonesia asking for subsidy from the government due to several reasons. 27.5% of Ferry fare income was on fuel costs thus, the government decided to cut the fuel cost by 3.5% and expected a fare cut. However, the operators have other reasons to this; the cut in fuel simultaneously increased other costs such as maintenance and minimum wage hike. "If these four costs are added together, ferry fares should have not been cut by 3.5 percent but raised by 9.8 percent." If the government doesn't concede the ferry operators demand then they would be left with two options: 1) ...read more.


are demanding for an increase in minimum wage (P2) because prices of basic commodities have soared. However this would further increase the operations cost to the ferry operators thus ferry operators are asking the government to suspend the minimum wage hike. Subsidy is a payment made by the government to the producers of good and services.1 With the government offering subsidy there is an outward shift of the supply curve as shown in Figure 1 to the right. This causes an increase in the quantity supplied from Q1 to Q2 which also results in a decrease in the equilibrium price from P1 to P2. With the decrease in price Ferry will now be able to compete with its upcoming land substitute. The ferry as of now has an inelastic demand as ferry is the only mean of transport form Kamal route to Madura; if there is a small amount of increase in the price of the ferry prices, the quantity demanded will decrease less than proportionately. ...read more.


If the government doesn't provide subsidies Ferry operators are likely to increase ferry fares this would cause the demand to decrease, thus causing unemployment. Here the producers aren't satisfied as demand is low (low profits), trade unions because workers are being laid off, government isn't satisfied as there is unemployment in the economy and consumers due to high ferry fares. If the government provides subsidy operational cost would decrease, thus decreasing prices of tickets. As prices of tickets decrease the consumers are likely to benefit and demand is likely to increase, workers might not be laid off and trade union's demands too will be satisfied. If only providing subsidy can satisfy all the demand the government should provide subsidy. However it should consider the opportunity cost involved in providing subsidy. 1 Glanville, Alan.629 2 Glanville, Page number: 56 3 Blink, Jocleyn and Dorton, Ian. Page no 10 ?? ?? ?? ?? ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our International Baccalaureate Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related International Baccalaureate Economics essays

  1. Minimum wage

    video films is +3.8 The cross elasticity of demand measures the quantity demanded for one good in response to a change in price of another good. Therefore if the price for cinema tickets decreases then demand for pre-recorded videos would decrease, similarly if the price of cinema tickets increased the demand for pre-recorded videos would increase.

  2. Strategic and Operational Performance Assessment at Petrom

    The innovative side of the company Petrom's privatization in 2004 was critical for the company's competitiveness and sustainable development. In 2005 Petrom embarked on a restructuring and modernization program throughout all business segments.

  1. Growth and Development Problem Set - IB Economics exam questions and answers.

    * Resources should be used efficiently and alternatives should be developed to replace them in course in order not to endanger the resource or cause serious damage or pollution in the environment, which is against the principles of sustainable development.

  2. Economics Commentary: Ethanol as a substitute fuel.

    is required. Therefore, the increase in quantity demanded of ethanol can be seen. Much of the gasoline Americans use to fuel cars and trucks contains ethanol produced from corn. Major American car brands, including GM and Ford have been making more and more cars that use ethanol-based fuel.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work