Question

The Australian government recently required that high schools must hire four additional teachers with Master’s degrees in Science.

1. It will take a few months to initiate the hiring process. Discuss the immediate effect on the salaries of teachers with Master’s degrees in Science? Illustrate graphically the effects on the market for Master’s degree science teachers in the short-run.

2. What will be the effect after five years? Discuss and illustrate graphically the effects on the market for Master’s degree science teachers in the long-run. How does the salary in the long-run compare to the short-run and why?

3. Discuss the differences between the short-run and long-run elasticities of supply.

Answer 1

The Australian government recently required that high schools must hire four additional teachers with Master’s degrees in Science. It will take a few months to initiate the hiring process.

The immediate effect on the salaries of teachers with Master’s degree in Science will be that their salaries will go up (increase), this is because with every high school hiring four additional teachers will increase the demand for teachers with Master’s degree but the supply can't be increased immediately. So their salaries will increase.

This is shown graphically as -

First figure shows the efffect on salary in the short run, as with increase in demand shifts demand curve from D to D1 and hence salary increases from S to S1.

In the long run, more students will persue Master’s degree in Science and go for teaching work, this will increase the supply of teachers with Master’s degree in Science. This is shown graphically in the second part of the diagram that with increase in supply in the long run the supply curve shifts right to S1 from S. So this brings down the salary to a lower level. (Here I have shown at the initial level S but it may be a little higher or lower because it depends on the amount of increase in supply.

This happens because the elasticity of supply in the short run is less elastic (or inelastic) as supply cant be increased with increase in salary in the short run. But in the long run the supply becomes comparatively elastic as with increase in salary there will be increase in supply in the long run. So in long run supply is more elastic.