Question

You have been contracted by the government of your country to provide recommendations on the regulation of the national textile industry. Currently, the textile industry which resembles features of the perfectly competitive market is completely unregulated. Using the concepts covered in the class, please provide your advice to the problems below.

1. One of the biggest social problems in the textile industry is child labour which, among other things, reduces school attendance. The government is considering two types of interventions and asked you to explain the process through which each of them affects the equilibrium amount of child labour and wages using words (explain the impact on demand and/or quantity demanded, supply, and/or quantity supplied as appropriate) and include well-labelled graphs.

a. Provide rewards for children who attend school [2pt]

b. Impose fines on employers who employ children [2pt]

Answer 1

Child labour is undoubtedly one of the biggest problems in our society. It not only poses a threat to children's future but is also a big hindrance in the progress of any nation. Therefore, let's see the impact of government intervention in this problem:

a) Provide rewards for children who attend school:

The above diagram shows Demand (D1) and Supply (S1) curves for child labour. Equilibrium amount of child labour is E1.

When the government provides rewards to children who attend school, children will get an incentive to skip work and attend school. The supply of child labour will fall. This is indicated by a leftward parallel shift in the supply curve S1 to S2. The new supply curve S2 will intersect the demand curve D1 at point E2. The equilibrium wages will rise from W1 to W2. The new equilibrium quantity of child labour will be L2. Therefore, the government was successfully able to reduce the amount of child labour.

b)Impose fines on employers who employ children.

When the government imposes fines on employers who employ child labour, the demand for child labour by the employers will fall. This is indicated by a leftward shift in demand curve from D1 to D2. The equilibrium point shifts from E1 to E2, where the equilibrium amount of child labour has fallen from L1 to L2. Wages will also fall as child labour has become less valuable to the employers. Therefore, the government can successfully reduce the amount of child labour through this way too.