Market Equilibrium and Government Intervention

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Market Equilibrium & Government Intervention
CORE 001 INTRODUCTORY ECONOMICS GROUP 2 PROJECT REPORT

Prepared
for:
Prof
Tan
Swee
Liang


LYDIA LOW NGUYEN NHAT QUANG ZHANG HONG BRIEN KEITH SEAH

Case 1: Shortage of Civil Engineers in India This article highlights how India, the world’s new “high-tech” titan, is facing the problem of poor infrastructure due to a lack of civil engineers. Our group examined several factors that could have led to the shortage as well as analyzed the effects of government intervention in India’s labor market for civil engineers. Market Forces of Demand and Supply Firstly, the low entry salary of civil engineers makes the career unappealing, even to civil engineering graduates. The resulting shortage can be seen as the difference between quantity supplied, Q1, and quantity demanded, Q2 as shown in Figure 1 where entry wage is depicted as WA. DD2


Secondly, the comparatively higher salary offered by IT industries, management consulting and financial services causes civil Figure
1
 engineering graduates to switch to these sectors. This further increases the shortage, as the supply curve shifts from SS1 to SS2, causing quantity supplied decrease from Q1 to Q3. Finally, India’s government spending on infrastructure development causes increased demand for civil engineers. This causes the demand curve to shift right from DD1 to DD2 causing quantity demanded to increase from Q2 to Q4, in turn increasing the shortage. Government intervention & Market Equilibrium Although India’s government now acts to rectify the situation, its was its own that policies contributed to the shortage. Government departments set the lead where salaries of civil engineers are often fixed according to nearly immutable civil service formulas causing the salary of a civil engineer to be as little as half the pay of their peers in the IT industry. Figure
2


With reference to Figure 2, with the government building 30 universities and allowing foreign...
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