How Would An Increase In Income And A Rise In Wages Affect The Economics Tuition Market?

Economics tuition is popular with many of the students in Singapore as it enables them to gain extra knowledge which is helpful in the examination. This is particularly true if they get a good and experienced economics tutor. The market for economic tuition is a dynamic market in the sense that it is constantly changing due to factors such as rising income and rising wages. In Singapore, income and wages are generally rising largely due to globalization which will affect the demand for virtually every good including economics tuition.

Rise in Income

Economics tuition has a positive income elasticity of demand which means that is a normal good. Therefore, when income rises, the demand for economics tuition will increase. When this happens, the quantity demanded will increase at the same price. However, as the quantity supplied will be remain the same, a shortage will occur. As a result, economics tuition centres will increase the price as doing so will not cause them to lose students. The rise in the price will lead to an increase in the profitability of providing economics tuition and this will lead to an increase in the quantity supplied. Therefore, when the demand for economics tuition rises due to a rise in income, the price and the quantity will rise. An interesting question is whether the quantity or the price will increase by a larger percentage. The answer to the question depends on the price elasticity of supply. At first thought, the supply of economics tuition is likely t o be price elastic as the time which an economics teacher needs to leave service to become an economics tutor is short. However, in view of the fact that most economics teachers lack the enterprise to become a full-time economics tutor, the supply of economics tuition s likely to be price inelastic. With an inelastic supply, an increase in the demand due to an increase in income will lead to larger proportion rise in the price.

Rise in Wages

When wages rise, the cost of production of producing virtually every good including economics tuition will increase. For example, a rise in the wages of an economics tutor will lead to a rise in the cost of production of an economics tuition centre. When this happens, the supply will decrease and this will lead to a decrease in the quantity and an increase in the price. The demand for economics tuition is likely to be price inelastic due to the high degree of necessity. A student who has difficulty coping with the subject of economics has no alternative other than to seek help from a private economics tutor. Therefore, when the supply of economics tuition falls, the proportionate rise in the price will be greater than the proportionate fall in the quantity.

Combined Effects

When the demand for economics tuition rises and the supply falls, the price will increase. This happens because both the increase in the demand and the fall in the supply will lead to an increase in the price. The effect on the quantity, however, will depend on two factors. First, it depends on the relative price elasticities of demand and supply. As the demand for economics tuition is likely to be price inelastic, a decrease in the supply is likely to lead to a small fall in the quantity. Similarly, as the supply of economics tuition is price inelastic, an increase in the demand is likely to lead to a small rise in the quantity. As economics tuition has a low degree of luxury, the income elasticity of demand is likely to be low. Therefore, a rise in income is likely to lead to a small increase in the demand. Similarly, as wages in Singapore do not generally rise substantially, the decrease in the supply is unlikely to be large. Therefore, the effect on the quantity is indeterminate.

Christopher Wray

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