Question

Which unknown factor affects prices in the financial markets?

Income taxes
Media speculation
Government policy
Trade regulations

Answer 1

Government policy can affect financial market prices by impacting production costs and the supply curve, as seen with taxes, regulations, and subsidies which increase operational costs for businesses, potentially resulting in higher prices for consumers.

Step-by-step explanation:

Among the options provided, government policy is a significant unknown factor that can affect prices in financial markets. Government policies have a substantial impact on the cost of production and the supply curve through the implementation of taxes, regulations, and subsidies. For example, the tax imposed by the U.S. government on alcoholic beverages, which amounts to about $8 billion per year from producers, is an additional cost businesses must bear. These types of costs lead to a decrease in supply, as a result of higher production costs, thereby affecting prices.

Moreover, compliance with government regulations, such as those to ensure a cleaner environment or safer workplace, also increases costs for firms. This, in turn, can lead to higher prices for consumers. By adjusting these policies, the government can influence overall economic performance, which includes factors such as real GDP growth and the unemployment rate.

Answer 2

Government policy affects prices in financial markets by altering the cost of production and supply through taxes, regulations, and subsidies, with businesses treating taxes and regulations as costs that can lead to a decrease in supply.

Step-by-step explanation:

The unknown factor that affects prices in financial markets from the given options is Government policy. Government policies can significantly influence the cost of production and the supply curve. This is due to the impact of taxes, regulations, and subsidies that governments impose.

For instance, the taxation on alcoholic beverages in the U.S. which generates roughly $8 billion annually from producers, illustrates how businesses account for taxes as additional costs. When costs rise, supply tends to decrease because it becomes more expensive for businesses to produce goods. Furthermore, complying with a broad spectrum of government regulations, which may include ensuring a cleaner environment and a safer workplace, also raises operational costs, thereby influencing market prices.