ECON111: MICROECONOMIC PRINCIPLES - Case Study - Economics Assignment

Internal Code: MAS5261

MICROECONOMIC PRINCIPLES

Case Study 1: Suppose that the market for unskilled labour is a competitive market and can be described by the following demand and supply curves: D = 60,000 – 5,000W S = 5,000W – 35,000 W is wage rate per hour for labour; D and S are demand and supply for unskilled labour, both measured in hours. Questions: Q1. Calculate the equilibrium wage rate and quantity of labour employed and draw a diagram to illustrate your answer. Q2. Show on the same diagram and calculate the size of the: a) Consumer/firm surplus b) Producer/worker surplus c) Total Surplus Q3. Suppose that the government imposes a minimum wage of $11.00 per hour. a) Show the minimum wage on the same diagram. b) How many hours of labour are now employed? Show this on the same diagram. c) Calculate the amount of the surplus or shortage of labour created by the imposition of the minimum wage. Show this on the same diagram. Q4. Following the introduction of the minimum wage $11.00 per hour, show on the same diagram and calculate the size of: a) consumer/firm surplus b) producer/worker surplus c) total surplus d) resources lost in job search e) deadweight loss Q5. Following the introduction of the minimum wage, explain whether: a) Firms are better off? b) Workers are better off? c) Society is better off?   Q6. Now assume that the resources lost in job search calculated in Q4 are actually transferred from consumers (firms) to producers (workers). In other words, now assume that no resources at all are lost in job search activity. Re-calculate the following: a) consumer surplus b) producer surplus c) total surplus d) deadweight loss. Q7.  Consider your responses in Q5 and Q6. From a consequentialist perspective that has as its objective allocative efficiency, is the introduction of a minimum wage ethically justified? Explain. Q8.  Consider your responses in Q5 and Q6. From a consequentialist perspective that has as its objective improving the standard of living of unskilled workers, is the introduction of a minimum wage ethically justified? Explain. Case Study 2. Consider the market for pocket calculators that is initially in equilibrium at a price of $20.00 per calculator and 10,000 calculators are exchanged per week. Then the demand for pocket calculators increases because consumer incomes increase from $800 per week to $900 per week, so that at a price of $20.00 per calculator the demand for calculators rises to 12,000 calculators. This results in a new equilibrium in the market for pocket calculators at a price of $24.00 per calculator and 11,000 calculators exchanged per week. Q1. Draw a diagram representing what has happened in the market for pocket calculator. Q2.Using the mid-point method, calculate the income elasticity of demand between pocket calculators and consumer income. What does this tell you about the relationship between pocket calculators and consumer income? Q3. Using the mid-point method, calculate the price elasticity of supply for pocket calculators. Interpret the result. Case Study 3. Assume that Australian economy is closed to international trade and the demand and supply curves for figs are: Demand: P = 100 – 5Q Supply: P = 20 + 5Q Q1. Find the equilibrium price and quantity and represent this equilibrium in a supply and demand diagram. Q2. Show on the same diagram and calculate the size of: a) consumer surplus b) producer surplus c) total surplus at equilibrium. Q3. Assume now that the Australian economy is open to international trade and the world price for figs is $40 per kg. At this world price how much is supplied by domestic producers and how much is imported from foreign producers? Show this on the same diagram. Q4. Following the opening of the economy to international trade, show on the same diagram and calculate the size of the: a) consumer surplus b) producer surplus c) total surplus Based on your calculations, explain whether as a result of international trade: a) domestic consumers are better off? b) domestic producers are better off? c) Society is better off? Q5. Now suppose the Australian government following lobbying from Australian fig producers imposes a tariff of $10 per kg. Show on the same diagram and calculate what happens to domestic supply and imports following the imposition of the tariff.   Q6. Following the imposition of a tariff, show on the same diagram and calculate the size of the: a) consumer surplus b) producer surplus c) total surplus By comparing your calculations with your answers in Q4, explain whether the tariff imposition makes: a) domestic consumers better off? b) domestic producers better off? c) society better off? Q7.  From a consequentialist perspective that has as its objective allocative efficiency, which situation is the most ethically preferred for the Australian economy among the followings? a) closed economy (no international trade) b) free international trade c) international trade with tariff protection Read the following article: https://theconversation.com/what-businesses-can-do-to-stamp-out-slavery-in-their-supply-chains-82640. Answer the following questions. Q8. Consider the free trade situation in Q3 & Q4. Assume that recently a large overseas fig producer has been subject to an International Labour Organization (ILO) inspection and found to be using forced labour. The company has promised to eliminate forced labour from its overseas plantations. Discuss the potential impact of this policy on the price in the Australian fig market. Q9.  Given the price change you explained in Q8, are (i) domestic consumers (ii) domestic producers and (iii) society better off in comparison to the free trade situation in Q3 & Q4? Explain briefly the trade-off between efficiency and fairness. Calculations of surpluses Q10. From an ethical perspective how can a ban on forced labour or human slavery be justified? In your answer clearly state the ethical approach you are adopting.