Essay ECON1020: Maria’s Model of Employment Rent – Asymmetric Information – Economics Assignment Help

Assignment Task:

QUESTION 1 (15 MARKS) 

Suppose that the government of China decided to impose a per unit tax on the suppliers of salt. 

a. Using a supply and demand model, show and explain the impact that the per-unit tax had on the equilibrium price and quantity of salt. (4 marks) 

b. Using the diagram created for your answer to (a), show and explain what effect the per unit tax had on consumer surplus, producer surplus and deadweight loss. (6 marks) 

c. List three reasons a government may impose a tax. Discuss the link between government revenue from taxation and elasticity of demand. [max words: 250] (5 marks) 

QUESTION 2 (15 MARKS) 

The figure below shows Maria’s model of employment rent. 

As in all economic models, this simplified representation of Maria’s employment rent has deliberately omitted some aspects that might be important to her employment decisions. 

For example, it is assumed that: 

• Maria finds a job with the same pay after her spell of unemployment. 

• She does not experience any psychological or social costs from being unemployed. 

a. Discuss how relaxing the second of these assumptions would alter Maria’s employment rent. [max words: 250] (5 marks). 

b. Explain the link(s) between involuntary unemployment and employment rents. [max words: 150] (3 marks) 

c. Why is some involuntary unemployment desirable in the market for labour? [max words: 150] (3 marks). 

d. Explain the relationship between a country’s employment rate and unemployment rate [max words: 250] (4 marks) 

QUESTION 3 (15 MARKS) 

The following questions relate to the relationships between owners, managers, and employees in large firms. 

a. Discuss the key differences between a contract for a product sold in a market and a contract for labour. [max words: 150] (3 marks) 

b. Define the term ‘asymmetric information’. Explain how the presence of asymmetric information in firms may impact the working relationship between managers and subordinates. [max words: 250] (4 marks) 

c. Explain why contracts between a firm and its employees are often incomplete. [max words: 150] (3 marks) 

d. Discuss two possible ways a firm could try and reduce the issues associated with incomplete employee contracts. What are the possible downsides or difficulties associated with each of these methods? [max words: 250] (5 marks) 

QUESTION 4 (15 MARKS) 

The figure below shows our model of the labour market. 

a. Explain why point B is not a point of equilibrium in the labour market. [max words: 250] (5 marks) 

b. “The adjustment from point B to point X will be automatic.” Discuss this statement. [max words: 250] (5 marks) 

c. How could a government help the labour market move from point B to point X? Use a model to help illustrate your answer. [max words: 250] (5 marks) 

QUESTION 5 (15 MARKS) 

The figure below shows the isoprofit curves and demand curve for Cheerios breakfast cereal. 

Draw a diagram to show how the figure would change in each of the following cases. To make sketching the curves easier, assume the demand curve is linear. In each case, can you say what would happen to the price and the profit? 

a. A rival company producing a similar brand slashes its prices. (5 marks) 

b. The cost of producing Apple-Cinnamon Cheerios rises to $3 per pound. (5 marks) 

c. General Mills introduces a local advertising campaign costing $10,000 per week. (5 marks) 

QUESTION 6 (15 MARKS) 

a. Sketch a diagram to illustrate the competitive market for bread, showing the equilibrium where 5,000 loaves are sold at a price of €2.00. (3 marks) 

b. Suppose that the bakeries get together to form a cartel (i.e. they become price-setters). They agree to raise the price to €2.70, and jointly cut production to supply the number of loaves that consumers demand at that price. Shade the areas on your diagram to show the consumer surplus, producer surplus, and deadweight loss caused by the cartel. (5 marks) 

c. For what kinds of goods would you expect the supply curve to be highly elastic? [max words: 150] (3 marks) 

d. Draw diagrams to illustrate how the share of the gains from trade obtained by producers depends on the elasticity of the supply curve. (4 marks)