Economics Assignment - Deadweight Loss and Unemployment
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Added on 2020-03-16
Economics Assignment - Deadweight Loss and Unemployment
Added on 2020-03-16
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PART 1Q1Equate D with S60000 -5000W = 5000W -35000 W= 9.5Labour = 6000-5000*9.5 = 12500Q2a.CS= .5*(12-9.5)*12500 = 15625b.PS = .5*(9.5-7)*12500 = 15625c.Total surplus = 15625+15625 = 31250Q3.a.Shown as green line b.Now D= 6000-5000*11 = 5000S= 5000*11-35000= 20000. Since the demand is for 5000 only 5000 hours of labour are employed.c.As demand < surplus we have a SURPLUS = 2000-5000 = 15000( red line)Q4.a.CS=.5*(12-11)*5000 = 2500 –in yellow1
b.PS = (11-8)*5000+.5*5000*(8-7) = 17500 –in green c.Total surplus = 2500+17500 = 20000d.Resources will be lost looking for a job in terms of unemployed workers. this is shown by thehorizontal line = 2000-5000 or 15000 are unemployed, loss = 11*15000 = 165000e.DWl = .5 *( 11-8) *(12500-5000) = 11250Q5.We must compare the surplus with and without the minimum wage to see who is better offa.CS has come down from 15625 to 2500 so the firms are worse offb.PS has risen from 15625 to 17500- so workers are better off.c.Deadweight loss = .5*(11-7)*5000 = 10000 As we have a loss, society is worse off.Q6. We transfer 165000 to workers, so that the new surplus for them is 2500+165000 = 190000.CS = 190000PS = 17500 -19500 = -2500: a loss for them total surplus = 190000 -2500 = 165000DWL remains same as we have only transferred from one agent to another.Q72
No. The consequence of a minimum age – whether losses are transferred or not is that society bears the deadweight loss. also it leads to unemployment . These are consequences of a minimum wage. in terms of these consequences we cant justify minimum wage. even though surplus of those employed rises while it falls for firms, the total surplus falls, if each person in society is given equal weightage then we end up with losses for all of them taken together. Q8.if the objective is raising standard of living then we must use wage as an indicator of this standard. we can see that wage has risen for 5000 workers while it is down to zero( those unemployed) for 15000 workers. if all workers are treated equally then the gain of 5000 workers = 5000*( 11-9.5) = 7500. the loss = 9.5*15000 = 142500losses > gains which implies that we cant justify a minimum wage if we aim to look at living standard as measured by wages. PART 2Q1As shown the demand curve will shift from D1 to D2. We have a new eqb at E2. Q2Income elasticity= (change in demand/ change in income)*( average income /average demand) = ( 12000-10000)/(900-800)*( 800+900)/(10000+12000) = 34/22 = 17/ 11 = 1.55As this is positive we can say that calculators are not inferiorAlso as value >1 calculators area luxury itemQ33
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