Microeconomics Assignment: Contracts, Rent & Labor

This economics assignment explores three key concepts: incomplete contracts, economic rents, and the labor-discipline model. It discusses how incentives can motivate lecturers in an educational setting, calculates economic rent in a specific scenario, and compares labor market dynamics in China and Korea.

EXERCISE 1 INCOMPLETE CONTRACTS
a) It would be of importance to introduce an incentive where the lecturer is paid according to the
pass rate in his class. In this way the lecturer will be motivated to ensure that a good number of
his students pass exams.
b) It may be difficult to include the number of students the teacher can attend to at his own time.
It may also be difficult to put down the method of teaching to be prescribed.
EXERCISE 2 ECONOMIC RENTS
a) Economic rent
Earnings from actual amount = 25 *40 * 63
= 63000
Expected Amount = 535 * 63/2
= 16, 852.5
Economic Rent = 63, 000 – 16,852.5 - 12600
= 33, 547.5
b) The employees have low welfare levels since despite their work, they are compensated by food
vouchers in which they have limited options of choice compared to their needs.
c)
EXERCISE 3 LABOUR-DISCIPLINE MODEL

a. In this case the employees in china show a high level of elasticity to the changes in wage rate
compared to the workers in Korea. This is due to the difference in the level of legislation in the two
areas.
b. The firms are able to pay wages where there is a correspondence with the MPL and the MCL.
c. North Korea has higher levels of involuntary employment especially due to the high supply of labor
given the low levels of wage rates.