Micro Economic Principles Assignment

This assignment provides solutions to a series of questions related to microeconomic principles, including minimum wage, consumer surplus, producer surplus, total surplus, and deadweight loss. It analyzes the impact of minimum wage on labor markets, consumer and producer surplus, and the ethical implications of minimum wage policies.

MICRO ECONOMIC
PRINCIPLES

Table of Contents
MAIN BODY...................................................................................................................................1
Q1...........................................................................................................................................1
Q2...........................................................................................................................................1
Q3...........................................................................................................................................1
Q4...........................................................................................................................................2
Q5...........................................................................................................................................3
Q6...........................................................................................................................................3
Q7...........................................................................................................................................4
Q8...........................................................................................................................................5
Q9...........................................................................................................................................5
Q10.........................................................................................................................................5
Q11.........................................................................................................................................6
Q12.........................................................................................................................................6

MAIN BODY
Q1
Economic theory: According to this particular theory the financial effects of social and
government policies minimum wages are develop upon common economic principles that is
affecting the income of a national people. minimum ways laws can have various positive or
negative effects in the country economic. The foregoing evaluation indicate that the minimum
wage in Australia is actually very high only for male workers and it is relatively low for very
young workers. However, it is actually remaining as subject of empirical study and their effects
are just recommended by the economic theory. Application to the labour market with the wage as
the price of labour the outcomes must be unemployment, if statutory minimum wages is set
above in their equilibrium. Australia announces minimum wage increment of 26 weeks, so that
the minimum wages was almost close to 570 dollars per week.
Q2
According to the fair work commission which is formerly known as fair work Australia act
2009 is set in order to provide minimum wages to the workers. The labour has to paid $719.20
per weeks or $18.93 per hour from 1 July, 2018. For junior, an amount which is equal to special
national minimum wage 3 or for apprentice, value to special national minimum are provided to
the workers.
Q3
S=120000W-1200000
equilibrium wage rate =demand for labour hrs. 1500000-60000W
demand of labour hrs. must be equal supply of labour hrs.
= 1500000-60000W=1200000-120000W,
=1500000-1200000=120000W-60000W
=300000=60000W
=W=300000/60000
=W=5 A$ per hr.
Now, number of unskilled labour in work hrs.=120000W-60000W=60000W/5=12000
employees are unskilled.
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Y S
Wage rate D
E'
w
S D
O E X Q labour
In above diagram, equilibrium wage rate is at point E' where demand of labour
becomes equal to supply of labour.
Q4
(1) Consumer surplus: It means the value that consumers derive from purchasing a
product. For example, if consumer would be willing to buy a good at 10A$, but consumer is able
to purchase it for just 7A$. then 3A$ is consumer's surplus.
let’s assume that the market is in equilibrium at the price PE and the quantity QE. The demand
curve indicates consumer is willing to pay.
Y
D S consumer and producer surplus in
price perfect competition
consumer's surplus E
Pe
producer's surplus
S D
O Qe X Quantity
In above figure, on Y axis above at point Pe shows the consumer's surplus and below
point Pe it shows producer's surplus. To calculate consumer surplus, apply triangle area formula
1/2*base*height, here base of triangle is Qe and height of triangle (Pe, E), that is price at which
quantity demanded is zero exceeds the equilibrium price(pe).
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(2) Producer’s surplus: It means the value that producers derive from selling of a
product. For example, producer would be willing to sell a product at 6A$. but producer is able to
sell it for 10A$, then producer's surplus of 4A$. (as shown in above figure)
(3) Total surplus: it means sum of consumer's surplus and producer's surplus. Total
surplus reaches at its maximum only in perfect competition because free market equilibrium is
reached. if quantity is less than the free-market equilibrium quantity were transacted, total
surplus would be less, because there would be beneficial that are failing to occur (transactions in
which consumer is willing to pay more than the lower price producer is willing to accept) . But if
in free market were transact and quantity is greater than the total surplus would be less because
the transaction cost is more to producer that's a consumer is willing to pay.
Q5
(1) Assume that the fair work commission imposes a minimum wage of 19A$ per hour,
then,
given information is demand for labour in hrs.=1500000-60000W and supply for labour in
hrs.=120000W-1200000, now hours of employment exchange is =1500000/19
=78947.36 hrs.
(2) Size of surplus or shortage of hours created by imposition of minimum wage is
demand for labour hours= 1500000-60000W
supply of labour hours=120000W-1200000 and minimum wage is 19A$ then,
=1500000/19=78947.36 hrs.
=1200000/19=63157.89hrs. Hence, the shortage of hours is= 78947.36-63157.89
=15789.47hrs.
Q6
(1) producer / worker surplus: Need of labour hrs. to producer =1500000
then, the hours of employment exchange are 78947.36
supply of labour hrs. are 1200000 and shortage of labour workings hrs. =15789.47
then, surplus of producer /worker =15789.47*19A$=300000A$
(2) consumer’s /firms surplus: the cost of production, when supply of labour
=78947.36*19=1500000A$ and actual supply of labour is =63157.89*19=1200000A$
now, consumer’s surplus = 1500000-1200000=300000A$
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because if production cost increases then cost of particular product also increases that's
why deduction in production cost leads to concession in cost of particular products, and hence,
leads to consumer surplus.
(3) Total surplus: total surplus means sum of producer's surplus and consumer's surplus hence
the total surplus is 300000+300000=600000A$s
(4) Dead weight loss: Minimum wage can create a dead weight loss by causing employers to
overpay for employees and preventing low -skilled workers from jobs decreasing. Supply of
resources leads to decrease in production, consumer’s experiences shortages and producers earn
less .5*(p2-p1) *(q1-q2).
Q7
(1) Firms are better off: if we assume that the minimum wage is fixed by the fair work
council, then relevant total surplus of producer is 300000A$, no doubt that firms are better off
the relevant surplus helps the firm in next production and maintain the quality of production.
(2) workers are better off: workers are better off with minimum wages 19A$, as fair
return according to working hours are given to them.
(3) society is better off: society pertains a lot of consumers and reduction in production
costs helps to increase in consumer's surplus.
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Q8
Resources lost job search are actually captured by producers then, then no consumer
surplus:
1) producer / worker surplus: Need of labour hrs. to producer =1500000
then, the hours of employment exchange are 78947.36 supply
of labour hrs. are 1200000 and shortage of labour workings hrs. =15789.47
then, surplus of producer /worker =15789.47*19A$=300000A$
(2) consumer’s /firms surplus: The cost of production, when supply of labour
=78947.36*19=1500000A$ and actual supply of labour is =1500000
now, consumer’s surplus = 1500000-1500000=0A$
because if production cost increases then cost of particular product also increases that's
why resources acquired no consumer surplus.
(3) Total surplus: total surplus means sum of producer's surplus and consumer's surplus hence
the total surplus is 300000A$, because no consumer surplus.
(4) Dead weight loss: Minimum wage can create a dead weight loss by causing employers to
overpay for employees and preventing low -skilled workers from jobs. decreasing. supply of
resources leads to decrease in production, consumer’s experiences shortages and producers earn
less .5*(p2-p1) *(q1-q2).
Q9
In first case when resources are lost, means shortage of labour leads to reduction in
production costs and therefore results in form of consumer surplus. By which producer earns less
profit but consumer/ society is better off by reduction in costs of products. But, now when
resources are actually acquired as in second case, then producer’s surplus increases by twice of
previous surplus and consumer gets no surplus.
Q10
Under the minimum wage ethically justifiable. From the above two question, it has been
clear that two sample theoretical models from various types of labour markets and derive policy
impact from an ethical aspect. In context to minimum wage can be ethically justified if
employers are having monopsony power in the wage setting process. Thus, it allows empirical
aspect to play a vital role in determine the actual rate for worker wage rate. Buyers and sellers of
labour services in low wage (unskilled) labour markets are directly affected by changes in real
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wage. Workers in this market who keep their jobs are better off. Those that lose their jobs are
made worse off, at least in the short run. Owners of the firms are hurt because of reduced profits
from the minimum wage. The magnitude of those effects depends in elasticities of labour,
demand and supply.
Q11
By analysing relevant surplus and conclusions on change, it can be said that minimum
wage system is completely ethical and even significant for workers. To give evidence to the
above statement, it can be said that minimum wage system has main objective to facilitate
workers and protect the interest of labours. This wage system introduced by governmental
authorities is completely ethical as it helps in evading exploitation of labourers. This system is
even more important in economies were population rate is high because they hire labours in such
few wage which is not considered as ethical but after introduction of this concept, they can be
benefited by high wage rates fixed by governmental authorities under minimum wage act.
Q12
After analysing minimum wage rate benefits and limitations it can be said that this rate is
completely ethical and should be used by every economy in order to protect interest of their
workers. In order to provide an argument using deontological ethical framework, it can be said
that minimum wage rate is a result as this is plays a significant role in protecting workers from
exploitation. Another aspect of this framework is action which is not provides any argument
when it comes to minimum wage rate as this concept is only disadvantageous to organisation
which are carry a business.
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REFERENCES
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lignocellulosic biomass to ethanol: dilute-acid pretreatment and enzymatic hydrolysis of
corn stover (No. NREL/TP-5100-47764). National Renewable Energy Laboratory
(NREL), Golden, CO..
Kolstad, C., 2011. Intermediate Environmental Economics: International Edition. OUP
Catalogue.
Pigou, A., 2017. The economics of welfare. Routledge.
Tietenberg, T. H. and Lewis, L., 2016. Environmental and natural resource economics.
Routledge.
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