Economics Homework Assignment

This homework assignment covers various aspects of demand and supply in economics, including calculations of consumer surplus, producer surplus, and the effects of minimum wage and trade on market equilibrium. It also discusses the implications of forced labor and ethical considerations in economic practices.

PART 1
Q1
Equate D with S
60000 -5000W = 5000W -35000
W= 9.5
Labour = 6000-5000*9.5 = 12500
Q2
a. CS= .5*(12-9.5)*12500 = 15625
b. PS = .5*(9.5-7)*12500 = 15625
c. Total surplus = 15625+15625 = 31250
Q3.
a. Shown as green line
b. Now D= 6000-5000*11 = 5000
S= 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 yellow
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b. PS = (11-8)*5000+.5*5000*(8-7) = 17500 –in green
c. Total surplus = 2500+17500 = 20000
d. Resources will be lost looking for a job in terms of unemployed workers. this is shown by the
horizontal line = 2000-5000 or 15000 are unemployed, loss = 11*15000 = 165000
e. DWl = .5 *( 11-8) *(12500-5000) = 11250
Q5.
We must compare the surplus with and without the minimum wage to see who is better off
a. CS has come down from 15625 to 2500 so the firms are worse off
b. 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 = 190000
PS = 17500 -19500 = -2500: a loss for them
total surplus = 190000 -2500 = 165000
DWL remains same as we have only transferred from one agent to another.
Q7
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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 = 142500
losses > gains which implies that we cant justify a minimum wage if we aim to look at living standard
as measured by wages.
PART 2
Q1
As shown the demand curve will shift from D1 to D2. We have a new eqb at E2.
Q2
Income elasticity= (change in demand/ change in income)*( average income /average demand)
= ( 12000-10000)/(900-800)*( 800+900)/(10000+12000) = 34/22 = 17/ 11 = 1.55
As this is positive we can say that calculators are not inferior
Also as value >1 calculators area luxury item
Q3
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supply elasticity= (change in supply/ change in price)*( average price /average supply)
= ( 11000-10000)/(24-20)*(24+20)/(10000+11000) = 11/21
A this value is <1, supply is relatively inelastic.
PART 3:
Q1
Equate Demand with Supply
100-5Q= 20+5Q
Q= 80/10 = 8
P= 100-5*8 = 60
Q2
a. CS=.5*(100-60)*8 = 160 (yellow)
b. PS= .5*(60-20)*8 = 160 ( green)
c. Total surplus = 160+160 = 320
Q3. Domestic demand at Price of 40 will be
40 = 100 -5Q
Q= 60/5 = 12
Domestic supply at price of 40 will be
40 = 20+5Q
Q= 20/5 = 4
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So we have demand > supply or a SHORTAGE = 12-4 = 8
Imports = shortage = 8.
Q4
a. CS= .5*(100-40)*12 = 360 ( yellow)
b. PS= .5*(40-20)*4 = 40 ( green)
c. Total = 360+40=400
Effect of trade:
a. consumer surplus is higher ( 360 >160) which makes them better off.
b. Producer surplus is lower (80 >40) which makes domestic producers worse off.
c. Society is better off as total surplus is higher ( 400> 240).
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Q5.
with tariff the price becomes 40+10 =50 now
domestic demand at this new price:
50 =100-5Q
Q = 50/5 =10
domestic supply at this new price:
50 =20 + 5Q
Q = 30/5 = 6.
so imports = 10-6 = 4 now lower.
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Q6
a. CS= .5*(100-50)*10= 250
b. PS = .5*( 50-20)*6 = 90
c. total = 250+90= 340
comparing with Q4
a. now consumers are worse off as they have 250 as CS , instead of 360
b. Producers are better off as they get 90 as PS instead of 40.
c. Society is worse off as it gets only 340, and not 400 as total surplus.
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Q7.
As per the theory of conequentalism , ‘consequences are all that matters’. In our case this is
welfare of each agent as measured by the surplus they enjoy. we have consumers.
producers and society as a whole. if the objective is allocative efficiency then we have to
look at surplus earned by each.
It is seen that total surplus is maximum (at 400) with no tariff and free trade. – Option b. it
may be said that in this option producers are worse off as compared to option a ( no trade) .
they are also better off with option c ( trade with tariff) . but if the objective is allocative
efficiency then we cannot look at producers alone. efficiency is measured/quantified in
terms of total surplus only. With this objective we have to choose option b only.
(Consequentailism) (Consequentiaslism, 2015)
Q8.
Since forced labour has to be removed we can expect temporary dip in international supplies. this
can take the form of higher international price as the firm seeks to hire new and possibly higher
wage workers to replace forced labour( which is cheaper) . also the Australian importers will need to
raise their procurement stabndards, which will gain increase costs . the costs of compliance and
regular inspection in supply chain management will increase costs for these importers as well.
overall these costs could finda way into the final import price, which can increase the international
price above 40. as a result, imports will shrink for Australia.
Q9
If we assume higher international price, then domestic producers will be able to sell more as
compared to trade scenario. this makes them better off
consumers will be worse off as they pay more than $40.
society will be better off as the size of deadweight loss will be lower. this is because the gap between
domestic and international price will be narrowed. narrower is this gap lower is the deaweight loss.
Q10
Ethics dictate that slavery and forced labour are ‘wrong’. ethics is what differentiates us from
animals- tells us what is ‘immoral’ and what is ‘right’ in terms of how we treat each other. Humane
treatment of others dictates that we are equal – slaves make humans objects that can be sold and
bought. To restore humanity is to not allow this trade. What is the difference between cattle that is
also traded and human slaves? in the same way to force labour to work is tantamount to crushing
human will. It is also equivalent to force animals to be trained for circuses. To force labour is
harmful for health as well. on all these grounds I support ban of slavery and forced labor.
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BIBLIOGRAPHY
Anon., 2015. Consequentiaslism. [Online] Available at:
https://plato.stanford.edu/entries/consequentialism/ [Accessed 6 Oct 2017].
Anon., n.d. Consequentailism. [Online] Available at: http://www.iep.utm.edu/conseque/ [Accessed
5 Oct 2017].
Econ.ohio-state.edu, n.d. Elasticity. [Online] Available
athttp://www.econ.ohio-state.edu/jpeck/H200/EconH200L5.pdf [Accessed 3 Oct 2017].
Econport.org, n.d. Impact of Shifts in demand and supply. [Online] Available at:
http://www.econport.org/content/handbook/Equilibrium/Impact-.html [Accessed 3 Oct 2017].
Econport.org, n.d. Price floors and ceilings. [Online] Available
athttp://www.econport.org/content/handbook/Equilibrium/Price-Controls.html [Accessed 04 Oct
2017].
Staffwww.fullcoll,edu, n.d. Price elasticity of supply. [Online] Available
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