Download the spreadsheet data that was used to create Figure 1.2 in your textbook The Economy. You can download the spreadsheet data by clicking on

Question 1 | [15 marks]

Download the spreadsheet data that was used to create Figure 1.2 in your textbook The Economy. You can download the spreadsheet data by clicking on the xlsx link here:

https://jackblun.github.io/Globalinc/Consider the following three countries: Gabon, Spain and Norway.

a. For each one calculate the 90/10 ratio in 1980, 1990 and 2014 (6 marks). Note: For Gabon use 1982 which is the earliest year available.

b. Describe the differences in the 90/10 ratio between countries revealed by your calculations. (2 marks)

c. Describe the changes in the 90/10 ratio over time for each country. (2 marks)

d. See this article about Gabon: https://www.theguardian.com/global-development/2016/aug/16/gabon-yawning-poverty-gap-end-dependency-oilOn the basis of this article provide a brief explanation for the 90/10 ratio in Gabon between 1982 and 2014. (5 marks) (Word limit 100)

Question 2 | [10 marks]

Consider the example of Greta and Carlos discussed in The Economy textbook Unit 1 Section 1.8 and Figure 1.9a and 1.9b. Assume the market price is now 1 tonne of wheat can be traded for 48 apples. Greta proposes a trade of 14 tonnes of wheat with Carlos.

a. What would Greta and Carlos have available to consume of both goods if the trade goes ahead? (4 marks)

b. Would both Carlos and Greta be better off after the trade? Explain. (6 marks)

Question 3 | [15 marks]

Suppose the wage (w) is $20 and the price of coal (p) is $40 and a representative firm in the textile industry has two types of technologies available with a goal to produce one unit of cloth:

Labour (L) Coal (R)

Technology A 8 units 4 units

Technology B 2 unit 12 units

a. Calculate the production costs required for the two types of technology. Which technology would a firm choose? (2 marks)

b. Write down the equation of the isocost line for each technology. Make R the subject of the equation. (2 marks)

c. Draw the two isocosts on a diagram. Indicate Technologies A and B and the relative input price. (2 marks)

d. Suppose the wage increases to $30 per unit and the price of coal decreases to $15 per unit. Calculate the new production costs for the two types of technology. Which technology would a firm choose? (2 marks)

e. Write down the equation of the isocost line for each technology after the change in the relative input price ratio. Make R the subject of the equation. (2 marks)

f. Draw the new isocosts on the same diagram and indicate the relative input price ratio. (2 marks)

g. Write down the equation to calculate the innovation rent. How much is the innovation rent? (3 marks)

Question 4 | [15 marks]

Using the model developed in The Economy Unit 3, Section 3.7, consider Ella who is a personal trainer at a popular gym in Sydney. Prior to the coronavirus pandemic she had been receiving a wage of $40 per hour.

Assume that Ellas spending on goods and services cannot exceed her earnings per day. Maximum consumption (c) per day is:

c = w(24 t) where t = hours of free time per day.

Your answers must include both a diagram and words to clearly explain your diagram. In addition, your diagram must be fully labelled and therefore you must label both axes, correctly determine the vertical axis and horizontal axis intercepts, label the slope of the budget constraint and show the optimal amount of free time and consumption associated with it.

a. Initially when facing w = $40 per hour Ella chooses to work 8 hours per day and have 16 hours of free time per day. Using a fully labelled diagram describe Ellas utility maximizing combination of free time and consumption. (4 marks)

b. Due to the financial impact of the coronavirus on the gym, the owners of the gym have reduced Ellas wage to $30 per hour. Using the same diagram as used in part a show Ellas new utility maximizing combination of free time and spending on goods and services assuming that her hours of free time each day decrease to 12 hours. (4 marks)

c. On your diagram decompose the overall change in hours of free time in response to the wage decrease into the (i) income effect and (ii) substitution effect. You must use words as well as the diagram to explain the decomposition of the overall change. (7 marks)

Question 5 | [15 marks]

David works in a clothing factory. Currently, his firm pays him $40 per hour and he works 35 hours per week. Each hour he works he experiences disutility of effort from working valued at $7 per hour. In addition, should David lose his job the government will pay him an unemployment benefit of $23 per hour, for each hour he would otherwise work each week, for a maximum of 20 weeks. Prior to the coronavirus pandemic if David lost his job the expected duration of unemployment before he would find another job is 15 weeks.

a. Calculate Davids (i) employment rent per hour and his (ii) total employment rent. (3 marks)

b. With the advent of the coronavirus pandemic the economy has gone into recession causing Davids expected duration of unemployment to increase to 35 weeks. Furthermore, the dramatic increase in the expected duration of unemployment has resulted in psychological stress from unemployment valued at $3 per hour.

In the light of these developments re-calculate Davids (i) employment rent per hour (2 marks) and (ii) total employment rent (4 marks).

c. Describe the relationship between the size of the employment rent and (i) the expected duration of unemployment (ii) the size of the unemployment benefit per hour and (iii) the size of the psychological cost of unemployment per hour. (6 marks)

Question 6 | [30 marks]

Consider the example of Angela and Bruno discussed in The Economy textbook, Unit 5 Section 5.9 and Figure 5.9. In Figure 5.9 (reproduced below), points D and F are the outcomes before and after the introduction of a new law that limits Angelas work time to four hours a day, while also requiring a minimum pay of 4.5 bushels. Based on this information, answer the following questions:

The change from D to F is a Pareto improvement. Is this statement correct or false? Please discuss your answer making reference to the diagram. (3 marks)

The new outcome F is Pareto efficient. Is this statement correct or false? Please discuss your answer making reference to the diagram. (3 marks)

What is the maximum amount of grain per year that Angela would be willing to pay so that the law passed? Explain your answer using the diagram. (3 marks)

As a result of the new law, Bruno receives no economic rent. Is this statement correct or false? Please discuss your answer making reference to the diagram. (3 marks)

The outcome D is NOT Pareto efficient because Bruno obtained all economic rent and Angela obtained no rent. Is this statement correct or false? Please discuss your answer making reference to the diagram. (3 marks)

Now assume that the law has been amended so that a longer work day is permitted if both parties agree. The workers maintain the right for a 4-hour day if no agreement is reached. Thus, Bruno would like to negotiate a longer work day for Angela because he believes that there are many win-win possibilities available to them. Would you agree with him? If yes, explain your answer by using the concepts of joint surplus and the Pareto efficiency curve. Show all alternatives that could result in a better deal for both on the diagram. (5 marks)

Assume that Bruno and Angela make a deal. Discuss whether any potential new allocation resulted from the win-win agreement in part (f) would be fairer? (6 marks) (word limit 150). Evaluate the new allocation based on:

A substantive judgement of fairness

A procedural judgement of fairness

There are always trade-offs between efficiency and fairness. Discuss whether this statement is correct or false. Explain your answer. (4 marks) (word limit 100)