BUSS1040 Essay - Grade: D PDF

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Essay for assignment in 2020...

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1a. Providing an incentive to attend school will decrease the market supply of child labour, as children are less willing to work at any given price point. Figure one demonstrates supply shifting leftward from S to S 1 as a result of the introduction of a reward to attend school. The decrease in supply lifts the price of wages to P1 , while the quantity demanded by firms decreases to Q 1 . Introducing a reward for school attendance decreases supply, increasing wage prices and reducing the quantity of child labour from equilibrium output.

1b. Imposing fines on employers using child labour will cause market demand to shift left as employers are less willing to employ children at any given price point. Figure two demonstrates demand shifting leftward to D 1 as a result of the introduction of fines. The decrease in demand reduces the price of wages from P to P1 , while the quantity supplied by children decreases from Q to

Q 1 . Introducing a fine for child labour decreases demand, reducing the price of wages and reduces the quantity of child labour.

2a. The elasticity of demand impacts the effectiveness of a reward for children attending school. The more elastic demand is, the more effective the implementation of rewards is at reducing the quantity of child labour in the market. Figure three displays perfectly inelastic demand for labour ( D ), with the imposition of a reward for school attendance having no impact on the quantity of child labour demanded by firms, instead, the price of wages increases from P to P1 . Whereas, in figure one, with more elastic demand, the quantity reduces from Q to Q 1 , making the introduction of the reward more effective, as it moved the equilibrium closer to the socially acceptable level.

2b. The elasticity of supply impacts the effectiveness of a fine on firms using child labour. The more elastic supply is, the more effective the implementation of fines are at reducing the quantity of child labour in the market. Figure four demonstrates perfectly inelastic supply of labour ( S ). As a result of the imposition of the fine, there’s no impact on the quantity of child labour demanded by firms. However, the price of wages decreases to P1 . Whereas, in figure two, with more elastic supply, the quantity reduces from Q to to the socially acceptable level.

Q 1 , making the fine more effective, as the output moved closer

3a. Per-unit tax on sellers.

3b. A per-unit tax on textiles reduces output in the market, increasing prices and lowering the quantity demanded by consumers. Figure five demonstrates the negative externality associated with textile production and consumption, as the market only takes into account the marginal private cost rather than the marginal social cost of pollution. The imposition of a per-unit tax causes a leftward supply shift, bringing it closer to the socially efficient level of production. Figure six demonstrates a per-unit tax (equal to the vertical distance between supply curves), causing a leftward shift in supply, reducing the price from P to P1 and lowering the quantity demanded from Q to Q 1 . The tax creates a deadweight loss equal to the green shaded area, as there’s a loss of production when the market is not operating at the privately efficient equilibrium.

4a. Dominant strategies and Nash Equilibrium. Firms carry out strategies where they are better off regardless of their opponent’s decision, meaning there is no incentive to change.

4b. FIRM TWO Pollute FIRM ONE

Change

Pollute

(P, P)

(M, O)

Change

(O, M)

(N, N)

4c. The equilibrium outcome is that both firms pollute, (P, P).

4d. Firm one and two’s dominant strategy is to pollute. A dominant strategy is a course of action that’s better than another course of action, no matter the actions of the opponent. They receive a minimum pay-off “P” and a maximum pay off “M”, which is greater than the pay-off “O” if they change and their opponent pollutes. This presents a dominant strategy Nash equilibrium, with a prisoners dilemma.

Appendix

Figure one: rewards for children.

Figure two: fine for child labour.

Figure three: inelastic demand - reward for children.

Figure four: inelastic supply - fine for employers.

Figure five: negative externality.

Figure six: tax on producers....