support@w4writers.com +44 7743 307695
Apr 20, 2024

Assignment Task

1. According to the theory covered in class, an optimal two-part tariff pricing scheme includes: 

  • A lump-sum entry fee that captures the surplus consumers’ would receive in its absence and under competitive conditions, and a price per unit equal to the marginal revenue.
  • A lump-sum entry fee that captures the surplus consumers’ would receive in its absence, and a price per unit equal to zero.
  • A lump-sum entry fee that captures the surplus consumers’ would receive in its absence and under competitive conditions, and a price per unit equal to the marginal cost.
  • A lump-sum entry fee that captures the deadweight loss that would emerge in its absence, and a price per unit equal to the marginal revenue.

2. According to the theory covered in class:

  • The models that were used to analyse markets with a homogenous product (i.e. the Cournot model, Stackelberg`s model and, Price Leadership model, and the cartel/monopoly model) cannot be adapted to study differentiated products with some modifications.
  • All markets with differentiated products can only be studied with the Monopolistic Competition Model. All other models covered in class are not suitable for differentiated products and it is not possible to make any modification to adapt them.
  • The models that were used to analyse markets with a homogenous product (i.e. the Cournot model, Stackelberg`s model and, Price Leadership model, and the cartel/monopoly model) can be used to analyse differentiated products without any modifications.
  • The models that were used to analyse markets with a homogenous product (i.e. the Cournot model, Stackelberg`s model and, Price Leadership model, and the cartel/monopoly model) can be adapted to study differentiated products with some modifications.

3. The Regional Playback Control (RPC) system is an international convention set by the DVD Copy Control Association in California to divide the world into six DVD-markets: 1. US and Canada, 2. Europe and Japan, 3. Asia, 4. Oceania and Latin America and 5. Africa, Russia and Eastern Europe. Economic theory suggests that with this convention: 

  • Price competition and trade among the above defined regions was encouraged.
  • The DVD consumers’ surplus became zero.
  • US film-distributors adhering to the program were able to significantly increase their profits.
  • economic inefficiency was encouraged.

4. Automobile manufacturers supplying the Australian market produce cars with very distinctive features. Assume that each company tries to maximise its profit given what the other car producers are doing and given the car designs. This situation:

  1. Could not be analysed with any existing oligopoly model because all oligopoly models assume product homogeneity.

  2. Could be analysed by deriving price response functions from demand curves that take into account imperfect substitution of different car types.

  3. Could be analyse with a standard Cournot model.

  4. Could only be analysed as a cartel solution, and no other existing oligopoly model allows for product heterogeneity.

5. Suppose that you have been hired as an external consultant by Bigger Union movie theatres to estimate the optimal discounts for different type of consumers. Some data has been provided to you. Based on several surveys, data collection and previous experience, the inverse demands for different groups of consumers are as follows: 

  • Demand by students: p=30-6y;
  • Demand senior citizens (i.e. those older than 65 years old): p=42-3y ;
  • Demand by people other than i and ii paying a “normal” ticket price: p=74-2y ;
  • where p is the ticket price, and is the quantity in thousands of tickets per year.

In addition, you know that Bigger Union has a contract with major US film distributors to play their movies. According to this contract, the distributors charge MC=6 $ per viewer, irrespective of which movie is played. This cost is considered to be the only relevant marginal cost.

The profit-maximising discount rate on the normal ticket price that applies to students is:

  • 24%
  • 40%
  • 55%
  • 18%

6. Under third-degree price discrimination, as the number of customer groups facing different prices increases, the market price outcome will approach: (1 points)

  1. The perfect competition outcome.

  2. The first-degree price discrimination outcome.

  3. The single-price monopoly outcome.

  4. The Bertrand competition outcome.

7. Asymmetric information may: (0.5 points)

  • Lead to missing markets.
  • Prevent economic transactions from taking place.
  • Lead to Pareto-inefficient outcomes.
  • All of the above. D

8. In the Akerlof`s Market for Lemons model as covered in class, transactions go missing whenever:)

  • The bidding price is below the minimum price that owners of gem cars are willing to take.
  • The bidding price is higher than the willingness to pay for lemon cars.
  • The bidding price is below the maximum willingness to pay for gem cars.
  • The bidding price is higher than the willingness to pay for gem cars.

9. According to the theory covered in class, the profitability of insurance against uncertain outcomes will depend on (select all that apply): (1 points)

  • The degree of risk aversion of the individuals.
  • The number of insurance companies in the market.
  • The number of insurees.
  • The amount of wealth of individuals.

10. John can buy a lottery ticket for $10 that gives him the chance of winning $1,000,000 with a 1% winning probability. If John is a risk-lover (as per the definition covered in class), then: (1 points)

  • He will decide to buy the ticket.
  • He will choose not to buy the lottery ticket.
  • He will only buy the lottery ticket if someone else pays him money to do so.
  • He will be indifferent between buying or not buying the ticket.

11. A conclusion of the asymmetric information tennis racquet eBay transaction case study developed in class was that: 

  • all racquets are likely to be fake.
  • a separating equilibrium could be restored with some of the tools that eBay uses, including money-back warranties and ratings defining the reputation of sellers.
  • a pooling equilibrium could be restored with some of the tools that eBay uses, including money-back warranties and ratings defining the reputation of sellers.
  • a separating equilibrium will likely take place, but with prices much higher than in markets that are an alternative to eBay.

12. Consider a pure-exchange general equilibrium model with two consumers, two goods and an initial endowment. Assuming that consumers have convex preferences, a Pareto improvement can be achieved through exchange:

  • As long as indifference curves associated with the endowment are tangent to each other on the Edgeworth box.
  • As long as indifference curves associated with the endowment are not tangent to each other on the Edgeworth box.
  • Only when one of the consumers has no endowment of one of the goods.
  • Only when the initial endowment is on the contract curve.

13. In a classical Arrow-Debreu general equilibrium model, Walras Law guarantees that: 

  • Optimal consumer choices with binding budget constraints will guarantee clearing of markets for all goods in the economy.
  • All budget constraints will always bind, and markets for all goods in the economy may or may not clear.
  • All markets for all goods in the economy will clear, and the consumers’ budget constraints may or may not bind.
  • None of the above.

14.The First Welfare Theorem states that:

  • An equilibrium satisfying Walras’ Law will exhaust all gains from trade.
  • An equilibrium satisfying Walras’ Law may be Pareto-efficient or Pareto-inefficient.
  • Budget constraints do not have to be always binding.
  • All of the above.

15. According to the welfare theory covered in the unit, which of the following statements is true?

  • A general-equilibrium Pareto-efficient outcome will always be welfare maximising, according to the First Welfare Theorem.
  • A general-equilibrium Pareto-efficient outcome may not be welfare maximising, due to lack of equity in the distribution of the resources of an economy.
  • A general-equilibrium Pareto-efficient outcome will always be welfare maximising, according to the Second Welfare Theorem.
  • A general-equilibrium Pareto-efficient outcome will always be welfare maximising, because all Pareto-efficient outcomes maximise welfare by definition.

16. The main outcome of the Condorcet Paradox is that:

  • In a multi-step voting agenda, the final outcome may depend on how the alternatives are presented to the voters.
  • In a multi-step voting agenda, the final outcome will always be unique.
  • Multi-step voting agendas can be manipulated if someone can convince voters to change their order of preferences for the choices.
  • In a multi-step voting agenda, the final outcome is not clearly define because if the voters are confused and none of them have a clear order of preference for the choices.

17. An externality can be defined as: 

  1. A cost not internalised by markets that affects consumers only.

  2. A cost not internalised by markets that affects consumers and/or producers.

  3. A benefit not internalised by markets that affects consumers only.

  4. A cost not internalised by markets that affects consumers and/or producers.

  5. A cost or benefit not internalised by markets that affects consumers and/or producers.

18. Varian (2014, Ch. 35, Section 1) discusses the effects of a tobacco smoking externality in a model that was also studied in class. In this model:

  1. Trading between money and smoke concentration in the house can potentially improve the utility of both room-mates. In line with Coase Theorem, for that to occur we need well-defined property rights (i.e. rules and punishments for not following the rules) and the initial allocation of rights to smoke (e.g. tradable permits that can be use to smoke) can be given to either the smoker or non-smoker. 

  2. Trading between money and smoke concentration in the house can potentially improve the utility of both room-mates. In line with Coase Theorem, for that to occur we need well-defined property rights (i.e. rules and punishments for not following the rules) and the initial allocation of rights to smoke (e.g. tradable permits that can be use to smoke) has to be given be given to the smoker (if they are given to the non-smoker, no trade would ever take place). 

  3. Trading between money and smoke concentration in the house can potentially improve the utility of both room-mates. In line with Coase Theorem, for that to occur we need well-defined property rights (i.e. rules and punishments for not following the rules) and the initial allocation of rights to smoke (e.g. tradable permits that can be use to smoke) has to be given be given to the non-smoker (if they are given to the smoker, no trade would ever take place). 

  4. Trading between money and smoke concentration in the house can potentially improve the utility of both room-mates. In line with Coase Theorem, for that to occur we need well-defined property rights (i.e. rules and punishments for not following the rules) and the addition of rights to smoke (e.g. tradable permits that can be use to smoke) that have to be purchased from a government authority. 

19. The high number of cars in Chaos City CBD generates a great deal of general public discontent. A practical policy solution leading to a reduced, socially desirable number of taxis that is consistent with Coase Theorem would be: (1 points)

  1. To establish that no car can drive in Chaos City CBD without a licence, then sell the licences for a price that will lead to the optimal number of cars in the CBD.
  2. To establish that no car can drive in Chaos City CBD without a licence, then issue the exact number of licences that are desired by the population and establish a criteria (work location, place of residence, dependants’ school location, age, etc.) to allocate all licences to drivers.
  3. To establish that no car can drive in Chaos City CBD without a licence, issue a number of licences, allow for trade of licences so that the residents affected by CBD traffic can buy back licences and take cars out of circulation in the CBD.
  4. To establish that no car can drive in Chaos City CBD without a licence, issue a number of licences, allow for trade of licences and then buy back (at the market price) the number of licences that are considered excess licences according to the preferences of Chaos City taxpayers. 

20. Reconsider the production externality model covered in the lecture and as a tutorial problem. Suppose that AussieSteel and AussieFish merge and, according to the new contract, AussieSteel holds S per cent of the shares and AussieFish holds the remaining (100-S) per cent of the shares. If the profit level is used as the basis of comparison: (1 points)

  1. Both firms could be potentially better-off, but only after the introduction of a trading scheme for contamination permits.

  2. Both firms could be potentially better-off, as the optimal joint profit after merging will be greater than the sum of optimal profits before the merger. Furthermore, under the new agreement no Pigouvian tax or trading scheme for contamination permits would be needed.

  3. Both firms cannot be simultaneously better-off after the merger, as the optimal joint profit after merging will be exactly the same as the sum of optimal profits before the merger.

  4. Both firms could be potentially better-off, but only after the introduction of a Pigouvian tax or a trading scheme for contamination permits.

  5. Both firms could be potentially better-off, but only after the introduction of a Pigouvian tax.

21. According to Inchauspe et al. (2018, pp. 82-83), in the global agenda negotiation game for reducing carbon-dioxide emissions: 

Reference

Inchauspe, J., Aguilera, R., Packey, D., Burns, K., & Trueck, S. (2018). The Insertion of Australia and WA in International Gas and Oil Markets . Bankwest Curtin Economics Centre. Available at: https://bcec.edu.au/publications/gas-and-oil-prospects/

  1. A cascade of unilateral national carbon policy implementation decisions will ultimately lead to full regulation of carbon emissions at global level.

  2. When a country implements a carbon policy, this country "wins" as it attracts more industrial production and the other countries "lose", meaning that full cooperation in the implementation of carbon policies will never occur.

  3. Unilateral carbon policy action by a country is always welcome, as it leads to reductions of global carbon emissions.

  4. Unilateral action by a country may be undesirable, because of the leakage hypothesis. That is, the economic activity facing the heaviest burden in the country may end up re-locating to a country in which they produce more carbon emissions than initially (for example, due to older technologies, different combination of input factors, or more relaxed carbon policies), raising the global level of carbon emissions as a net effect.

22.To provide public goods at different government levels, Australian authorities typically rely on tenders. The tender defines the terms and conditions for the provision of the public good, and the project is allocated to the best bidder from the private environment, often with the aid of some auction setting. 

Would bidders be subject to the cartel behaviour penalties defined in the citation to the Competition and Consumer Act, Part IV Div. 1 in the Lecture 3 set of slides?

  1. Cartel behaviour cannot apply to public goods because game theory demonstrates that public good bidders will never find incentive to cheat.

  2. Agreements between competitors to fix prices, divide markets, rig bids or restrict output are not concepts that could possibly apply to auction environments.

  3. Potentially, there could be agreements between bidders (competitors) to fix prices, divide markets, rig bids or restrict output.

  4. Cartel behaviour applies to all tenders for provision of public goods by definition, but only those cases that cannot be resolved by the tender authority go to court.

23. Consider the following provision of public good problem:

Citizen 1 initial budget: w1 = 80,000 $
Citizen 2 initial budget: w2 = 60,000 $
Cost of public good: C = 40,000
Citizen 1 Utility Function: U1(x1,g) = 3(x1) + 90,000g
Citizen 2 Utility Function: U2(x2, g) = 2(x2) + 60,000g
Notation: xi is the budget that citizen i spends on goods other than the public good; g is a public good indicator variable which takes on the value 1 when the public good is provided and zero otherwise.

Given this information, Citizen 2’s willingness to pay will be:

  1. 40,000$
  2. 20,000$
  3. 33,333.33$
  4. Equal to Consumer 1`s willingness to pay.

24. Consider the following provision of public good problem

Citizen 1 initial budget: w1 = 100,000 $
Citizen 2 initial budget: w2 = 80,000 $
Cost of public good: C = 60,000
Citizen 1 Utility Function: U1(x1,g) = 2(x1) + 120,000g
Citizen 2 Utility Function: U2(x2, g) = 2(x2) + 80,000g
Notation: xi is the budget that citizen i spends on goods other than the public good; g is a public good indicator variable which takes on the value 1 when the public good is provided and zero otherwise.

Given this information, the level of utility of citizen 2 when 1 pays and 2 free-rides will be (type it using two decimal places and no thousand separator, e.g. 200000.00):

25. In the problem presented in last question, you can conclude that:

  • (i) If the price of the public good is divided by two, each citizen would have to pay more than his/her reservation price; (ii) the provision of the public good increases the level of utility of the citizens when each pays half of the cost; (iii) becoming a free-rider provides advantages; (iv) irrespective of what the other citizen decides to do, each citizen has an economic incentive to not pay; (v) if there is no private agreement, the government could “force cooperation” by introducing a tax to collect the money and use this money to finance the public good.
  • (i) If the price of the public good is divided by two, each citizen would have to pay less than his/her reservation price; (ii) the provision of the public good increases the level of utility of the citizens when each pays half of the cost; (iii) becoming a free-rider provides advantages; (iv) irrespective of what the other citizen decides to do, each citizen has an economic incentive to not pay; (v) a private agreement will most likely not occur; (vi) if there was no private agreement, there is no reason why the government should intervene; forcing individuals to do something that they chose not to do cannot increase their utility.
  • (i) If the price of the public good is divided by two, each citizen would have to pay less than his/her reservation price; (ii) the provision of the public good increases the level of utility of the citizens when each pays half of the cost; (iii) becoming a free-rider provides advantages; (iv) irrespective of what the other citizen decides to do, each citizen has an economic incentive to not pay; (v) a private agreement will most likely not occur; (vi) if there was no private agreement, there is no reason why the government should intervene; forcing individuals to do something that they chose not to do cannot increase their utility.
  • (i) If the price of the public good is divided by two, each citizen would have to pay less than his/her reservation price; (ii) the provision of the public good increases the level of utility of the citizens when each pays half of the cost; (iii) becoming a free-rider does not provide any advantages; (iv) irrespective of what the other citizen decides to do, each citizen has an economic incentive to not pay; (v) a private agreement will most likely not occur; (vi) if there was no private agreement, there is no reason why the government should intervene; forcing individuals to do something that they chose not to do cannot increase their utility.
  • (i) If the price of the public good is divided by two, each citizen would have to pay less than his/her reservation price; (ii) the provision of the public good increases the level of utility of the citizens when each pays half of the cost; (iii) becoming a free-rider provides advantages; (iv) irrespective of what the other citizen decides to do, each citizen has an economic incentive to not pay; (v) a private agreement will most likely not occur; (vi) if there is no private agreement, the government could “force cooperation” by introducing a tax to collect the money and use this money to finance the public good.
  • (i) If the price of the public good is divided by two, each citizen would have to pay more than his/her reservation price; (ii) the provision of the public good would decrease the level of utility of the citizens when each pays half of the cost; (iii) becoming a free-rider provides has no clear advantages; (iv) irrespective of what the other citizen decides to do, each citizen has an economic incentive to not pay; (v) a private agreement will most likely not occur; (vi) if there was no private agreement, there is no reason why the government should intervene.
  • (i) If the price of the public good is divided by two, citizen would have to pay more than his/her reservation price; (ii) the provision of the public good would decrease the level of utility of the citizens when each pays half of the cost; (iii) becoming a free-rider gives Citizen 1 clear advantages but there is incentive for Citizen 2 to free-ride; (iv) irrespective of what the other citizen decides to do, each citizen has an economic incentive to not pay; (v) a private agreement will most likely not occur; (vi) if there was no private agreement, there is no reason why the government should intervene.

26. Which of the following statements applies to the public good coordination game in the picture below? 

  • (Not Contributing, Not Contributing) is the only Nash equilibrium of the game, due to existence of dominated strategies, exactly as in the Prisoners` Dilemma model. When both contribute the utility levels become much greater, pointing at increasing returns to scale for the public good, however this outcome will not be achieved by private actions alone. Government intervention will be needed to force cooperation.
  • Contributing towards the public good is a dominant strategy for both players. Either player can increase her utility by contributing -even when the other player does not contribute- meaning that the public good is highly needed. Also, when both contribute the utility levels become much greater, pointing at increasing returns to scale for the public good. (Contribute, Contribute) will be the only Nash equilibrium of the game.
  • This game has no dominant strategy for any player, but it has two Nash equilibria: full cooperation or no cooperation. No player finds incentive to contribute when the other player does not contribute. It may be possible to reach a private agreement to move from no cooperation to full cooperation in this game. If it does not happen, government intervention could force it.
  • Contributing towards the public good is a dominant strategy for both players, and the game has two Nash equilibria: full cooperation or no cooperation. Either player can increase her utility by contributing -even when the other player does not contribute- meaning that the public good is highly needed. Also, when both contribute the utility levels become much greater, pointing at increasing returns to scale for the public good.

27-Assume the following positive externality coordination game. A department of certain company employs workers A and B. The company has an internal training program that allocates up to 100 hours of training to the department. Initially, the manager decides to allocate n =35 training hours to A and (1- n )=65 hours are allocated to B. This decision is revised every week as follows: if one employee (say B) performs better than the other employee (A) at work, the manager allocates an extra hour to B and one less hour to A. The performance of each worker is measured with the functions B ( n ) and B ( n -1) represented on the diagram below.

  1. The initial decision by the manager to allocate more hours to B was inadequate, because although B was the more skilled worker, Employer A had more potential.

  2. The initial decision by the manager to allocate more hours to B was adequate, because B was the more skilled worker initially and hence had more potential.

  3. "The weak (Employee A) will become weaker over time."

  4. The initial decision by the manager to allocate more hours to B can be described as an adverse selection possibly caused by asymmetric information (not knowing enough about the potential of the workers).

  5. "The strong (Employee B) will become stronger over time."

  6. Both Employees A and B will end up with the same skill level.

28.To analyse attendance of events organised on Facebook.com, an economic coordination model is developed in Inchauspe (2021). According to this model (select all that apply): 

(Accessible through Curtin Library`s website.)

  1. All Facebook events should have zero attendance. The fact that some events are attended cannot be explained with the model in the paper.

  2. A fundamental disadvantage of the tool that Facebook uses to organise events is that, by default, the initial assumption is that nobody is attending the event (i.e. it starts with a counter of zero and invitees can join the event). A recommended setting to circumvent coordination traps is to start by assuming full attendance by default, and then give users the opportunity to decline.

  3. A trap of low, suboptimal attendance has likely affected most Facebook-organised events for which the "social participation constraint", and other assumptions in the paper, can be verified.

  4. A trap of low, suboptimal attendance has likely affected most Facebook-organised events. including those that exhibit a "social participation constraint", and those that do not.

  5. An event that is desirable to the participants under full-attendance will always be fully attended, irrespective of how the Facebook tool design.

  6. Facebook users developed a "social participation constraint" in response to failure by the Facebook event organisation tool to attract attendance.

29-Considering all the theory covered in this unit, you can conclude that free markets will be Pareto-efficient if, among other things, you assume that (select all that apply): (0.5 points)

  1. There are no monopolies or oligopolies.

  2. Cartels and other collusive agreements or anticompetitive behaviour do not occur.

  3. Public goods do not exist.

  4. Voting agendas are not manipulated.

  5. Externalities do not exist.

  6. Information is perfect, in the sense that every market participant knows everything there is to know about the economy and the future.

30. Conducting your own investigation, discuss and analyse ONE of the following issues (choose one only):

  • A financial market heavily affected by imperfect information. Identify a specific real-world financial market (e.g. insurance market or banking market in a specific location) as your case study. Then, carefully identify and explain the key problems arising from asymmetric information and uncertainty in this market. Support your analysis with evidence, including data. Analyse existing policies and discuss policy alternatives to improve economic efficiency. Support your analysis with data.
  • A negative externality. Find a real-world example of a negative externality policy. Present your case carefully explaining the key issues raised in the literature and evidence. Discuss policy alternatives for bringing a Pareto-improvements (drawing from the theory covered in class and solutions to similar cases that you may find in the literature). Compare your policy alternatives with the policy that was actually used. Conclude on the identification of advantages and disadvantages of each policy option.
  • A positive externality. Find a real-world example of a positive externality policy. Present your case carefully explaining the key issues raised in the literature and evidence. Discuss policy alternatives for bringing a Pareto-improvements (drawing from the theory covered in class and solutions to similar cases that you may find in the literature). Compare your policy alternatives with the policy that was actually used. Conclude on the identification of advantages and disadvantages of each policy option.
  • A public good case study. Identify a specific real-world case of a public good provided by government. Carefully present your case, explaining why the public good may be desirable, its sources of funding, alternatives uses of these funds, and the policy implementation design. In this process, identify areas of policy improvements, and discuss how similar issues have been addressed in other similar cases found in the literature. Conclude with your own policy recipe and recommendations.
Recent Post

Order this Assignment now

Total: GBP120

fables template