Economics

ECON 306

Quiz 3

Spring 2017

12% of total grade, each question worth 2 points

Directions & Information:

· This Quiz is being given on the honor system

· You will have 90 minutes to complete the Quiz

· YOU SHOULD OPEN THE EXAM AND THEN TAKE IT IMMEDITALLY, PLEASE DO NOT OPEN IT, READ IT, THEN TAKE THE EXAM AT A LATER TIME.

· The Quiz is closed book and closed note, but for below

· There are 6 questions on the exam and each one has the same weight for grading purposes

· Please take the Quiz all in one sitting

· You may use a calculator

· You may use one sheet of 8.5x11” (or A4) paper with anything written on it that you want, both sides

· All answers should be supported by economic analysis and reasoning, please avoid general speculation, political positions or personal experiences when addressing the economics of your answers

· The Quiz is due back to the assignment folder my midnight on Sunday April 23, 2017

· I will provide annotated answers to the questions t

· PLS PUT YOUR NAME ON EACH SHEET OF THE EXAM !!!!

· PUT YOUR ANSWERS IN BOLD FONT !!!!!!!

Questions:

1. Assume that you are a profit maximizing monopolist in a very narrow niche of the tech industry, you dominate your sector. The new Trump administration passes a tax bill which substantially increases your corporate taxes. What is your business reaction in order to maintain maximum profits?

2. Wage differences are a natural and inevitable consequence of differences in both human capital but other factors as well: age, experience, gender, ethnicity, immigrant status, etc. There are thousands of studies which have been devoted to explaining wage/salary/benefit differentials. Please explain why these differences in wages might exist and what a formal case of discrimination would look like.

3. The Trump Administration has made the argument that the EPA is too onerous and agency and that its many many regulations are bad for business, they are inefficient and cost too much, thereby choking of both productivity and employment. Certainly there is some truth to the case that the US economy could do with a bit less regulation. Having said that please explain the case for the regulation of negative externalities: provide a definition, a solution and an example of a negative externality.

4. The market of human talent (AKA: Labor Market) is very peculiar for a number of reasons. Not alone in these peculiarities is the precise nature of the demand for labor, which is not done in its own right. Firms only will hire people to the extent that they have a market for their goods and services. Please explain the following: A) the nature and dynamics of the derived demand for labor and B) firms will hire labor of different qualities and characteristics up until what equilibrium conditions are met?

5. Oligopolistic industries sell very similar yet differentiated products and services. These industries have high barriers to entry, large fixed costs and (typically) expensive products. Oddly, at first glance, in a number of these industries like cars, similar models cost about the same amount of money and firms go to great lengths to compete on non-price characteristics: product features, reliability, financing etc. Why is there not more price competition in these industries?

6. Perfect competition is often held up an ‘ideal’ market structure. But why? What are the economic results of competitive industries which makes them so desirable to economists and the benchmark against which other structures are measured?