Micro and Macro Economics - Assignment Example

Micro and Macro Economics Q Diagram A Diagram B In diagram A demand curve D1 and D1’are inelastic (as evident from the slope) and diagram Bhas inelastic demand curves with the same intercept. It is clear that P1’ is higher than P1 which shows that elastic demand curve leads to a higher wage and supply curve can be kept constant at QL’ through negotiation and hence it is assumed to be perfectly inelastic under an extreme situation. Q. 2 Pure Union Wage Advantage: [(New Union Wage – Old Union Wage) / Old Union Wage]*100 [(20-15)/15]*100= 33.33% Spillover Effect: Spillover effect is refers to the decrease in the wages of the non-union company. Generally after any organization increase wages then simultaneous they used to reduce the number of employee to maintain the balance in the profitability. So the jobless workers used to join the companies where there is no existence of the union. As the number of employee increased in those nonunion companies, salary/wages used to get reduce. In this case the spillover effect is [($20-$10)/10]*100= 100% Estimated Union Advantage with the Spill-Over Effect: The revised salary of the nonunion company is $10 where as new salary in the Union based company is $20. Although the spillover growth is showing a value of 100% growth but in actual term, growth in the wages in the union based company is 33.33%. Q.3 Increase at wages in Firm B: The increase in the wages of firm B is known as threat effect. Generally companies where no union is present used to take this way to minimize the possibility of development of concept of union controlled labor system. Generally the increase in wages is lesser in this companies compared to that of the unionized firms. As an example, in this example the rate of increase in the wage for firm A is 50% ($20 to $30) which is unionized whereas for B it is 25%. ($20 to $ 25) Union Advantage: In firm A, the growth in wages are [($30-$20)/$20]*100=50%; whereas for firm b, which is a non-union firm growth in wages are: [($25-$20)/$25]*100= 20%. There is a clear difference of 5% in increase of wages between union and nonunion firm. The Surplus Lost: The small triangle area is each graph is the surplus lost. Q. 4 Prevailing Wage Rule: Prevailing Wage can be defined as hourly wage system, usual added benefit and structured overtime compensation paid to the majority of the people belonging to working group within a particular area. Generally the concept of Prevailing wages is now a customary for each employment and profession employed in the routine of public workalong with by the State Subdivisions of Labor or their equivalents. The rule is made by the regulatory agencies in each country. The concept of Prevailing wages was first established soon after the Civil War when Congress implemented the National Eight Hour Day law. In the USA, generally the construction workers during that phase were paid based on their daily attendance rather than total working hour. Mahalia (2008) in his review has mentioned that the formation of an eight hour day deprived of a decline of the daily salary rate can properly incentivized and encourage the public works contractors to increase the competence and efficiency of their workforce rather than the span of their day to complete their projects on time. (Mahalia) Q.5 Cost and Benefit of Voluntary Army: One of the main costs associated with the voluntary army service is the salary of the people who will join the force. At the earlier stage in many countries, like USA and others the government used to force the young group aged between 20-24 years to serve in the ary for a certain period of time. But later on economists have proven the fact that if the government is ready to provide higher salary and other additional benefits to the army personnel then more people will join the army service. The cost therefore will increase automatically. The main advantages of this voluntary army is the people associated with this service will do each work willfully and more effectively so to complete a set of work one need not increase the time span, rather putting some effective people in place can solve the problem more easily.(Mulligan) Q.6 Income tax can increase hours worked: Generally increase in the income tax is a clear indication that the workers are earning more compare to the past. If any individual is not earning more than by no means he or she can pay high amount of tax. In recent times, after the implementation of fixed wage for 8 hours and also the implementation of overtime etc. there is lots of opportunity for the workers to earn more. Generally more tax means more earning. In present rules, more earning is only possible when worker is serving overtime in the spot. So the number of working hours is also increasing for each individual. So, in any country if the rate of wages is not changing drastically over the years but the volume of taxes is continuously increasing then it is very clear that workers are earning more by working more time in their job. (CBO). Q. 7 If the national min wage is raised form level one to two the new level of employment shifts from Eq to E21. Eq was the previous preferred level of employment of the monopsonist. He is forced to employ at E21 (lower level) since the min wage level has risen above the MRPL level (Marginal Revenue with National Min Wage. References Congressional Budget Office. The Effects of a Minimum-Wage Increase on Employment and Family Income. 2014. Web; available at accessed on 8.6.2014 Mahalia, Nooshin. Prevailing wages and government contracting costs. Economic Policy Institute: Report. 2008. Web; available at accessed on 8.6.2014 Mulligan, B. Casey. Ideas, Costs and the All-Volunteer Army. The New York Times. 2014. Web; available at accessed on 8.6.2014 Read More