Write recommendations for government fiscal policy (specific spending and taxation changes) that you feel would be best for the Canadian economy using your understanding of the economics concepts taught in the course. Use the following guidelines as you write your recommendations:

Give consideration to the impact your decisions would have on each of the economic indicators. Your discussion might consider some of the following topics: government debt and the budget surplus or deficit; the impact of these recommendations on government services; how Canadians will benefit from the recommended policies in the short term and in the long term; the multiplier effect; any potential problems with your recommendations. These are just some suggestions. Your argument should discuss several ways that your ideas will impact the economy. The recommendations you discuss could include several of these areas but you can use any relevant course concepts to justify your recommendations.

Give an example of a market/industry where a negative externality in present.

a. What is the difference between the private, unregulated, market output (Q)/price (P) and the optimal, regulated, market output (Q)/price (P). Explain why/how this differencecomes about. Use and explain private cost, social cost, and external cost.

b. Explain the source of dead weight loss in such a market. Interpret this dead weight loss.

c. Provide two policy solutions to this problem. Use a command-and-control option and a market-based option.

QUESTION 1

The relentless drive towards big business in recent decades has seen markets become more concentrated and increasingly dominated by large producers. However, forces are at work that are undermining this dominance, and bringing more competition to markets. One of these forces is e-commerce.

1. Give THREE (3) examples of products that are particularly suitable for selling over the Internet and THREE (3) that are not. Explain your answer.
2. Provide TWO (2) justification why the Internet may work better for replacement buys than for new purchases.       
3. Explain how eBay can both increase competition across the economy and simultaneously acquire very substantial monopoly power.

Consider a market where inverse demand is given by P = 40 − Q, where Q is the total quantity produced. This market is served by two firms, F1 and F2, who each produce a homogeneous good at constant marginal cost c = $4. You are asked to analyze how market outcomes vary with industry conduct: that is, the way in which firms in the industry compete (or don’t). First assume that F1 and F2 engage in Bertrand competition. 1. (6 points) What will be the equilibrium price, and the profits for each firm? Next assume that F1 and F2 engage in perfect collusion: that is, they both agree to charge a common price P to maximize the sum of their profits. 2. (6 points) What price will the firms set, and what total quantity will be produced? Now assume instead that F1 and F2 engage in Cournot competition: that is, they compete by choosing quantities rather than prices. 3. (6 points) Suppose that F1 believes that F2 will produce a given quantity q2. Show, by analyzing F1’s profit-maximizing output choice, that F1’s best response is to produce the quantity q1 = 36−q2 2 . [Hint: For full credit, you should derive this result from the relevant optimality conditions; don’t just plug in to the formula from lecture.] 4. (6 points) Using the fact that in equilibrium F1 and F2 should both produce the same quantity, find the Nash equilibrium quantity q ∗ produced by each firm. Based on this, find the equilibrium market price. [Hint: in general, q ∗ = a−c 3 . You may use this formula to check your answer, but for full credit you should derive the result yourself.] Finally, suppose that each firm in this industry emits one ton of carbon per unit produced. The government is considering a carbon tax of $6 per ton, which will increase each firm’s effective marginal cost by $6, to a final marginal cost of c = $10 per unit produced. You are asked to analyze how this proposed carbon tax will impact consumer prices. 5. (10 points) What will be the new equilibrium price if F1 and F2 compete a la Bertrand? If F1 and F2 compete a la Cournot? If F1 and F2 are perfectly collusive? [Note: for this part, it is fine to use formulas given in lecture.] 6. (6 points) How does the change in price induced by the tax relate to the nature of competition in the market? Briefly discuss.

How does the change in price induced by the tax relate to the nature of competition in the market? Briefly discuss.

1. True or False: In a price-taker market, if a business operator produces inefficiently—and the cost of producing the good is maximized—the operator will be able to make at least a normal profit.

2. True or False: When the firms in the industry are just able to cover their cost of production, economic profit is zero. Therefore, if demand falls, causing prices to go down even a little bit, economic profits will be negative in the long run.

Consider a firm which produces according to the following production function by using labor and capital: f(l,k) = K^1/2 L^1/2

(a) Solve the cost minimization problem of this firm for the given wage rate, w and the rental rate of capital,v. Derive the long-run total cost function of the firm.

(b) Derive the short-run total cost, the short-run average cost, the short- run marginal cost function of the firm under the assumption that capital is the fixed input.

(c) What amount of capital minimizes the short-run total cost?

(d) Is there any relation between the short-run total cost function and the long-run total cost function at the capital level that you find in part (c).

(e) Suppose the wage rate of labor is 2 $, the rental rate of capital is 2 $ and fixed capital input, k ̄, is 2 units. What amount of output minimizes short-run average cost? What is the minimum possible short-run average cost?

(f) What is the short-run marginal cost at the quantity level that you find in part (e)? How is it related to minimum possible short-run average cost?

(g) Find short-run firm supply as a function of input prices, w and v, and output price, p.

(h) Solve the profit maximization of the firm for a given price p, and derive the supply function. (i) Derive the profit function of the firm. (j) Decide whether the production function exhibits constant, increasing or decreasing returns to scale.

i. Outline some of the distinctive features of bond markets, including the range of issuers and their motivations. ii. Explain the principal characteristics of typical bond instruments such as face value, maturity, coupon, and market price, in the context of a specific example (either a numerical example of your own construction, or from real-world financial data). iii. Explain and illustrate using a numerical example how we may price a bond with periodic fixed coupon payments as well as terminal principal payment over a fixed number of periods.

Write two-page paper including your list of sources about your favorite economic concept and its application in everyday life

Crowdsourcing is a set of principles, processes, and platforms to get things done that includes putting out an open call to a group and managing the responses and output. Crowdsourcing can be like outsourcing in a bigger way because instead of contracting to one known entity, you are putting a call out to a bigger group, often a global online community, to either get many to participate or to find the person you need by casting a much wider net. There are crowdsourcing companies that perform specific types of work such as translations (Gengo, Smarting), transcription (CastingWords), even design and marketing work (99Designs, CrowdSpring). Each company operates differently. In the case of transcription or translation, you give work to a company like CastingWords or Gengo, and they, in turn, put the job out to their "crowd" of workers from around the world. They are like the middleman to helping you get the work done, and their distributed workforce can be less costly to them so they pass on their savings to your organization.

1. Check out a few of these crowdsourcing companies. What are your thoughts? Do you think they are effective? Why or why not?

2. Which type of leadership is most likely to include the use of crowdsourcing?

3. Can you think of other areas in businesses that can benefit from the use of crowdsourcing? What are they?

How do store closures affect wages and spending? How do these factors affect employment? How do these factors affect the demand curve? Will these factors cause the demand curve to move or shift? Explain.

Social Media Exercise #12

Casper makes and sells memory foam mattresses through its Web site. Unlike many mattress retailers, Casper sells just one mattress, though in all available sizes, including one for dogs. It prices the mattresses below that of most brick-and-mortar mattress stores and offers a 100-day trial period to help nudge customers into clicking the "buy" button. The young company doesn't spend a lot on advertising, so building brand recognition and preference is key to achieving sales. One way the firm does so is through its @Casper Twitter account, which tweets in the persona of a Casper mattress, especially late at night when those having trouble sleeping are likely to be perusing social media. The tweets are often amusing and timely one-liners about sleep, though followers are likely to find humorous memes, GIFs, and videos, as well as links to information about sleep and insomnia in the timeline.

1. Go to Twitter.com and search for @Caspers and look through recent tweets in the account's timeline. How is Casper using humor and pop culture to build brand loyalty?

2. What is the role of humor in Casper's tweet? In what ways does humor move customers closer to making a purchase, if at all?

Consider a market with two identical firms, Firm A and Firm B. The market demand is ? = 20−1/2?, where ? = ?a +?b . The cost conditions are ??a = ??b = 16.

a) Assume this market has a Stackelberg leader, Firm A. Solve for the quantity, price and profit for each firm. Explain your calculations.

b) How does this compare to the Cournot-Nash equilibrium quantity, price and profit? Explain your calculations.

c) Present the Stackelberg and Cournot equilibrium output using a diagram.

d) The crude oil market can be described as a Nash-Cournot market, in which Saudi Arabia acts as Stackelberg leader. Do you agree with this statement?

The small open economy of Hundred Acre Wood has a fixed exchange rate and is initially in short-run equilibrium. An outbreak of COVID-19 occurs and as a result money demand rises AND autonomous consumption falls. Suppose policy makers would like to keep fluctuations in the unemployment rate as small as possible, this implies the best policy reaction would be to:

a) increase the money supply (only)

b) Increase taxes (only)

c) Increase the money supply, cut taxes and cut government spending on goods and services

d) cut government spending on goods and services and increases taxes (ONLY)

e) Decrease the money supply, cut taxes, and cut government spending on goods and services

f) Cut government spending on goods and services (only)

g) Decrease the money supply (only)

g) INcrease the money supply, increase taxes and increase government spending on goods and services

h) INcrease government spending on goods and services and/or cut taxes (only)

i) Increase government spending on goods and services; and revalue the fixed exchange rate

j) Cut taxes and revalue the fixed exchange rate

k) Decrease the money supply, increase taxes government spending on goods and services