Income/Substitution effects

What is the difference between the Uncompensated (or Marshallian) demand, and the Compensated (or Hicksian) demand. Use whatever method, discuss the relative slope of the two demand curves for an inferior good.

2. Explain expectancy theory. (min 300 words)

1. Explain how improving job characteristics increases work motivation (min 300 words)

BROWNSVILLE, Tex., May 9—The 35 women who sort and box shrimp at TexMex Cold Storage Inc. are quick with their hands. With the help of machines, they can grade and package for freezing about 6,000 pounds of shrimp an hour. Their base pay is $2.30 an hour; their take‐home pay: $2.12 an hour. The 160 women who peel and devein shrimp at Camarones Selectos S.A., just across the border in Matamoros, Mexico, are also quick with their hands. Without machines, they can remove the shells and back veins from about 2,000 pounds of shrimp an hour. Their hale pay: 99 cents an hour: their take‐ home pay: 65 cents an hour. It is that basic disparity in wages that both lures Mexican workers into the United States and propels United States labor intensive industries into Mexico. United States labor union officials charge that both movements are costing United States workers jobs at a time when unemployment rates remain high. Hundreds of United States companies have closed factories in other parts of the country over the last decade and set up new plants along the border to take advantage of low labor costs on the Mexican side and abundant minimum‐wage labor on the United States side. The border, in fact, has become an open sore in the Carter Administration's efforts to put Americans back to work, formulate a new immigration police and deal with pressures for trade embargoes. Although many companies have simply moved their labor intensive jobs to such places as South Korea. Taiwan and Hong Kong. American union officials have focused much of their attention on Mexican workers, saying that they in particular are stripping jobs away from American workers. But a look at the shrimp industry around Brownsville, which calls itself “Shrimp Capital of the World,” shows a different picture. Virtually all the jobs requiring labor are performed by men and women of Mexican origin. Some are United States citizens. Many are Mexican citizens living legally on this side of the border. Some are Mexican citizens who live in Mexico and commute to jobs here or work in factories set up in Mexico by United States companies. Shrimp boat owners and shrimp company processors contend that they simply cannot find many United States citizens who are willing to work at jobs, which are often part time, for wages at the Federal minimum of $2.30 an hour or slightly higher. But for the most labor‐intensive chores of peeling and deveining shrimp, processors avoid even United States minimum wages by trucking their shrimp across the border into Mexico. Wages of 99 cents an hour seem paltry by United standards, but they are above average for workers in Mexico. Americans and Mexicans who run processing plants, as well as a variety of other factories on the Mexican side of the border, contend that these plants actually save jobs in the United States. Without them, they contend, many American companies would be forced to move their entire operation to foreign soil in order to remain competitive. To illustrate how this works, one can follow the circuitous path of a load of shrimp caught the other day in the Gulf of Mexico. With a permit that costs $2,006 a year, United States shrimp boats can net shrimp in Mexican waters. The boats have three‐man crews of a captain, rigman and header. Many of the rig men are Mexican‐ Americans. Most of the headers, who remove the heads from shrimp and clean the boats, are Mexicans. Page 4 of 5 Shrimp Processor's View Lawrence Touchet, manager of Gulf Shrimp Processors, hires 50 to 60 Mexicans in the peak season to unload the boats, ice the shrimp and load them onto trucks. “I don't care how many people are supposed to be out of work, you just can't get Americans to do this work,” he said. The shrimp are then trucked to TexMex Cold Storage for sorting, sizing, boxing and freezing. Ed Walker, the company's production manager, agrees with Mr. Tochet. “What with welfare, food, stamps, unemployment checks and so on, people don't want to work over here,” he said. The 35 women on his sorting and packaging line work odd hours, depending on the amount of shrimp caught. All of them are of Mexican origin, and about a dozen are Mexican citizens holding United States work permits. If the shrimp buyer wants his shrimp shelled and deveined, he might get in touch with Robert and Michael Reynolds, a father and son, who run a trucking company out of Brownsville. Their trucks pick up the frozen boxes of shrimp and carry them across the border bridge into Matamoros to Camarones Selectos, which they also own and operate. There, the shrimp are unloaded and thawed, then placed on large stainless steel tables where 160 women remove the shells and veins at a rate of eight shrimp a minute. The women, all Mexican citizens, work eight hours a day, five or six days a week. They are paid 175 pesos a day, or $7.95 at the current exchange rate. That figure includes most benefits. The cleaned shrimp are then bagged and trucked back across the border into Brownsville. Large numbers of them then go to a breading plant that also employs hundreds of Mexican‐American and Mexican women. After breading, the shrimp are frozen again and packaged. The label on the package most often reads, “Product of U.S.A.” Sometimes the shrimp travel a route that appears to have been choreographed by Mack Sennett. For example, shrimp caught by Mexican shrimp boats out of Tampico, are trucked north into the United States for sorting, freezing and storage in Brownsville. But if the buyer wants them cleaned, they are loaded back onto trucks and carried back across the border to Matamoros. Then they are trucked back across the border into the United States for final packaging. Again, the label most often reads, “Product of U.S.A.”

Q1. How is the marginal product of the last shrimp peeler hired in the U. S. firm, different from the marginal product of the last shrimp peeler hired in the firms on the Mexican side of the border? Justify your answer with the evidence given in the article

Q2. Illustrate any example from your company/firm/work experience where the company’s management has taken similar measures to optimize its resources. (Construction company point of view)

In economics, find one real-life example for each of the following:

- Firms competing over prices
- Firms competing over quantities

For each example, describe the industry, strategic interaction, give the names of firms or the industry. Provide information that makes it clear that indeed we have price (or quantity) competition.

You are on the town financial committee. Would you propose sales tax,
social security tax of payroll or progressive tax? Explain.

a. Suppose you are asked to serve on your state commission to revise the tax
system of the state. If you had to choose among a social security type of
payroll tax, a progressive income tax, a property tax, or a sales tax, which
one would you choose? Why?

You and have applied for and successful won a job as senior policy analyst for the Government of Canada (Privy Council) and you have been well trained to handle all aspects of the job. You will be the “go to person” for the Prime Minister on ways to make the economy run more efficiently and fairly, especially from a social policy perspective. As this is a big job, you have hired a team to help find solutions to the social problems facing the country. You get your first call from the Prime Minister and you are asked to evaluate pressing issues facing the economy and country as a whole. You have been asked to explore four key issues and to shed some light on them from a social policy perspective

For the US export subsidy program: Assuming an export subsidy is paid on a per unit basis for products sold outside of the US, other things equal, we would expect that

a) expected price of product in US would: Increase, Decrease, It Depends

b) expected quantity produced in US would: Increase, Decrease, It Depends

c) expected price of product outside of US would: Increase, Decrease, It Depends

d) expected quantity sold outside of US would: Increase, Decrease, It Depends

For the US target price program: Assuming the target price is set above the expected market price, other things equal, we would expect that

a) expected price received by farmers would: Increase, Decrease, It Depends

b) expected quantity produced by farmers would: Increase, Decrease, It Depends

c) expected price paid by consumers would: Increase, Decrease, It Depends

d) expected quantity bought by consumers would: Increase, Decrease, It Depends

e) the target price program is “market oriented”: Yes, No, It Depends

f) Explain your rationale for your answer to (e) above.

What's so paradoxical about the equilibrium outcome of the Bertrand competition? Explain.

Central Bank Balance Sheet

Assets Liabilities

Foreign assets $1,000 Deposits held by private banks $500

Domestic assets $1,500 Currency in circulation $2,000

Please write the new balance sheet if

1. The bank sells $100 worth of foreign bonds for domestic currency.  ​​​​​​​

2. The bank carries out a sterilized transaction by selling $100 of foreign assets ​​​​​​​

3. What should the bank do if its intent were to acquire more foreign assets but keep the money supply constant? How would the balance sheet change?

1. Suppose a company has a forklift but is considering purchasing a new electric lift truck that would cost $230000 and has operating cost of $25000 in the first year. For the remaining years, operating costs increase each year by 15% over the previous year’s operating costs. It loses 12% of its value every year from the previous year’s salvage value. The lift truck has a maximum life of 5 years. The firm’s required rate of return is 5%. Find the economic service life of this new machine.

1. Two types of customers make up the market for Armoyas. There are 100 type A customers, each of whom is willing to pay up to $10 for an Armoya. There are 50 type B customers, each willing to pay up to $8 for an Armoya. No customer wishes to buy more than a single Armoya. The monopolist cannot differentiate between the types of customer. The average and marginal cost of production is constant at $6/Armoya.

a)What is the selling price of the good, and how much profit does the monopolist make?

b) The monopolist is offered the opportunity to advertise Armoyas at a cost of $80. The advertisement is predicted to attract another 100 type B customers. Will the advertisement be placed? What is the selling price of the good, and how much profit does the monopolist make?

c) Suppose the advertisement attracts no new customers, but raises the price all existing customers are willing to pay by $1. Will the advertisement be placed? What is the selling price of the good, and how much profit does the monopolist make?