IMPORTANT INFORMATION: READ BEFORE YOU START

SUBMISSION

.    The assignment must be submitted via Turnitin by 11:55 pm Friday, September 29, 2023. The submission link is available under the ‘Assessment Tasks’ tab on iLearn.

.    No extensions will be granted except for the cases where an application for Special

Consideration has been approved. For further details, see theUniversity’s Special Consideration page.

.    Unless a Special Consideration request has been submitted and approved, a 5% penalty (of the total possible mark) will be applied each day a written assessment is not submitted, up until the 7th day (including weekends). After the 7th day, a grade of ‘0’ will be awarded

even if the assessment is submitted. Submission time for all written assessments is set at

11.55 pm. A 1-hour grace period is provided to students who experience a technical concern.

.    Re-submissions are allowed until the deadline. After the deadline, no re-submissions are allowed under any circumstances.

.    Note that Turnitin will compare your submission against others’ as well as internet sources  including so-called ‘homework help’ websites. The originality report will be made available to you after the deadline.

DOCUMENT PREPARATION

.    Prepare your answers in one document using word processing software (e.g., Microsoft   Word). Hand-written answers (except for the diagrams and associated labels) will not be marked.

o All Macquarie University students have been automatically granted a full Microsoft 365 license. Clickherefor more information on how to download Microsoft 365.

.    Do not add a cover page to your assignment or repeat the text of the questions in your

submissions. Simply answer questions in order, denoting Q1, Q2, Q3… etc and their sub- parts a, b, c, ...etc.

.    Written answers should not exceed the maximum word limit stated in each question. Any words written exceeding the limit will not be assessed.

o Note that this is a maximum word limit, you may answer the question in fewer words if desired. Correct concise answers using a word count less than the

maximum can still achieve full marks.

.    Some questions require diagram illustration. Diagrams can be electronically drawn or hand- drawn and must be inserted into your answer document.

o Applications for electronically drawn economic models include Microsoft Word and Google Drawings.

o One way to insert a hand-drawn diagram is to take a photo of the diagram hand-

drawn on paper, send it to your computer via email, copy it into your document, and then crop as required.

.     Save your answer document in .docx or .pdf format.

o For Mac users: Do not submit a .pages file. Turnitin cannot read it, hence it cannot be assessed.

.    Revise your discussions before submission to enhance brevity and clarity. Please indicate the word count at the end of your answer to each of the questions to which a word limit applies.

.    After you submit you should double-check on Turnitin whether the document was properly uploaded and that all your diagrams are visible and formatted correctly. If you see any issues, you should resubmit before the deadline.

REFERENCING

.    There is no need to cite the textbook. This is because all your answers will need to draw upon concepts and frameworks from the textbook, which is the primary point of the

assignment.

.    There is also no need to cite the articles linked in the assignment. Again, your answers will need to draw upon these resources.

.    Note that the information from the textbook, lecture notes, tutorial questions and articles    linked in the assignment should be enough to address all questions. Therefore, you are not expected to incorporate any additional sources in your answers.

o If you do use other sources, you should use in-text citations and include the full references at the end of each question. For those who are not familiar with referencing,start here.

UNACCEPTABLE ACADEMIC ACTIVITIES

.    MQ course material is the intellectual property of the University, which includes this

assignment document. Course materials must not be uploaded to any websites or shared with any people outside the University without the permission of the University. Doing so is likely to result in copyright infringement and may initiate the student disciplinary

procedure.

.    Recall “what is okay” and “what is not okay” from the Academic Integrity Module.

Unacceptable academic activities include but are not limited to, contract cheating, collusion, plagiarism, and self-plagiarism. Details about academic integrity can be found here:MQ academic honesty policy.

. This is an individual assignment. Writing answers together is not authorised and hence is categorised as collusion. You may discuss this with other students at the preparatory stage. However, the final version of the assignment should be written in your own words.

MARKING

.     A detailed rubric is provided on the last page.

.    Given the size of the unit, the entire marking process will take around four weeks. There will be an announcement on iLearn when the marks are released.

Question 1  | [12 marks]

Download the spreadsheet data that was used to create Figure 1.2 in your textbook The

Economy. You can download the spreadsheet data by clicking on the xlsx link here:

https://jackblun.github.io/Globalinc/

Consider the following three countries: Zambia, Spain and Japan.

a. For each one calculate the rich to poor ratio in 1980, 1990 and 2014 (6 marks).

b. Describe the differences in the rich to poor ratio between countries revealed by your calculations. (3 marks)

c. Describe the changes in the rich to poor ratio over time for each country. (3 marks)

Question 2  | [10 marks]

Consider the example of Greta and Carlos discussed in The Economy textbook Unit 1    Section 1.8 and Figure 1.9a and 1.9b. Assume the market price is now 1 tonne of wheat can be traded for 45 apples. Greta proposes a trade of 15 tonnes of wheat with Carlos.

a. What would Greta and Carlos have available to consume of both goods if the trade goes ahead? (5 marks)

b. Would both Carlos and Greta be better off after the trade? Explain. (5 marks)

Question 3  | [15 marks]

Suppose the price of Solar Panel (Ps) is $40 and the price of Coal (Pc) is $20 and a

representative generator in the power sector has two types of technologies available with a goal to produce one MWh of electricity:

a. Calculate the production costs required for the two types of technology. Which technology would a firm choose? (2 marks)

b. Write down the equation of the isocost line for each technology. Make S the subject of the equation. (2 marks)

c. Draw the two isocosts on a diagram. Indicate Technologies A and B and the relative input price. (2 marks)

d. Suppose the price of coal increases to $30 per unit and the price of solar panel decreases to $15 per unit. Calculate the new production costs for the two types of technology. Which technology would a firm choose? (2 marks)

e. Write down the equation of the isocost line for each technology after the change in the relative input price ratio. Make S the subject of the equation. (2 marks)

f. Draw the new isocosts on the same diagram and indicate the relative input price ratio. (2 marks)

g. Write down the equation to calculate the innovation rent. How much is the innovation rent? (3 marks)

Question 4  | [15 marks]

Using the model developed in The Economy Unit 3, Section 3.7, consider Jenny who is

working at a large fossil fuel-based power plant in NSW. Prior to the energy crisis she had been receiving a wage (w) of $50 per hour.

Assume that Jenny’s spending on goods and services cannot exceed her earnings per day. Maximum consumption (c) per day is:

c = w(24 – t)    where t = hours of free time per day.

Your answers must include both a diagram and words to clearly explain your

diagram. In addition, your diagram must be fully labelled and therefore you must label both axes, correctly determine the vertical axis and horizontal axis intercepts, label the slope of

the budget constraint and show the optimal amount of free time and consumption associated with it.

a. Initially when facing w = $50 per hour Jenny chooses to work 8 hours per day and have 16 hours of free time per day. Using a fully labelled diagram describe Jenny’s utility maximizing combination of free time and consumption. (4 marks)

b. Due to the financial impact of the energy crisis on the energy sector and the implementation of climate change policies, the owners of the fossil fuel-based plants have reduced Jenny’s wage to $30 per hour. Using the same diagram as used in part “a” show  Jenny’s new utility maximizing combination of free time and spending on goods and services assuming that her hours of free time each day decrease to 12 hours. (4 marks)

c. On your diagram decompose the overall change in hours of free time in response to the  wage decrease into the (i) income effect and (ii) substitution effect. You must use words as well as the diagram to explain the decomposition of the overall change. (7 marks)

Question 5  | [15 marks]

Sam works in a car manufacturing company. Currently, his firm pays him $50 per hour and he works 35 hours per week. Each hour he works he experiences disutility of effort from working valued at $8 per hour. In addition, should Sam lose his job the government will pay  him an unemployment benefit of $25 per hour, for each hour he would otherwise work each  week, for a maximum of 20 weeks. Prior to the energy crisis if Sam lost his job the expected duration of unemployment before he would find another job is 15 weeks.

a. Calculate Sam’s (i) employment rent per hour and his (ii) total employment rent. (3 marks)

b. With the advent of the energy crisis and the increase in the interest rate by the Central Bank, the economy has gone into recession causing Sam’s expected duration of unemployment to increase to 35 weeks. Furthermore, the dramatic increase in the expected duration of unemployment has resulted in psychological stress from unemployment valued   at $5 per hour.

In the light of these developments re-calculate Sam’s (i) employment rent per hour (2 marks) and (ii) total employment rent (4 marks).

c. Describe the relationship between the size of the employment rent and (i) the expected duration of unemployment (ii) the size of the unemployment benefit per hour and (iii) the   size of the psychological cost of unemployment per hour. (word limit 100) (6 marks)

Question 6  | [20 marks]

Consider the example of Angela and Bruno discussed in The Economy textbook, Unit 5 Section  5.9  and  Figure  5.9.  In  Figure  5.9  (reproduced  below),  points  D  and  F  are  the outcomes before and after the introduction of a new law that limits Angela’s work time to four hours a day, while also requiring a minimum pay of 4.5 bushels. Based on this information, answer the following questions:

a.  “The new outcome F is Pareto efficient” . Discuss if this statement is correct or false. Explain your answers using the graph. (3 marks)

b.  Using the graph what is the maximum amount of grain per year that Angela would be willing to pay so that the law passed? (3 marks)

c.  “As a result of the new law, Bruno receives no economic rent”. Is this statement correct or false? Please discuss your answer making reference to the diagram. (Word limit 50) (3 marks)

d.  Now assume that the law has been amended so that a longer work day is permitted if   both parties agree. The workers maintain the right for a 4-hour day if no agreement is    reached. Thus, Bruno would like to negotiate a longer work day for Angela because he believes that there are many “win-win” possibilities available to them. Would you agree with him? If yes, explain your answer by using the concepts of “joint surplus” and the     “ Pareto efficiency curve” . Show all alternatives that could result in a better deal for both on the diagram. (Word limit 130) (5 marks)

e.  Assume that Bruno and Angela make a deal. Discuss whether any potential new

allocation resulted from the win-win agreement in part (d) would be fairer (Word limit 150) (6 marks). (Hint: Your evaluation must be based on both (i)substantive

judgement of fairness and (ii) procedural judgement of fairness)

Question 7  | [13 marks]

Think of the problem of climate change as a “game” between two countries called Brazil and Germany, considered as if each were a single individual. Each country has two

possible strategies for addressing global carbon emissions:

o Mitigate: taking measures to reduce emissions, for example by taxing the use of fossil fuels or subsidising the development of renewable energy.

o Adapt: a scenario in which people, governments and businesses are free to adjust to the current and future effects of climate change without taking adequate account of the effect of their actions on others.

The figures below describe the outcomes and hypothetical payoffs of this game. All payoffs represent potential increases to the nation’s gross domestic product (GDP), measured in     billions of USD. Use this model to answer the following question:

a.  Do either of the players have a dominant strategy? If so, what is it? (2 marks)

b. What is/are the Nash equilibrium/equilibria of this game? Is this game a Social Dilemma? Explain your answer. (4 marks).

c. Could the payoffs in this figure represent the situation that both countries have social preferences? Why? (3 marks)

d. What would you suggest in this game to solve the social dilemma of climate? Support your response with an example (Word limit 100) (4 marks)

DOCUMENT PREPARATION CHECKLIST

BEFORE YOU SUBMIT

☐ My assignment is written in full sentences and in clear formal language.

☐ My assignment is proofread, and errors and typos are minimised.

☐ My assignment is written within the word limit for each question.

☐ Diagrams are drawn clearly and fully labelled. Poorly drawn diagrams reflect poor

communication which may result in a loss of marks.

☐ Diagrams are not distorted and are properly inserted into the document.

☐ I have read the rubric on the next page and made sure that my assignment meets the criteria.

AFTER YOU SUBMIT

I have double-checked whether the document was properly uploaded.

I have seen my Turnitin originality report (generated after the deadline).