4QQMN136 Introduction to Microeconomics | My Assignment Tutor

King’s Business School, King’s College LondonOpen Book limited time release ‘take home’ examThis paper is part of an examination and counts towards the award of a degree.Examinations are governed by the College Regulations under the authority ofthe Academic Board.Title of assessment: Period 2 Alternative Assessment – Take Home ExamModule code and title: 4QQMN136 Introduction to Microeconomics and4QQMN146 Introduction to Macroeconomics – joint assessmentExamination Period: Period 2, May 2020Time allowed: 24 HOURS between 10am BST 04/05/20 – 10am 05/05/20INSTRUCTIONS TO CANDIDATES:1. Complete the details on the cover sheet provided and write your answers tothe questions on the following pages of the cover sheet document.2. Answer ALL FOUR questions. Each question is worth 25%.3. The answer to each full question should be no more than 750 words.Substantially longer answers will only have the first 750 words marked.4. Although you have up to 24 hours to submit your answers from the time theexam opens, you should spend no longer than 2 hours on the exam.5. Label each answer very clearly so that markers can see easily to whichquestion they belong.6. Paste the required diagrams & graphs for your answers directly onto theanswer sheet using software or uploaded photos.7. Save your work regularly, at least every 15 minutes.ONLINE SUBMISSION INSTRUCTIONS:1. Your answer sheet should be submitted via the Turnitin submission linktitled ‘FINAL ASSESSMENT’ on the module KEATS page.2. Ensure your document is submitted as CANDIDATE ID – MODULECODE- i.e. A12345 4QQMN136/1463. Once submitted please check you are satisfied with the uploadeddocument via the submission link.4. If you experience technical difficulties uploading your assessment toKEATS please email a copy to [email protected] with the subjectas CANDIDATE ID- MODULE CODE- PERIOD 2 ASSESSMENT2Question 1:Explain why employers pay a lower efficiency wage when unemployment ishigh. How would the efficiency wage change in an economy if it becameeasier to monitor the work that employees did? Other than to incentiviseworkers to put in effort, can you think of any other reasons why wages mightbe higher when unemployment is low (i.e. an upward-sloping wage-settingcurve)?Question 2:To support the economy against a recession triggered by the Coronavirus, thegovernment is considering increasing public spending. Suppose thegovernment decides to finance the additional spending with new taxes, and toincrease taxes by the same amount as public spending. A critic to thegovernment objects saying that if public spending and taxes increase by thesame amount, no increase in GDP should be expected: what the governmentgives to the economy is taken back via taxes.Use the model of aggregate demand and aggregate supply to study if theproposed economic policy could increase GDP by computing the fiscalmultipliers.a) Start from the model C + I + G + NX = Y with C the aggregate level ofconsumption, I the aggregate level of investment, G the level of fiscalspending, NX the net experts and Y the level of GDP. Assume NX = 0and assume that C = c0 + c1(Y-T), with T the level of taxes. Interpretthe economic intuition behind the function for consumption. What isc1? (5 marks)b) Derive the equilibrium level of GDP associated with this model. Studyby how much Y increases when G increases under the assumption T=G.Does your model predict that Y will be affected by the governmentintervention? Why? (10 marks)c) Now assume that NX = X – mY, where X represents total exports and mrepresents the marginal propensity to import. How does your answer toquestion b) change? Why? (10 marks)3Question 3:a) Suppose you walk into a large supermarket at 2 am with a friend. Yourfriend says, “I can’t believe that these stores stay open all night. Only oneout of fifteen checkout lines is open. There can’t be more than tenshoppers in this store. It just doesn’t make any sense for this store to beopen all night.” What conditions must be true for it to be to theadvantage of the supermarket to stay open all night? (13 marks)b) Your friend has a large garden and grows fresh fruit and vegetables to besold at a local “farmer’s market.” Last year your friend was the only workerin the garden, without any additional workers. However, this year yourfriend hired a worker and production more than doubled. He comments“Next summer, I think I’ll hire another two workers (so total workersincluding myself would go up from 2 to 4) and my output should againmore than double”. Is it likely that he could hire more workers and alwayscontinue to reap greater than proportional increases in production? Why?(12 marks)Continued on next page…/Continued on next page…/4Question 4:The government decides to place a £25 per unit-subsidy on the sales of books.The initial demand and supply curves for books in this country arerespectively:Qd = 1000 – 2*P and Qs = 3*P + 500 where price in measured in Great BritishPounds per book.a) What is the pre-subsidy equilibrium price and equilibrium quantity ofbooks? Illustrate demand and supply curves and the market equilibriumin a diagram indicating the respective intercepts. What are Consumerand Producer Surplus in this market? (5 marks)b) How many books will be traded once the £25 subsidy is enacted? Howmuch will consumers pay per book? Illustrate the effects of the subsidyon the equilibrium quantity and price of books in a diagram (you can usethe diagram drawn in part a)). What are Consumer and ProducerSurplus in this market with the subsidy in place? (5 marks)c) What is the change in consumer and producer surplus following theintroduction of this subsidy? Calculate the monetary value of thesechanges and identify the respective areas in your diagram. (5 marks)d) Compared to the pre-subsidy equilibrium, what is the impact of thissubsidy on the overall welfare in this market taking into account the costof the subsidy? (5 marks)e) Calculate the incidence of the subsidy across Consumers and Producersin percentage terms. (5 marks)FINAL PAGE


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