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The purpose of the paper: This provides an alternative way for you to demonstrate your understanding of the tools of economic analysis covered in this course, as applied to a current public policy issue involving market power or other topics related to the course. This includes environmental economics in chapter 17 of the book, which we won’t be able to spend much time on and may not get to at all. The topic is your choice, but choose something of interest to you! If you are analyzing a subject about which you are interested and enthusiastic, this will show through in the product you prepare and in the impression it will make on the reviewer. The key elements are that you: (a) demonstrate familiarity with one or more concepts learned in this course; (b) focus your analysis on a real-life issue or problem; (c) use the Internet for part or all of the research materials used; and (d) produce a paper that employs sound reasoning andanalysis, and is well-written and presented. Use of the Web for Research Materials The Internet is an exceptionally rich and convenient source of information, reports, data, and descriptions of economic problems and policies. I have posted (and will post, as the class proceeds) links on the class web site to media coverage of topics relevant to the class, such as market power; reducing its effects; labor, factor, and natural resource markets; and other topics as well. All of these topics are suitable subjects for the class paper. You should have at least one Web reference for material used in your paper, and good papers will have several or many. Note: you must fully acknowledge and cite sources you use from the internet. It is not appropriate to cut and paste things you find in your searches into the paper you write without attribution – that is plagiarism, and will cause you to be referred to Student Judicial Affairs for a violation of the University’s academic honesty policy. Considerations in Preparing Your Paper Your paper, if done well, can serve purposes beyond the class itself. Many employers like to see samples of job candidates’ writing and research skills, and this paper is an opportunity to prepare just such an example of your work. A paper involving data analysis can be especially impressive. Plus, if you write a really good paper, it may end up being one of those “Good Examples” I use to illustrate for future classes how the class paper can be done well. Some issues to consider as you develop a topic and an analysis are: 1) What is the question motivating my analysis? Your introduction should concisely give the context for your analysis, describing the problem or issue you wish to discuss. What’s wrong with things currently? How is the problem seen in behavior we observe in the world around us? How does this compare with what would be ideal? For example, oligopoly frequently results in higher prices to consumers and inefficiency, compared to more competitive market arrangements. 2) What are the key factors or incentives causing the problem, and how can they be improved by new or different policies? Presumably firms are acting to choose what’s best for them in light of the incentives they face. To the extent that this leads to undesirable behavior or market outcomes, how can policy change the incentives so the problem does not occur or is reduced? 3) Can I evaluate the tradeoffs that are explicit or implicit in the issue I’m studying? A useful way to demonstrate your knowledge of the economic tools from the class is to use one or more of the simple models and analytical frameworks seen in class. An analytical framework(graphical, algebraic,or—ifcarefullyreasoned—simplyverbal)providesastructureandaway of making predictions about what is happening now, and what might change if you change incentives or policies.4)Can data, even simple and illustrative, be brought to bear on the problem? To get a sense of the magnitudes of the effects of a policy on different groups, it is often helpful to get some numbers into the analysis, in tables, graphs, and as part of the text. While not strictly required, it is often very illustrative to find some ways to describe the magnitudes of the values or costs involved in the problem. While you probably won’t find marginal cost or marginal value relationships directly, many public agencies such as the US Departments of Justice and Commerce have literally hundreds of economics reports and analyses that can be accessed via the web. Also, popular media such as newspapers, magazines, or library books and journals frequently have articles on imperfect competition problems that include tables and graphs, with numbers that describe the overall magnitude of the problem being discussed.Writing Your Papera)Communicate well using correct English. The reader may not be knowledgeable about your specificproblemsobriefhimorheraboutit.Thereaderwillbeacollegegraduatewithsomefamiliarity with the issues and will prefer convincing, objective discussion.b)Be rigorous in your thinking and analysis. Reason carefully, logically, and completely, as you tell the story of the behavior you wish to explain and your approach to explaining it. Supportyour contentionswith appropriatefactsandcitationstoauthorities. Demonstrateyourownoriginalthought processrather than simply repeating what someone else has said.c)Organize your paper in a logical sequence. Motivate the analysis by setting the stage for it intheIntroduction.Whyisthisaninterestingproblemorissue?Movetoadescriptionofyourmethods–what is your approach to analyzing the problem? Then discuss your results-what are your findings? Conclude bysummarizingwhatyou’vefound,theimplications,furtherdirectionsforanalysis, and qualifications. Be sure to own up to deficiencies, simplifications, and other factors you might have liked to, but couldn’t, analyze.d)Use tables and graphs effectively. Make each graph and chart self-contained with a clear title, needed explanatory footnotes, source references, etc. Items in the main body of the reports should have a title, Table or Figure number, and should be relevant to the text. They should also be introduced inthe text at the point in your argument where you want to refer to the information in the figure/graph; e.g., “Figure 4 shows that…”Other tables or figures that support your argument, but aren’t necessarily a central part, go in the appendix. Tie these tables into the text by referring to the information in the tables as you explain your argument or interpret your results.e)Bethoroughbutconcise.Anappropriatelengthis1,000-2,000words(5-10double-spaced typewritten pages) for the discussion portion of most reports—excluding tables, charts, etc. In some cases, a shorter or longer paper may be more appropriate. Don’t just stick in filler material that doesn’t tie in with what you’re arguing—it’s readily apparent to a careful reader, and not viewed favorably. Similarly, tables and figures repeatedly lifted from other sources (even with proper attribution) are less impressive than those you prepare yourself.f)Present your paper well. Take the time to ensure that the paper looks good visually. Attention to detail in how your material is presented conveys an impression about the overall care taken with other aspects of the research. More than one student in the past has used their class paper as a sample of their writing and analytical skills in employment interviews. Take the time to do and present your work well, and it can serve purposes beyond just this class.g)Other Points to consider.i)Your paper deserves a creative title. Be more imaginative than “ARE 100BProject” or “Individual Report.” Make the title short, representative, and interesting. ii) Prepare a list of references used in your research. As noted above, this must contain at least one citation of a web page. Include the URL for the page, along with author and title of the page. For printed materials, use standard bibliographic practices
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Yiying Lou
ARE 100B
999002618
TOEFL test: monopoly market
As an international student who came from China, I had to admit that I never felt
lonely in Davis. It seemed like Asian faces appeared everywhere. Most of time when I
stepped into a restaurant, I could hear some familiar languages. By far, China has
become one of the largest sources of international students coming to the United States.
Obviously, with dramatically booming of Chinese studying abroad market, another
monopoly is also becoming visible: ETS. ETS is an agency that holds Test Of English
as a Foreign Language (“TOEFL”), one of the widest language tests in the world. As
we all know, many TOP universities in the U.S require foreign students to submit their
TOEFL score during the application, because they want to ensure that the student can
fit English-teaching environment, and TOEFL test is the most official and credible way.
As a matter of fact, many universities in the U.S. only accept TOEFL score as a
standard English skill proof. Students who want to apply for these American
universities have no choice but attend the test. In this case, a monopoly market has
occurred.
In 2015, the fee of TOEFL test is from $160 to $250 varying between countries. As a
matter of fact, since the number of Chinese students who attend test is increasing each
year, the price of TOEFL test in China also increases much. In 2006, the fee of TOEFL
test in China is only ¥1,370 ($173 in prevailing exchange rate), but now, the fee of
TOEFL test in China is already ¥1,540 ($246 in prevailing exchange rate), which
means the fee of TOEFL test has increased 42.20% in 9 years, but why the fee of
TOEFL test increased so rapidly?
A monopoly’s output is the market output, and the demand curve a monopoly faces is
the market demand curve. As we know before, the market demand of Chinese studying
abroad market is becoming larger in recent years. Therefore, the demand of TOEFL test
is also becoming larger. After that, we need to figure out whether TOEFT test demand
curve is highly elastic. In order to figure out this problem, I make a questionnaire to 20
of Chinese international students. In the questionnaire, I assume that the fee of TOEFL
test increase twice, forth times and six times, and ask them whether they will still take
the test. The result is underneath.
TOEFL test fee
= $492
TOEFL test fee
= $984
TOEFL test fee
= $1,476
attend
attend
attend
not
attend
not
attend
not
attend
The reason why they still choose to take the test is that they already spend a lot of
money in preparing application. Though all of these expenses are sunk cost, most of
students cannot easily “let them go”. They will stick to take the test as long as the fee is
much less than what they already paid. In this case, we can conclude a clear idea that
TOEFL test demand curve is not elastic. Therefore, when ETS increases the fee, they
probably will not lose any sales.
Even though ETS keeps increasing the fee of TOEFL test. The supply of seats still
cannot fulfill the market demand. On the one hand, with the development of economics
in China, more and more Chinese families decide to send their children to study abroad.
On the other hand, some TOP universities in China also use TOEFL score as a
performance of English speaking skills. In 2012, the number of Chinese examinees
already exceeds 200,000. We believe that the number is still increasing every year.
Since the seats of a specific day are generally opened for register before half a year ago,
a black market quietly emerges. Some people will register seats as much as possible by
borrowing some others’ ID when a date is opened for register. After that, when some
students want to attend the test on a specific date, which probably is full, they need to
ask these scalpers for seats. Once scalper get the money, they will login one of the
accounts that register the test on the date that customer required, and quit the test. Then,
they will login customers’ account immediately to catch that available seat. According
to one of my teachers who has kept in touch with these scalpers, the price of each seat
can be from ¥600 ($99) to ¥1,000 ($162). The closer to the deadline of application of
universities in the U.S., the higher the price will be. Only difference between these
scalpers is he price, since seats they hold are always the same. Of course, there are some
examination hall has better facilities than the others. For some students who tend to
attach importance to the environment of examination hall, scalpers who hold these
seats can use price discrimination to get higher profit. For instance, some of scalpers
will set the price of seats in those better examination halls higher than the price of other
seats.
How can we eliminate this black market? First of all, ETS is definitively responsible.
Many students who cannot reach the university required TOEFL score are more likely
to attend the test over and over again in a few months before the deadline of application.
If ETS has noticed that, they would better release more seats on these months. If every
student can get what he or she wants, nobody will buy scalpers’ seats and this black
market will eventually be crushed, but this method also has disadvantages. Releasing
more seats on specific date will require ETS to open more examination halls. As we
know, TOEFL test is held online, so it requires fast network speed and high-quality
hardware facilities, but finding such a place is very hard and money-consumed. If ETS
overestimate the number of students who potentially will attend the test, they might
suffer from huge economic lose.
Another way is that ETS could increase the fee of TOEFL test. If the cost of each seat
is too high, scalpers might give up registering a great number of seats, because once
they cannot sell these seats, the expense will be sunk cost. In this case, they probably
will waste a lot of money and be afraid of bearing these risks. However, as I mentioned
before, black market still exists even though ETS has increased the fee many times. If
ETS really wants to eliminate black market, they must set a very high price, but it need
to afford a big risk and will be unfair for other students.
TOP universities can also change their policies. For instance, they can let students
have more methods to prove their English skills instead of only using TOEFL score.
That is to say, they are supposed to break away from monopoly of TOEFL test and build
a new competitive market. Actually, some universities in the U.S do have some changes
on language requirement. Some universities start to accept score of IELTS, another
widely accepted language skill test in the world. Some other universities start to use
face-to-face interview to test students’ English usage abilities.
Another way is that ETS can restrict the times that one student can attend the test.
Recently, a phenomenon called “diploma inflation” has emerged. Diploma inflation
indicates that the value of a specific degree is much less than the value of it in past few
years. For TOEFL test, “score inflation” also exists. More and more people are able to
get very high scores each year. The average score of China also increases each year. For
2006, Chinese average TOEFL score is only 76, but for 2013, Chinese average TOEFL
score reaches 78. Part of reason is that Chinese instructors who teach TOEFL become
more familiar with TOEFL and think about many tips. However, another reason is that
some of Chinese students start to take the test over and over again so that they can
maximize their score. We recognized this action as swiping score. It is definitely legal
because everyone is able to attend TOEFL test at numerous times as long as they can
afford to. Due to appearance of swiping score, pressure on limited seats becomes more
severe, because some of students are taking up others’ resources. Therefore, if ETS can
limit the chance that each student can attend the test, it will not only relief the pressure
on seats but also make the score of this test more real.
All in all, there are many ways can be used to break down monopoly of ETS and
destroy black market. It is such a tragic to see a Chinese student who chases his or her
dream is hindered because he or she cannot get a seat of an important language test. In
the future, I believe that a good method to solve these problems will eventually occur.
Reference
Perloff, Jeffery M. Microeconomics: Theory & Applications with Calculus. Boston:
Pearson Addison Wesley, 2008. Print
Mervis, Jeffery “Data check: Why do Chinese and Indian students come to U.S.
universities? ” n.d. Web. 13 March 2015.
.
Rampell, Catherine. “No College Diploma, No Job, Even as a File Clerk” Web. 19
February 2013.

“About the TOEFL test”. N.p. n.d. Web. 13 March 2015

Viviana Ramirez-998361408
March 13, 2015
Ramirez 1
A Little Increase Can Go a Long Way
Introduction
Minimum wage is a constant issue in federal government regulations that
labor activists have been fighting for every day since the law was commenced in
1938. It is a federal law that enforces the lowest wage that an employer can pay
their employees. The hourly federal minimum wage set by the Fair Labor Standards
Act started at $0.25 per hour, and has increased to $7.25 an hour since 2009, and
could possibly be raised to $10.10 per hour by 2016. Although it has increased
minimally since its beginning, many are still not pleased with the wage rate. These
people argue that increasing the wage rate will benefit the economy. Also many
companies are skeptical about raising the minimum wage because of its perceived
adverse effects on the employment rate. According to recent research it is stated
that if you increase the wage rate it will be beneficial not only for people in poverty,
but all of society. In an article by Heather Boushey’s she states, “Raising the
minimum wage will have positive economic effects above and beyond lowering the
poverty rate. Economic research points to the conclusion that a higher minimum
wage does not cause greater unemployment, it boosts productivity, and addresses
the growing problem of rising income inequality,” (Boushey, 2014). Increasing to a
fair minimum wage will lead to families succeeding financially and will encourage
income growth in our society causing many families to rise above the poverty
threshold.
Minimum Wage as a Price Floor
Minimum wage is defined as a price floor. A price floor is the legal minimum
Ramirez 2
in which the government implements and does not let the price of the good or
service fall below the “floor.” Minimum wage is one of the most common examples
of a price floor (Perloff, 49). The government enforces a federal minimum and it is
illegal for an employer to pay an employee any less than the minimum wage that
was set. However, an employer may chose a
higher wage if they desire. If you look at the
graph pictured to the right, your first
impression might be that there is a surplus of
labor,
which
means
an
increase
in
unemployment. As the wage rate changes from
$5 to $8, the demand for labor increases.
Inversely, the supply for labor will decrease, causing some people to be
unemployed. However, this graph is incorrect it shows an increase in minimum
wage leads to an increase in unemployment. I will discuss why it is incorrect
throughout the rest of my paper.
The Effects on Employment
The common assumption is that if minimum wage is raised then people
will lose their jobs and unemployment will rise. However, this has been proven
incorrect. Everyone would benefit from an increase in the federal minimum wage.
The hourly wage wouldn’t be where it is today if The Fair Minimum Wage Act wasn’t
executed. This act works to increase the national minimum wage and to raise the
tipped minimum wage. This act hopes for an hourly wage of $10.10 by 2016 (US
House of Representatives). According to the U.S. Representative Fair Minimum
Ramirez 3
Wage Act Fact Sheet, everyone will benefit from an increase in minimum wage. Once
the minimum wage is at $10.10, the earnings of 25 million workers nationwide will
increase by $35 billion. This would bring $22 billion in increased economic activity
and create 85,000 additional jobs. In the following section on family income I will
discuss how money will be brought into the economy (US House of
Representatives).
Several, detailed economic studies have proven that increases in minimum
wage has little to no effect on employment (graph above lists multiple studies).
Economic evidence shows that raising the minimum wage does not lead to higher
unemployment, but instead advances productivity and could improve employment
nationwide. A phenomenal study “Minimum Wages and Employment: A Case Study
of the Fast-Food Industry in New Jersey and Pennsylvania,” completed by David
Card from UC Berkley and Alan Krueger from Princeton University proves that
employment will not be effected negatively. They compared New Jersey, which had
increased their minimum wage to Pennsylvania who left their minimum wage
unchanged. Increasing the number of full time employees versus part time was one
Ramirez 4
of their many results. They had two reasons for why they believed this would take
place, first they believed in “a conventional model one would expect a minimum-
wage increase to induce employers to substitute skilled workers and capital for
minimum-wage workers,” their second reason was if a full time worker were more
productive (but paid the same) then businesses would want to hire more full time
workers because they will be more diligent and cost them the same (Card, Krueger,
1992). That is one of many reasons why employment will increase rather than
decrease.
Effects of Minimum Wage on Family Income
Evidently if minimum wage increases, everyone’s total family income will
increase. However, this does not mean they will be able to save the extra money, for
most families it will simply take them out of poverty. “In the near term, a minimum
wage hike can stimulate economic activity by putting money into the hands of
people who are especially likely to spend it” (Chicago Fed Letter). This quote from
the Chicago Fed Letter is entirely accurate. The reason is because an increase in
minimum wage will not only effect teenagers, but will effect a great deal of adults
that are getting paid minimum wage today. These adults most likely have children,
which mean they aren’t working simply for their own survival, but to put food on
the table for their children. The majority of people that will be affected by minimum
wage will not be saving the extra income, but will be spending it to improve their
everyday life.
Since the majority of families receiving a slightly higher income are
actually in need of the money to live, they will not simply be putting this extra
Ramirez 5
money into a savings account. This extra spending will lead to an increase in
demand for all goods and services in the economy. This increase in demand will
trigger supply to increase causing businesses to have to increase production. This
increase in production means a boost in productivity. This will lead either to a
growth in employees or shifting employees from part time to full time to be more
productive. This process of increasing demand and supply is more evidence that
employment will not be impacted negatively and increasing family incomes could
have the potential to raise employment.
Reducing Poverty
One of the biggest effects of a hike in the minimum wage is decreasing the
number of families that are currently in poverty. As I stated in my previous section,
many may assume that a raise in the minimum wage would only help working
teenagers, however, this assumption is false. Changing the minimum wage will
benefit all minimum wage employees and a great deal of adults that are working to
give their children a good life. “Earning the current federal minimum wage, a
minimum-wage earner working 40 hours a week every week of the year would earn
$15,080 over the year. This amount of earnings puts a single adult just barely above
poverty. But if that worker has to support any other people—such as a child—then
this family would be living below the U.S. poverty threshold,” this statistic that I
found in an article demonstrates that earning the minimum wage today simply is
not sustainable to raise a family (Bushey). According to the US House of
Representatives if the minimum wage were to increase to $10.10 it would bring 5 to
6 million Americans out of poverty. This additional family income will help give 14
million children food, clothes and a shelter.
Ramirez 6
The bar graph to the right shows in
green: what a typical family needs to live, in
red: the poverty threshold and in blue:
what the state of Washington’s worker
receiving minimum wage earned in 2010.
The following quote emphasizes how a
slight increase in wage could make a big difference, “Economist Arindrajit Dube,
from the University of Massachusetts, Amherst, estimates that a 10 percent increase
in the minimum wage would immediately decrease the poverty rate by 2.4 percent
and lead to an overall reduction of 3.6 percent in the longer run,” (Boushey, 2014).
This decrease in poverty will not only benefit the people currently in poverty. The
explanation is that as families are lifted out of poverty all citizens will have to
subsidize enormously fewer low wage employers. We are paying for Medicaid,
housing and food stamps for workers with low wages. If minimum wage were
increased we would have to fund less workers earning minimum wage (Reich,
2014). Reducing the poverty threshold will be beneficial for everyone in the nation
whether you are a minimum wage worker or not.
Monopsony
A monopsony is a single buyer who maximizes its profit by paying a price
below the competitive level causing welfare to be lower than the competitive level.
The sole employer will face an upward sloping supply curve of labor (# of workers),
the marginal expenditure is the additional cost of hiring one more worker (shape
Ramirez 7
relies on supply curve), and a downward sloping demand curve (MRP). Since the
marginal expenditure (or marginal factor cost) will exceed the wage rate a
monopsony will hire fewer workers than would be hired in a perfectly competitive
market. When a minimum wage is put into place the supply curve becomes
horizontal at the minimum wage until it intersects the original supply curve. Once
the supply curve starts rising again the marginal expenditure is above the wage.
Since minimum wage is introduced the ideal level of employment for a monopsony
firm will occur at Lmin. Hence, it is possible to have higher wages lead to higher
employment. If minimum wage is set anywhere from Wm and W’ then employment
will increase. This concept is exhibited on the two graphs below. A monopsony is
one of the many markets that would be able to give a higher wage and higher
employment.
Trendsetter
Walmart, the biggest private employer in America is taking a stand to raise
their wages. Walmart has always had a negative reputation, increasing their wages
above the federal minimum wage, and saying they are changing their policies so
employees can easily take time off and work when they want to will be giving the
company major positive publicity. However, hopefully they are not simply doing it
Ramirez 8
for the exposure, but for the good of the company and their hard work …
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