Two economists are discussing the importance of safety regulations in the workplace. Economist A believes that safety regulations are unnecessary and result in suboptimal outcomes for workers and firms. They believe that firms should be able to choose whichever combination of wage and safety level that maximizes their profit. Similarly, they believe that workers should be able to choose to work for whichever of these firms offers their preferred combination of wage and safety level. Economist B disagrees and believes that safety regulations are necessary to protect workers. a) Based on these descriptions, which of the two economists is more likely to believe that labour markets are perfectly competitive? Explain. (3 marks) b) Based on these descriptions, which of the two economists is more likely to believe that workers and firms have imperfect information about the safety levels of different firms? Explain. (3 marks) 2. You are an advisor to the Prime Minister of your country. Currently, post-secondary students in your country pay the full cost of their education, without the help of any government subsidies. The Prime Minister is strongly considering a new policy that fully subsidizes the cost of a post-secondary education. a) The Prime Minister asks you to explain why the current system, without any subsidies, should remain in place. Based on your understanding of the course material, describe why any subsidies for post-secondary education would be bad policy. (3 marks) b) After hearing your argument against tuition subsidies, the Prime Minister asks you to explain why it might be valuable to subsidize 100% of post-secondary education costs. Based on your understanding of the course material, describe why fully-subsidized post-secondary education would be good policy. (3 marks) 3. Sarah and Alice live and work in different regions of the same country. Each is considering a move to the most economically-prosperous region of this country (referred to below as the "destination region"). Assume that Sarah and Alice are identical in every way except for the following differences: Sarah's home region is next to the destination region, while Alice's home region is roughly 2000 km away from the destination region Sarah's home region is culturally distinct from all other regions in the country Sarah is 25 years old, while Alice is 35 The unemployment rate in Sarah's home region is 6.5%, whereas it is 8% in Alice's home region a) Given this information, describe two reasons why we might expect Sarah to be more likely than Alice to migrate to the destination region. (2 marks) b) Given this information, describe two reasons why we might expect Alice to be more likely than Sarah to migrate to the destination region. (2 marks) 4. You are the vice president of a firm. After some analysis, you have determined that increasing the salaries of your workers by 10% will likely help increase your firm's profits. As a result of this finding, you meet with your firm's CEO and urge them to implement this 10% pay raise. a) Describe one argument in favour of this 10% pay raise that centers on its potential to improve worker productivity
