Contemporary A Revision Review

Question 1

Use mock exam and seminar questions. Wider reading for highest marks (use reading lists, links etc, and refer to author names, specific statistics, equations/expressions where useful, diagrams too!)

Only 4 options so can drop hardest one.

Question 2

Sample q1

Present economic model to assess the impact of an increase in wage inequality on the level of crime in society. Refer to empirical evidence for England & Wales to inform theoretical analysis

Answer 2

Basic concept:

Freemans model - criminals base decision on utility maximising. decision rule on whether to commit crime expression i.e if expected utility>utility from legal work

Use Supply of crime model

In wage inequality model: Whigh W low , relative lower earnings increase incentive to engage in crime. Alternatively higher earnings at top also increase incentive to commit crime e.g more expensive cars etc!

Cantor and Land - opportunity vs motivation effect!

Empirical evidence: Khan et al finds pos rel between inequality (via Gini coefficient) and crime.

Question 3

Use 2 sector model of labour market (Deardorff) to explain how inward labour migration can adversely affect domestic workers. Consider 2 cases where min wage exists vs doesn’t

Answer 3

1: outline deardoffs model: 2 sectors (M and S) , free movement of labour which means labour equalisation across sectors etc

Do diagram to show effect of inward migration (graph gets wider, so VMPL increases by the same amount and we get a fall in wage! Note: this diagram does not have a minimum wage installed e.g in a high skilled profession. Diagram 2 With a minimum wage (so would impact a low skill sector), wages aren’t impacted, just more unemployment! Excess supply!

So 2 negative effects on domestic workers are:
Unemployment (if min wage exists)
Lower wage (with no min wage)

Question 4

Explain why some observers fear the UK pension system is likely to face a crisis soon, and describe what steps the government can take to address this. Are private sector pensions affected by these same issues?

Answer 4

1: outline pension system. E.g PAYG basis
Explain why again population is potentially problematic under a PAYG system

Empirical: People also living for longer and spending longer in retirement! Bad as not paying NICs, puts pressure on pension system : use stats!

2: Solutions, and evaluate
- Funded state pension (individual accounts)
- increase NICs (tax) or reduce current pensions Eval: intergenerational transfer
- raise retirement age (current 65: scheduled to increase above 70!)
- immigration (if positive net fiscal impact! Eval: long term issues)
- encourage private pensions Eval: lower incomes can’t save as much (empirics: Australia have this)

3. Are private pensions affected the same?
   Explain between Funded not PAYG
   Private do avoid aging population issue but not entirely! (Explain…)(
   Pension products e.g annuities may become more expensive since more people demand them, especially with older pop. More pressure on state

Question 5

Define uncertainty of outcome and the invariance principle from Rottenberg

Answer 5

1. Uncertainty of outcome; matches should not be predictable for a league to be sustainable. So teams are co-dependent! Competition and cooperation: teams SHOULD be of broadly equal size/strength

Empirics: attendance is positively on quality of opposition i.e purchase the excitement of the contest. Do not want a predictable boring game.

Also salary caps, NBA have draft to keep it balanced!

2. Invariance principle
   Bosman ruling - addresses monopsony power clubs previously had over players.