ECO 200 USC Advanced Microeconomics Wage Subsidy on Competitive Market Cover Letter
As an economist, in addition to being able to analyze a situation, you will need to be able to communicate your ideas to others. In this writing assignment, you will be acting as an economic policy advisor. Scenario: Mayor McNeill has just taken over as the mayor of Doronto, a city famous for its lively food-cart industry. All over Doronto there are food carts selling all kinds of different cuisines, and the reputation Doronto has developed as being foody-friendly has been great for tourism. Part of Mayor McNeill’s plan for improving Doronto is to promote this food-cart culture, focusing on the business aspect. One of his policy advisors has suggested that one way they could promote this kind of industry in Doronto is to subsidize the wages of food-cart workers: every year when the food carts submit their taxes to the city, the city would subsidize the hourly wages by $1, which would be deducted from the taxes that firm (food cart) would have to pay that year. Mayor McNeill’s advisor suggested that this would be popular with the people who work in these firms, and the firm owners, and promote the overall growth of the food-cart industry. Of course, Mayor McNeill is interested in the well-being of these workers, the profitability of the firms, the growth of the industry, and the city’s overall finances. Mayor McNeill’s office has hired your consulting firm to look into the matter further and provide some guidance as to whether implementing this subsidy would be a good idea overall, and specifically who benefits from this policy. Your firm has done some preliminary research, and discovered the following things: firms in the food cart industry (regardless of what kind of food they are selling) are perfectly competitive, and have the same production technology (cost structure). That is, each firm is essentially identical. There is a large supply of labor in Doronto, willing to work at the (currently) prevailing wage rate of $10/hour –so large, in fact, that firms have no problem finding workers willing to work for $10 per hour (which would continue to be true even if they hired significantly more workers than they currently do). There are no barriers to entry –new food trucks start up all the time. The industry is currently in an equilibrium where firms are earning zero economic profit. Your task is to think about the proposed policy. Notice that this is not a calculation problem –we have not specified the functions you would need in order to perform exact calculations –instead, we want you to be thinking of this more generally. What would happen in this market if we implement this subsidy in the short run? In the long run? Who benefits from this policy?Instructions:Your task contains two parts, an analysis and a cover letter. Analysis: In this section of your writing assignment, you should analyze the above scenario. If you arrive at a conclusion about whether the policy is a good idea or not, you should explain your reasoning. If you cannot determine from what you know, you should explain what you know and what you would have to consider when making the decision to implement the policy or not. You should be clear about what you are considering when making your policy recommendations, and how those factors impact your decision. If you make any additional assumptions (beyond those mentioned above), you should clearly state them and if relevant, address what would happen if those assumptions do not hold. Length: Your analysis part of the writing assignment should be approximately 700 words.Cover Letter: In this section, you are communicating the main results from your analysis to Mayor McNeill in a clear and concise way. This letter should be professional but not technical in nature –it should explain the main ideas of your analysis in a way that can be understood by someone who is not an economist. The purpose of the cover letter is to summarize the information from your analysis –the things you say in your cover letter should be supported in your analysis section, and the main results of your analysis should be included in the cover letter. The cover letter should provide some kind of guidance–this could be to implement or not implement the policy under consideration. Or, if you cannot make a clear recommendation without more information, describe what more you need to know, and how it would help you to make this decision. Length: Your cover letter should be no more than one page (about 250 words), including the formatting. We will not require a specific style for the letter, but it should include an appropriate salutation and closing, and be written in a professional tone.