Evaluate plan in terms of market incentives
Managerial Economics
Question 1. In his book, Rewarding Work: How to Restore Participating and Self-Support to Free Enterprise (Harvard University Press, 197), economist Edmund Phelps offers this plan to help the working poor: apply tax credits for “qualified employers” or hire disadvantaged people for “eligible jobs.” Evaluate this plan in terms of market incentives, one of the ten principles of economics, to work and current welfare programs. Is the Phelps’ plan an improvement over current government policies? Discuss.
Question 2.The availability of investment capital is critical for a market economy to grow. Explain how this investment capital is transformed into fixed capital goods, new technology, and cost reduction using new methods of production. Also, explain how interest rates impact the availability of investment capital.
Question 3. Your text, on page 629, lists three arguments for trade restrictions. Since economists do not favor trade restrictions, and this is a course in Managerial Economics, make the case as an economist against trade restrictions for these three items. Are there any arguments for trade restrictions that most economists would support? Discuss.
Question 4. Who was responsible for the global financial crisis of 2007-2009? Free-Market capitalism, government intervention, or a combination of both?
Identify the causes of the crisis, the steps the private and public sector took to resolve it, and what leaders should do to keep it from happening again. Remember, banks are profit making firms who supply capital to suppliers of goods and services.
Two to three pages should be sufficient for each question.
Verified Expert
Noble Prize winner Economist Edmund Phelps advocates a unique proposal in his book “rewarding Work” as to provide tax credit to the employee who employs the disadvantageous workers. His proposal was to offer the tax credit to the eligible workers who hire the disadvantages workers for eligible jobs. According to Phelps proposal, not only the disadvantageous workers will get the benefit but also the workers who hire them also get the tax credit. Phelps’ proposal defined the disadvantageous workers as the people who belong to the bottom one third of the income groups. He believed that low wage subsidy will improve the self-esteem of the, minimize their dependency on welfare benefits and thereby reduce the cost to the society. Eventually the need for providing welfare benefits will reduce to a significant extent only for the disabled (Charles w. baird . 1998).
Welfare benefits are associated with huge social cost. On one hand, a welfare benefit promotes the culture of dependency and reduces the incentive to work. On the other hand, it reduces the labor force participation rate, restricts the employment growth and inturn adversely affects the long term growth. Low wage subsidy can be a feasible solution to this problem. It provides a huge incentive to the workers to hire the disadvantages workers that would cause the unemployment to fall. Phelps states that there is huge difference between the social costs of welfare benefits and subsidy for low wage employment. At least in case of low wage subsidy, poor workers can only enjoy the benefit only when they participate in productive work (Edmund S Phelps. 2006).
