comm1100 wk 8 + 9

What are the 4 main interventions and what do they do

1. Taxes – discourage activities that create negative externalities by inc $+ reducing consumption/production.<br><em>Example: a carbon tax reduces pollution.</em></p></li><li><p><strong>Subsidies</strong> – encourage activities that create <strong>positive externalities</strong> by dec$ + inc consumption / production.
   Example: subsidies for education or renewable energy.

• Price ceilings – set a legal maximum price below the market equilibrium to make essential goods more affordable. However, they can cause shortages.
  Example: rent controls.

• Price floors – set a legal min price above the market equilibrium to protect producers or workers. However, they can cause surpluses.
  Example: minimum wages.

What is the key determinant of the magnitude of the loss in economic surplus due to an increase in the minimum wage?

Mainly the elasticities of labour demand and labour supply.

• More elastic demand → larger fall in jobs and greater surplus loss. (easy to replace workers)

• More elastic supply → more workers enter, increasing job misallocation.

Elastic demand for labour: Employers respond strongly to a wage increase by hiring far fewer workers.
→ More job losses and a larger surplus loss.

Elastic supply of labour: Workers respond strongly to a wage increase, so many more people seek jobs.
→ More competition for limited jobs and greater job misallocation.

What Australian legislation provides a safety net of minimum entitlements for employees?

The Fair Work Act 2009 (FW Act) and Fair Work Regulations 2009 govern the employee/ employer relationship in Australia. They provide a safety net of minimum entitlements, enable flexible working arrangements and fairness at work and prevent discrimination against employees.

What is economic inequality?

The unequal distribution of income, wealth and opportunities within society.

Transfer payments

Government cash payments to eligible individuals and families, including:

• Pensions: Age Pension, Carer Payment and Disability Support Pension

• Allowances: JobSeeker and Youth Allowance

• Family payments: Family Tax Benefit, Parental Leave Pay and Child Care Subsidy

tax evasion, tax avoidance, tax planning and aggressive tax planning

• Tax evasion: Illegal underpayment of tax, such as hiding income or making false claims.

• Tax avoidance: Using artificial arrangements to exploit legal loopholes.

• Tax planning: Legally using legitimate opportunities to reduce tax.

• Aggressive tax planning: Technically legal strategies that unfairly minimise tax and may harm society.

Base erosion and profit shifting

Multinational Enterprises artificially reduce taxable income or shift profits to low-tax countries where little economic activity occurs.  

Why is taxation necessary?

Tax revenue funds public goods, government operations, infrastructure, education, healthcare and the social safety net (government support that helps people meet basic needs when they have little or no income - job seeker)

externality

cost or benefit in an economic transaction attributed to a non-participating third party 

Tax gap

• Difference between tax actually collected and what should be collected under full compliance.  

• Causes include:  

  • misunderstanding  

  • deliberate non-reporting  

  • taking a tax position different from the ATO’s interpretation.

Shadow economy

• Transactions or income hidden from authorities to avoid tax, regulations or other legal obligations. 

• involves cash payments, making transactions difficult to trace. 

• Activities may be unreported, under-reported, unregistered or unmeasured. 

• Reduces the gov’s tax and social security revenue, contributing to budget deficits. 

Monopsony power 

• A monopsony occurs when a buyer has market power.  

• Employers may use this power to pay wages below the competitive level.  

 

When should a business hire an extra unit of labour?

Until the marginal benefit of labour equals its marginal cost.

What are employee rights and employee duties?

• Employee rights: Workers’ entitlements from their employer, based on human rights and employment law.

• Employee duties: Workers’ obligations to their employer under employment contracts and laws.

shadow economy

whether an organisation pays tax that is expected of them in countries where they are located and earning revenue

Q: Gig worker vs independent contractor — pros and cons?

Gig worker

• Pros: Flexible hours, easy to find work, choose tasks.

• Cons: Unstable income, limited job security and usually no employee benefits.

Independent contractor

• Pros: More control over work and prices, flexibility, potential for higher income.

• Cons: Must find clients, manage tax and expenses, and usually receives no paid leave or superannuation.

hold up problem soltuions

• stronger contract

• only wokr w highly reputable companies that don’t go back on thier word

• vertical integration - prdouce everythign in house