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Unformatted text preview: THE UNIVERSITY OF HONG KONG School of Economics & Finance 2008-2009 1st Semester Economics: ECON1001 A and B Introduction to Economic I A and B Dr K F Wong December 13, 2008 2:30-4:30p.m. Candidates may use any self-contained, silent, battery-operated and pocket-sized calculator. The calculator should have numeral-display facilities only and should be used only for the purposes of calculation. It is the candidate’s responsibility to ensure that his calculator operates satisfactorily. Candidates must record the name and type of their calculators on the front page of their examination scripts. Please mark the best answer to each multiple choice question on the scantron answer sheet provided. Do not mark your mc answers on this question paper, no sympathy will be given if you fail to put all your mc answers on the scantron answer sheet. On the scantron sheet, please write down your University ID number and your name, and also fill in the boxes on the upper right corner. All answers for short-answer questions should be written on an answer book provided.On the answer book, please write down your University ID number and your name. Part II: Short answer questions (70 points total). Please answer all questions and write all your answers in the answer book provided. 1. (10 points) Cleaning workers and security guards were found to receive lowest wages in Hong Kong. To help them, Wage Protection Movement (WPM) for cleaning workers and security guards was launched by the government in October 2006. Under the WPM, participating cor- porations are encouraged (not coerced) to offer cleaning workers and security guards wages not lower than the relevant average market rates as stipulated in the Census and Statistics Depart- ment Quarterly Report of Wage and Payroll Statistics, on a voluntary basis. In October 2008, a review by the government concluded that the result was unsatisfactory. Hence, the minimum wage legislation is called for. The success and failure of the WPM is likely due to the interde- pendence of the decision among employers. Can you explain why WPM fails by constructing a game with appropriate numerical payoffs? Answer: The following schematic payoff matrix tabulated the payoff to firm 1 and payoff to firm 2 under different combination of strategy choice by firm 1 and firm 2. For simplicity, the payoffs are assumed to be symmetric. The strategy of “No WPM” means that the firm will not adopt the WPM and hence pay a wage according to the market equilibrium.The strategy of “WPM” means that the firm will adopt the WPM and pay a higher wage. For instance, when the firm 1 adopts the strategy of “WPM” and firm 2 adopts the strategy of “No WPM”, the payoffs to the two firms are (profit to firm 1, profit to firm 2) = (b,c)....
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This note was uploaded on 02/10/2012 for the course ECON 1001 taught by Professor S.c during the Spring '10 term at HKU.
- Spring '10