Microeconomics

Please write a short essay to critically analyze the phenomena described by the two reference articles in the Economist and the Sydney Morning Herald by applying what you have learned in this course till now.

Words: 1000

Phenomena/Key ideas:

Income distribution – how a nation’s total GDP is distributed amongst its population > Is a central concern of economic theory/policy

Shown on the Lorenz curve

High income earners are effective lobbyist

Effective lobbying allows them to maintain their high income -> maintaining the gap of income distribution

Plan:

Define key terms: income distribution, inequality in income

Describe the articles

State key assumptions – market of executive labour, supply and demand, efficient market

Describe the gap in income and why it is maintained from the points in article 1

Make connections to real world examples – mining tax

Check slides to find relevant economic diagrams

Article 1: Executive pay: the high cost of market failure

Executives receiving massive salaries

Defence that you have to pay best dollar to get best talent. On the basis that employees aim for the best wage > if employees know you are offering the highest wage they will apply for your company > therefore attracting the best talent pool for interviews > better productivity of workers

Executive pay is rising while share prices and returns to shareholders are down > makes sense as wages reduces profit > reduces profitability share to shareholders

Therefore, market failure as executives pay should fall with shareholders returns under the thought risks should match rewards

Yet, strong lobby groups and positions of executives defend this income inequality

Ever widening gap

Workers pay is rising @ 3% per year and so is super fund (money for retirement) > setting themselves up for life

How can this be a functioning market?

Market is broken as risk does not equal rewards

Supply = high as many contenders for CEOs as they want the best pay...