Job Market Signalling Model and Unregulated Markets

n Ontario, the government subsidizes part of the costs of purchasing an electric vehicle.

a) What is the rationale for this type of government intervention? What is the particular type of market failure that this policy is meant to address?

b) Explain why an unregulated market would not lead to an efficient amount of EV’s in the market.

c) What is the optimal subsidy and why is it difficult to calculate?

Question 2

Consider the Job Market Signalling model discussed in the slides.

a) Suppose that the costs of education for low type workers are 60,000 for every year of education. For which values of y∗ do we obtain a Separating equilibrium? Compared to the original case, what happens to Pareto efficiency? Provide an intuitive explanation of your answers.

b) Suppose that the costs of education for high type workers are 30,000 per year (and for low type 40,000/year). For which values of y∗ do we obtain a Separating equilibrium? Compared to the original case, what happens to Pareto efficiency? Provide an intuitive explanation of your answers.

c) Suppose that the costs of education are the same for both workers. Can education still be used as a productivity signal? Explain your answer carefully.