ECON 30013/90075 Economic Analysis and Policy Semester 1, 2022

Practice examination

The final examination constitutes 60 per cent of the overall grade in the subject.            Passing the subject requires obtaining a pass grade (50 per cent or above) on the final examination.  Marks on the final examination are out of 60 total marks. You must       answer all questions.

Questions 1 to 10 are short-answer questions.  Each question is worth 3 marks.  Total  marks for questions 1 to 10 are 30.  The expected length of answer for each question is indicated.

Questions 11 to 13 are based on the article ‘Further evidence for the efficacy of an        evidence-based, small-group, literacy intervention program for young struggling          readers’, by Kevin Wheldall, Robyn Wheldall, Alison Madelaine, Meree Reynolds and   Sarah Arekelian (Australian Journal of Learning Difficulties, 2017) that is available in  the Final Examination Module on the LMS site.  Total marks for questions 11 to 13 are 15. 

Questions 14 to 17 are based on information provided with the questions.  Total marks for questions 14 to 17 are 15.

Questions

1] (3 marks) In each of the problems described below, suggest a type of market failure    that could justify government intervention by the Ozland government (1-2 sentences for each problem):

a] A merger between the two largest retail supermarkets in Ozland is proposed;  b] Information on the amount of sugar on energy drinks is not being provided by manufacturers; and

c] Due to the prospect of employees being ‘poached’ away by other employers, their current employers provide them with little on-the-job training.

2] (3 marks) Briefly discuss two examples of policy-making where government faces a trade-off between its objectives of efficiency – such as acting to correct market failure - and equity - that is, achieving a distribution of income that society considers ‘fair’ (1-2 sentences for each example).

3] (3 marks) Suppose the Ozland government introduces an indirect tax of $1 on a good where the producer price prior to the tax is $5.  Suppose also that the price-elasticity of demand is: -1/2 and the price elasticity of supply is: 1/2.

a] What will be the deadweight loss of imposing the indirect tax as a share of sales revenue?

b] Briefly explain why and in what direction the size of the deadweight loss depends on (i) the price elasticity of demand and supply; and (ii) the ratio of the indirect tax to the             producer price (1-2 sentences for each part).

4] (3 marks) Suppose the Ozland government wants to introduce a policy to decrease     the incidence of excessive gambling by individuals on poker machines.  It is considering: (i) A message on poker machines that appears before each gamble about the average      outcome being for a gambler to lose money; or (ii) A limit on the maximum amount of    money that can be bet on any individual gamble on a poker machine (for example, one    dollar).  Use economic analysis to make two arguments supporting one of these policy    options as the preferred option for the Ozland government (1-2 sentences for each           argument).

5] (3 marks) The article ‘Kids falling behind…’ (The Australian, 26 August 2021) uses data on NAPLAN test results chart below to argue that Victorian students fell behind  compared to students in other states during the COVID pandemic in 2020-21.  Do you think there are problems in drawing this conclusion from the data presented in the     chart? (3-4 sentences)

6] (3 marks) The Ozland government is evaluating whether to continue with its               sponsorship of the Ozland Grand Prix.  As part of the evaluation it asks you to prepare a cost-benefit analysis of the event.  To assist you in doing this it nominates what it            regards as the main types of benefits and costs, shown in the table below:

Briefly describe three main issues that you would need to address in estimating the monetary value of benefits and costs of the Ozland Grand Prix (3-4 sentences).

7] (3 marks) Suppose individuals initially have a willingness to pay (WTP) for a service, dental care, that is below the true value they derive from the service.  Suppose that a       government information campaign induces consumers to shift their WTP for dental care from the initial level to the true value.  Assume that the market for healthcare is                 perfectly competitive.  Use the numbered areas in the diagram below to describe how     the policy will affect: (i) consumer surplus; (ii) producer surplus; and (iii) total surplus   for society.

Q*    Q**

8] Briefly describe behavioural rationales for the following government policies (1-2 sentences for each policy):

a] Making it mandatory for electricity retailers to include in their bills information on the amount a household would have been charged on that bill if they were on the plan that would be cheapest for them;

b] Personalised letters to doctors who are prescribing high volumes of antibiotics to patients including information on their own prescribing behaviour relative to their  peers; and

c] A transition to a new online method for businesses to report payroll expenses to the Australian Tax Office being made the default (with the option to opt-out and choose to remain with the current reporting method).

9] The distribution of individual income in Ozland is described in the table below which shows the level of income for each of the five individuals who live in Ozland:

a] What is the Gini coefficient for each of the two measures of income in the table?           b] What does the Gini coefficient for each of the income measures imply about the effect of government transfer and tax policy on inequality in Ozland?

10] (3 marks) Examine the graph provided below.  Suggest three ways the graph can be modified to improve its effectiveness in conveying information about employment per  plant? (3-4 sentences)

Questions 11 to 13 are based on the report ‘Further evidence for the efficacy of an          evidence-based, small-group, literacy intervention program for young struggling            readers’, by Kevin Wheldall, Robyn Wheldall, Alison Madelaine, Meree Reynolds and     Sarah Arekelian (Australian Journal of Learning Difficulties, 2017) which is available in the Final Examination Module of the LMS site.

11] (3 points) Describe the MiniLit program received by the students and the main conclusions reached by the researchers about the impact of the program.

12] (7 points) Describe the method used by the researchers to estimate the impact of     the MiniLit program.  [Note: By method I am meaning aspects such as the sample,             outcome measures and empirical approach for estimating the impact of the program.]    What do you think are potential problems with using the method taken by the                   researchers to evaluate MiniLit?  [Note: As well as saying what you think is a problem, it is important to explain why you think it is a problem.]

13] (5 points) Suppose that prior to implementation of the MiniLit program you had been invited to make recommendations on how to evaluate its impact.  Outline your main recommendations with some brief supporting argument for each                          recommendation.