Thursday, October 4, 2007

A good example of precise economic analysis

Hi 07S6E,

I was going through the case studies of the econs promos and having to mark the usual "GP-ish" and imprecise answers, especially with regards to the last 2 questions, I thought it would be good to show you a model of good economic analysis.

If you click on the above title link, you will see how Gary Becker, a Nobel winner in economics, explain the problem with traffic congestion in a very analytical way and how a proper tax system should be implemented.

The objective for you is not to memorize what he is saying but to internalize for yourself what a good economic answer should be.

For those more interested students, here are some questions that has answers appearing in this particular blog entry.

1) How do economists measure the external cost of traffic congestion? (Hint: look at the 4th paragraph)

2) How did Becker follow my prescribed algorithm to explain the externality? (Hint: 5th paragraph last few sentences as well as the 6th paragraph.) See, I taught you that method for a clear reason! =)

3) How did Becker explain why tax rates need to be different? (7th paragraph. Notice how precisely he explains it without any vague "GP-ish" terms. This is something that I hope to see appearing in your econ answers)

4) How did Becker evaluate the various policies different countries use?

Hope all of you will learn the value of going beyond your notes and read more of such good examples of economic analysis in your J2 years.

Mr Tan

Kelvin Tan loves s6E. 9:13 AM