PRICE THEORY INDUSTRY ANALYSIS
Overview - In this assessment task you will take the role of an expert economist, employed by a government department or regulatory authority. Decision-makers in government rely on the advice of experts, like you, when formulating policy or discharging their statutory responsibilities. An expert economist's role in the government decision-making process is two-fold:
- Analysis: Experts are responsible for analysing alternatives, using the specialized knowledge and skills of their discipline. In this analysis, experts evaluate the alternatives against the government's objectives and statutory obligations.
- Communication: Experts must communicate their findings to the decision-makers in government - ministers and senior public servants - who, in many instances, do not share the experts' specialised knowledge.
This task will assess your aptitudes in both of these domains. You are to conduct an industry analysis based on the scenario. Your industry analysis will form the basis for a brief - a short report to the ultimate decision-maker in the scenario - summarising your recommendations and the associated rationale.
Note: While issues raised in the scenario have real-world relevance, the scenario itself is hypothetical. Importantly, characteristics of markets and competition described in the scenario may differ from the real world. Where such discrepancies occur, you should proceed under the assumption that the market characteristics described in the scenario are correct, and conduct your analysis accordingly.
Scenario - The government is about to undertake a large program of public works, repairing and upgrading bridges around the city. The Department of Economic Development, Jobs, Transport and Resources has decided that the public works will be funded, in part, by a new tax on taxi companies. The government's rationale for the new tax is that taxi operators benefit from well maintained roads and bridges, and therefore should contribute to their upkeep.
The Department of Economic Development, Jobs, Transport and Resources has developed two competing proposals for the new taxi industry tax:
1. The first proposal is to levy a tax of $2.40 per taxi trip. The tax would be levied on the taxi companies, effectively increasing the cost of each trip to the taxi company by $2.40.
2. The second proposal is to levy a lump-sum tax of $50,000 per day, on each taxi company. The tax would be payable by each taxi company operating in the market, regardless of the number of taxi trips it provides to consumers.
Taxi companies oppose both proposals. In a submission to the Department of Economic Development, Jobs, Transport and Resources, the companies claim that a new tax will not have the intended effect. The companies state that they will have no choice but to pass the cost of a new tax on to consumers, in the form of higher prices, and that consequently the burden of the tax will fall on their customers, not the companies themselves.
Note: In this scenario the department does not have the authority to impose price controls on the taxi industry.
Task - The Minister for Public Transport has instructed you to evaluate the two proposals and recommend which of the two proposals the department should pursue. In your recommendation you should consider the revenue raised by each proposal, as well as the impact that each proposal will have on both consumers and the taxi industry. In particular, you are to assess the taxi companies' claim that it is consumers who will ultimately bear the cost of any new tax. (The minister is concerned that the public will not support the new taxes if they result in significant price rises.).
Attachment:- Industry Analysis.rar