• The objective of the case study is for you to choose some aspect of economic activity, and to show how a concept or theory we’ve studied can be used to understand what happens in that situation, and/or to make policy recommendations on how social welfare could be improved through some type of intervention.
• In terms of structure, in the case study you should:
a. Introduce the aspect of economic activity that you will analyse;
b. Briefly describe the theory or concept you’ll use in the case study;
c. Most importantly, apply the concept or theory to analyse the aspect of economic activity you’ve chosen; and
d. Provide any concluding remarks.
• It is a good idea to start by posing a question. Usually your essay will be of higher quality if you start with a question of interest to you. For example, if you are interested in sports, start with a question on the AFL. If you are interested in movies, pose a question related to the movie industry.
• It is a good idea to have an initial discussion with your tutor about the question you have picked.
• In the table below, I provide a list of sample questions. One of our tutors suggested checking out the website of the Economics Student Society of Australia (ESSA) for further interesting examples.
• Avoid using any of the examples we already talked about in class or that are discussed in the textbook.
2
Topic
Economic concept/theory
Application
Is it better to pay HECS up-front or as debt?
Opportunity cost
Compare opportunity cost of paying up-front versus paying by debt – for example, include interest foregone when pay up-front
Do we spend enough time in our gardens?
Cost/benefit
Externality
Compares opportunity cost of spending time in garden against private benefits (for example, increase in property value).
Suggests that spillover benefits to value of nearby houses is a positive externality => Each household will not spend enough time in its garden.
Why are the prices of venomous snakes increasing in reptile pet industry, while prices of pythons and other non-venomous snakes are decreasing?
Supply/Demand
Increase in demand for venomous snakes/Decrease in demand for non-venomous snakes
Price inelastic supply of venomous snakes
Why are taxi licenses so expensive but taxi drivers’ wages so low?
Supply/demand
Government regulation
Government quota on taxi licenses increases price of taxi services and profits, and hence how much willing to pay for a license.
Relatively high supply of potential drivers compared to demand => Low wages
Why does Melbourne University use an online tutor?
Opportunity cost
Public good
Online tutor is public good => Needs to be established by ‘central planner’
Permanence of online posts means that opportunity cost of an online tutor is lower than opportunity cost of pitstop tutorials
Why did News Corp create the free daily newspaper mX?
Fixed cost/Marginal cost
Profit maximisation
High FC/Low MC => Can give away and cover costs as long as get revenue from advertising
Profit maximising to have as large readership as possible to promote advertising
3
Why regulate/advertise about adverse health effects of junk food?
Externality
Excessive consumption of junk food => Poor health outcomes => Imposes external cost on rest of society via use of health system => Consumption of junk food greater than socially optimal => Need to regulate
Why are salary caps implemented in sporting competitions?
Supply/Demand
Externality
In free market salaries of players should reflect their talent. Will mean that rich clubs can buy more talent than poor clubs. A rich club buying all the good players imposes negative externality on other clubs by reducing competitive balance in the competition. Hence need to regulate the labour market to ensure an even distribution of playing talent.
Why ending solar panels rebate will cause job loss in that industry?
Supply/Demand
Subsidy
How removing a subsidy will cause a decrease in quantity traded in that market (and hence job losses). How this depends on price elasticity of demand and supply.
Why are food prices at the MCG for AFL matches so expensive?
Market power
High market power of supplier – Can only buy food from within MCG, and single supplier at all MCG outlets (Spotless) => Monopoly
Why do movie theatres offer cheaper tickets on Tuesdays?
Fixed cost/Marginal cost
Market power/Elasticity of demand
High FC/Low MC => Can charge a low price and cover marginal costs
Demand lower and more price elastic on Tuesdays => Profit-maximising price is lower
Why do accommodation prices during Schoolies week in Schoolies destinations increase so significantly
Market power/Elasticity of demand
Demand higher and less price elastic during Schoolies week => Profit-maximising price is higher
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