Choose an example of a government intervention into markets that you are familiar with. In this memo, you will be asked to describe the intervention and give arguments for and against the intervention.
Imagine you work as an advisor for the Minister of Economic Affairs for the country in which this intervention occurs. The Minister has asked you to draft a memo explaining the nature of the government intervention and explain its pros, cons, and distributional consequences.
You should address the following question in your memo:
1. In opposing the market intervention, start from the proposition that the market in
question meets the textbook definition of a competitive market. Explain why this
intervention is likely to be harmful under these assumptions (even if you think that the market is far from the competitive ideal).
2. In supporting the market intervention, you should use the economic rationale for
public intervention in the market. Give the best possible justification you can based on the economics (as opposed to politics) of the question, even if you don’t support the intervention. You can also describe non–economic reasons why the policy is desirable, but this cannot come instead of the economic rationale.
3. Describe the distributional implications of the policy. Who gains and who loses? In
your answer consider the economic incidence of the public intervention.
For the purpose of this memo, imagine that the Minister of Economic Affairs has a PhD in economics and your answer should use language that reflects this level of knowledge.
However, the Minister likes her memos written clearly and in plain English. Further, the Minister insists that memos shouldn’t be one sided and that each memo should at least attempt to explain the pros and cons of a policy. My advice: your safest bet is to use the concepts and tools you studied in this course to evaluate the merits of the policy rather than your general knowledge, your opinions, or journalistic reports on the topic.
