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ES50125 Public Policy Analysis

Research Project 2020 Word limit 5,000 words Submission date 21/04/20

This project is worth 70% of the final unit mark It will be marked out of 100 and then weighted.
It comprises two questions both with several parts marked as indicated. Some reading is
suggested but the idea is that you locate additional material relevant to the questions set.

Question 1

Most countries have some drugs whose use is criminalised and adopt policies to police their
use. A ‘War on Drugs’ is a typical policy slogan.

Part A.
1. How would characterize the shape of the supply curve and demand curve for this illegal drug
(relatively elastic or inelastic)? Give a brief explanation for your answer. [1 mark]

2. List and briefly explain at least two policy options available to a government to fight the war
on drugs. [2 marks]

3. What do you expect will happen to equilibrium price and quantity in the market if we
implement a policy to shift (decrease) supply? [1 mark]

4. What do you expect will happen to equilibrium price and quantity in the market if we
implement a policy to shift (decrease) demand? [1 mark]

Part B. Elastic demand and Inelastic Supply: Supply side intervention

Let demand be given by Q d =2500−30 p

Let supply be given by Qs =500+10 p

1) What is the equilibrium price and quantity in the market without any intervention? [1 mark]

2) Compute the market value of drugs sold, the welfare enjoyed in this market without any
intervention. [1 mark]

After the policy intervention, supply is given by Q s =10 p

3) What is the equilibrium price and quantity in the market with the intervention? [1 mark]

4) Compute the change in market value of drugs sold, the welfare consequences in this market
after this supply side intervention. Calculate both the pound value change and the percentage
change. [1 mark]
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Part C. Inelastic demand and Elastic Supply: Supply side intervention

Let demand be given by Q d =1500−10 p

Let supply be given by Qs =−500+30 p

1) What is the equilibrium price and quantity in the market without any intervention? [1 mark]

2) Compute the market value of drugs sold, the consumer surplus and the producer surplus in
this market without any intervention. [1 mark]

After the policy intervention, supply is given by Q s =−2000+30 p.

3) What is the equilibrium price and quantity in the market with the intervention? [1 mark]

4) Compute the change in market value of drugs sold, the welfare consequences in this market
after this supply side intervention. Calculate both the pound value change and the percentage
change. [1 mark]

Compare the effects of the intervention under each scenario on i) market value and ii)
welfare effects. In which case are producers better off, why? In which case are consumers
better off, why? [1 mark]

Part D. Inelastic demand and Elastic Supply: Demand side intervention.

Consider again the market in Part C; demand is Q d =1500−10 p and supply is Q s =−500+30 p
Suppose instead we implement a demand side intervention to reduce demand such that the new
demand becomes: Qd =1000−10 p.

1) What is the equilibrium price and quantity in the market with the intervention? [1 mark]

2) Compute the change in market value of drugs sold, the welfare consequences in this market
after this demand side intervention relative to the equilibrium without intervention (this is the
same as you calculated in C1). Calculate both the pound value change and the percentage
change. [1 mark]

3) Compare the effects of the supply side and demand side intervention in this market on i)
market value and ii) welfare. In which case are producers better off, why? In which case are
consumers better off, why? [1 mark]

4) Which policy (supply or demand side intervention) do you think would be more effective at
reducing the quantity of illegal drugs sold? Why? [1 mark]

Part E.
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What conditions do you think are required to sensibly use supply and demand analysis in this
way? What reservations, if any, would you have about this analysis? [12 marks]

Question 1 is marked out of 30 and is therefore worth 30% of the overall project mark

Question 2

Economically motivated labour migration is a very controversial policy issue in many countries.
Imagine you are hired as a policy analyst to answer the questions below that are about labour
migration.

1. How would you critically assess the theory and arguments that are presented as an
economic analysis labour migration?

[30 marks]

2. What quantitative evidence would you present on the effects of labour migration making
clear any reservations you may have about its validity?

[20 marks]

3. The current Conservative government in the UK is introducing a ‘points based’ labour

immigration policy. In the light of your answers to 1. and 2. Critically assess their new
policy.
[20 marks]
Question 2 is marked out of 70 and is therefore worth 70% of the overall project mark

Some suggested reading

This is NOT a definitive list of sources to consider. Finding other relevant material is part of
the project.

All international trade texts will have chapters or sections on labour migration.
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Books like:

Feenstra R C and Taylor A M International Economics latest edition New York: Worth
Publishers

Appleyard D R, Field A J and Cobb S L International Economics latest edition New York:
McGraw-Hill

Dustmann C, Schonberg U and Stuhler J (2016) “The impact of immigration: Why do studies
reach such different results” Journal of Economic Perspectives 30(4): 31-56

The above article is part of a symposium on: Immigration and Labour Markets in that issue

Freeman R B (2006) “People Flows in Globalisation” Journal of Economic Perspectives 20(2):

145-70

Borjas G J (1995) “The Economic Benefits from Immigration” Journal of Economic

Perspectives 9 Spring: 3-22

Migration Advisory Committee (MAC) GOV.UK

John Cullis Jan 2020