MAE101 – Economic Principles – Trimester 2 2023

Assessment Task 1 (Individual)

DUE DATE: Sunday 3 Sep 8:00 pm AEST (Melbourne Time) 2023

PERCENTAGE OF FINAL GRADE: 30%
WORD COUNT: 2000 words (Strict limit)

Description
Please respond to all four questions of this individual assignment. Some questions have
multiple parts. You do not need to include the questions in your responses. However, it should
be clear which question you are responding to.

You are required to use knowledge from Topics 1 to 5 (microeconomics). Please use graphs to
answer the question when you see [graph]. You can still use graphs for questions that do not
have [graph], but you do not lose marks for not using them in those questions. Please neatly
draw graphs on a sheet of paper and take a picture of it (or scan it) and digitally insert it into
your answer document at the relevant position. As this is what you will be required to do for
the exam, it is good practice to do it now when you are not labouring under the time constraints
of the exam.

You only need to provide references if you cite materials from outside the unit. You do not need
to consult external sources to complete this assignment, though they may help, particularly for
the questions that do not mention [graph]. You are not required to refer to data or findings
from research studies to answer the questions in this assignment. Emphasis is placed on
conceptual and analytical understanding and application. Hence, be precise and concise in
your answers.
___________________________________________________________________________
Read the article below (posted on The Conversation, June 2, 2022
https://theconversation.com/heres-a-scheme-labor-should-ditch-in-its-bid-to-boost-
productivity-its-the-patent-box-181464)
by Beth Webster
Australia’s new treasurer Jim Chalmers says his biggest priorities include boosting
productivity and business investment.

If so, he would be wise not to follow in the footsteps of his predecessor Josh Frydenberg, who
tried for more than a year to introduce Australia’s first so-called Patent Box before the
legislation lapsed ahead of the election without a vote.

First introduced in Ireland in the early 1970s, and adopted later in countries such as France,
Spain, China and the United Kingdom, patent boxes are said to get their name from a box on
the tax form that companies tick if they have income deriving from intellectual property, which
is taxed at a discounted rate.

The theory is that if such income is taxed less, international corporations will do more of their
research and development in Australia.

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When announced in the 2021 budget, the discount was to be limited to income from patents on
medical and biological technologies, although (also before the bill became law) the 2022
budget announced plans to extend it to agricultural and low emission technologies.

Income derived directly from patents in these fields was to be taxed at just 17%, instead of the
prevailing company tax rate of 30%.

Doubts ahead of time

Doubts were expressed ahead of time. In 2015 the industry department’s office of the chief
economist said while a patent box tax break would certainly increase the number of patent
applications filed, most of the extra ones were “likely to be opportunistic” (filed on inventions
that would have taken place without patents).

Any extra patent fees collected were unlikely to offset the tax lost.

And the advice had a broader point. Rewarding investors well after risky research had been
undertaken was unlikely to do much to encourage such research.

Research and development tax credits, on the other hand, provide tax breaks at time the
research is being funded, according to one Australian study, creating A$1.90 of research for
each dollar of tax lost.

Supporters of the concept point to the Australian biotech company CSL Limited, which set up
a new plant in Switzerland rather than Australia in 2014 in part because Switzerland had a
patent box and Australia did not.

Critics observe that income from patents is highly mobile, meaning it can be easily separated
from real inventive activity moved across borders.

One study found 40% of multinational profits had been moved from one location to another on
the basis of tax rather than where the profits were made.

Another study noted that businesses can get the tax breaks by acquiring patents eligible for
patent box treatment without doing the patentable research.

A review of the UK scheme published in November 2021 identified “abuse and boundary-
pushing” and made a number of recommendations designed to refocus it on activity actually
taking place within the UK.

Tinkering, not transformation

The scheme Frydenberg put forward had safeguards.

It was to be limited to income derived from patents issued after budget night 2021, which meant
(at least at first) it would be limited to income derived from new patents.

Licensees of patents would not be eligible, only firms that held the patent themselves.

And, where patents were filed overseas, they had to be owned in Australia, and the underlying
research had to have occurred in Australia.

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Labor has given no guarantee it will proceed with the scheme announced in the past two
budgets and not yet legislated.

There are reasons why it should not. Australia’s really big productivity gains, in the 1990s and
early 2000s, had more to do with reforming or replacing lacklustre industries than with patents.

Australia is on the cusp of yet another transformation, into a low-carbon energy producer and
exporter. This is where our focus should be, rather than on tinkering with tax support for
innovations that might take place regardless.

____________________________________

1) Questions (1a) to (1d) relate to the following scenario: Imagine a good is currently taxed at
a rate of 30% of its price. Assume there are no externalities for this good. The good is
created from an intellectual property patent. To support producers of the good, the
government is proposing to reduce the tax rate to 17%.
(1a) [graph] Show the effects (directions of change) that the proposed reduction in the
tax has on price and quantity in a competitive market. Ensure you start your analysis
from a situation where the larger (30%) tax is already in place. [5 marks]

(1b) [graph] Using a properly labelled version of the graph from question (1a) (or a
new graph if that is easier) show the welfare effects of the proposed reduction in the
tax. Ensure you consider the welfare changes of the individual parties involved, as well
as society as a whole. Conclude by providing clear intuition (i.e., without referring to
technical features from the graph) as to why this overall change in society’s welfare
occurs. [5 marks]

(1c) [graph] Consider instead a scenario where the good in question begins with no tax
at all. The government wishes to support producers of the good and introduces a binding
price floor. Show the effects of this price floor on a graph and compare it to the graph
in part (1a). Are the effects (directions of change) of a price floor on price and quantity
any different to the case of a reduction in tax? [5 marks]

(1d) Will the amount of tax revenue collected by the government increase or decrease
because of the proposed tax reduction? Discuss in relation to the concept of elasticity.
[4 marks]

2) The article states that: “the discount was to be limited to income from patents on medical
and biological technologies, although (also before the bill became law) the 2022 budget
announced plans to extend it to agricultural and low emission technologies.”
Why do you think the tax discount was initially limited to income from patents on medical
and biological technologies over other patents? [2 marks]

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3) What is the key difference between “research and development tax credits” versus the
“patent box”? What are the likely differences in outcomes/effects between the two types of
policies? [2 marks]

4) Questions (4a) to (4b) relate to the following scenario: Imagine a monopoly firm is
supplying a good.

(4a) What are reasons a monopoly firm may be more likely to invest in research and
development relative to a competitive firm? Relate to concepts learnt in the unit. [2 marks]

(4b) [graph] Assume initially that there is no positive externality associated with the good
supplied by the monopoly firm. Depict on a graph the deadweight loss arising from such a
monopoly. Now imagine instead that consumption of the good benefits even those who do
not consume the good – that is, consumption of the good leads to a positive externality.
Show whether the presence of this positive externality leads to a change in the initial
deadweight loss. Conclude by providing clear intuition (i.e., without referring to technical
features from the graph) as to why this difference arises. [5 marks]

___________________________________________________________________________

Submission
You are to submit your assignment in the individual Assignment Dropbox in the MAE101 CloudDeakin
unit site on or before the due date. Go to →Assessment→Assignments→Assessment Task 1 Individual
Assignment. You can submit either a Microsoft Word document or a .pdf document. We recommend
submitting both since images and shapes may not align in Microsoft Word. If you submit both, ensure
you submit them simultaneously, as submitting a new file automatically overwrites any previous
submission.
You must submit your assignment in the Assignment Dropbox in the unit CloudDeakin site on or before
the due date. When uploading your assignment, name your document using the following syntax: <your
surname_your first name_your Deakin student ID number_MAE101.doc (or ‘.docx’). For
example, ‘Jones_Barry_123456789_MAE101.doc’.

Do not submitting a hard copy of this assignment. You must keep a backup copy of every assignment
you submit until the marked assignment has been returned to you. In the unlikely event that one of your
assignments is misplaced you will need to submit your backup copy.

Any work you submit may be checked by electronic or other means for the purposes of detecting
collusion and/or plagiarism and for authenticating work.

When you submit an assignment through your CloudDeakin unit site, you will receive an email to your
Deakin email address confirming that it has been submitted. You should check that you can see your

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assignment in the Submissions view of the Assignment Dropbox folder after upload and check for, and
keep, the email receipt for the submission.

Marking and feedback

The marking rubric indicates the assessment criteria for this task. It is available in the CloudDeakin
unit site in the Assessment folder, under Assessment Resources. Criteria act as a boundary around
the task and help broadly specify what assessors are looking for in your submission. Ensure you
understand the assessment description and questions in this document in detail prior to looking at
the marking rubric.

Students who submit their work by the due date will receive their marks and feedback on
CloudDeakin 15 working days after the submission date.

Extensions
Extensions can only be granted for exceptional and/or unavoidable circumstances outside of your
control. Requests for extensions must be made by 12 noon on the submission date using the online
Extension Request form under the Assessment tab on the unit CloudDeakin site. All requests for
extensions should be supported by appropriate evidence (e.g., a medical certificate in the case of ill
health).

Applications for extensions after 12 noon on the submission date require University level special
consideration and these applications must be must be submitted via StudentConnect in your
DeakinSync site.

Late submission penalties

If you submit an assessment task after the due date without an approved extension or special
consideration, 5% will be deducted from the available marks for each day after the due date up to
seven days*. Work submitted more than seven days after the due date will not be marked and will
receive 0% for the task. The Unit Chair may refuse to accept a late submission where it is unreasonable

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or impracticable to assess the task after the due date. *'Day' means calendar day for electronic
submissions and working day for paper submissions.

An example of how the calculation of the late penalty based on an assignment being due on a Thursday
at 8:00pm is as follows:
• 1 day late: submitted after Thursday 11:59pm and before Friday 11:59pm– 5% penalty.
• 2 days late: submitted after Friday 11:59pm and before Saturday 11:59pm – 10% penalty.
• 3 days late: submitted after Saturday 11:59pm and before Sunday 11:59pm – 15% penalty.
• 4 days late: submitted after Sunday 11:59pm and before Monday 11:59pm – 20% penalty.
• 5 days late: submitted after Monday 11:59pm and before Tuesday 11:59pm – 25% penalty.
• 6 days late: submitted after Tuesday 11:59pm and before Wednesday 11:59pm – 30% penalty.
• 7 days late: submitted after Wednesday 11:59pm and before Thursday 11:59pm – 35%
penalty.

The Dropbox closes the Thursday after 11:59pm AEST/AEDT time.

Learning Outcomes
This task allows you to demonstrate your achievement towards the Unit Learning Outcomes (ULOs)
which have been aligned to the Deakin Graduate Learning Outcomes (GLOs). Deakin GLOs describe
the knowledge and capabilities graduates acquire and can demonstrate on completion of their course.
This assessment task is an important tool in determining your achievement of the ULOs. If you do not
demonstrate achievement of the ULOs you will not be successful in this unit. You are advised to
familiarise yourself with these ULOs and GLOs as they will inform you on what you are expected to
demonstrate for successful completion of this unit.

The learning outcomes that are aligned to this assessment task are:
Unit Learning Outcomes (ULOs) Graduate Learning Outcomes (GLOs)
ULO 1 Describe and interpret key microeconomic and GLO1: Discipline-specific knowledge and capabilities:
macroeconomic concepts and tools, including appropriate to the level of study related to a discipline or
graphs and basic algebra. profession.
ULO 2 Apply key microeconomic and macroeconomic
GLO3: Digital literacy: using technologies to find, use and
concepts and tools to economic questions.
disseminate information.

ULO 3 Obtain and analyse data and/or information related
to a real-world issue.
ULO 4 Critique approaches to economic issues in a global
and multiple-perspective context.
GLO4: Critical thinking: evaluating information using critical
and analytical thinking and judgment.
GLO8: Global citizenship: engaging ethically and productively
in the professional context and with diverse communities and
cultures in a global context.

Support
The Division of Student Life provides a range of Study Support resources and services, available
throughout the academic year, including Writing Mentor and Maths Mentor online drop ins and the
SmartThinking 24 hour writing feedback service at this link. If you would prefer some more in depth
and tailored support, make an appointment online with a Language and Learning Adviser.

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Referencing and Academic Integrity
Deakin takes academic integrity very seriously. It is important that you (and if a group task, your group)
complete your own work in every assessment task Any material used in this assignment that is not
your original work must be acknowledged as such and appropriately referenced. You can find
information about referencing (and avoiding breaching academic integrity) and other study support
resources at the following website: http://www.deakin.edu.au/students/study-support

Your rights and responsibilities as a student

As a student you have both rights and responsibilities. Please refer to the document Your rights and
responsibilities as a student in the Unit Guide & Information section in the Content area in the
CloudDeakin unit site.