Question

1. Suppose we agree that there is a justification for public policy intervention in encouraging long-term savings for retirement, or reducing the consumption of sugary drinks, or reducing the use of plastic bags.

Pick any ONE of the three examples (couraging long-term savings for retirement, or reducing the consumption of sugary drinks, or reducing the use of plastic bags) referred to above.

1. Outline and justify two policy interventions, based on “traditional” (neo-classical) economic analysis.
2. Propose and justify two additional (complementary) policy interventions suggested by insights gained from Behavioural Economics (BE). [Be specific about the BE insights or assumptions you are using.] (10.5 marks)

Answer 1

Answer:

A) The primary concern of neoclassical economics is the effective distribution of scarce productive capital. It also takes into account the long-term development of capital that will allow for the expansion of the production of goods and services.

Neoclassical economics combines classical economics' cost of production theory with the ideas of maximization of utility and marginalism.

Classical economics notes that the value of a good or service is driven by the cost of production.

As a primary driver of the value of a good or service, neoclassical economics stresses demand.

Assumptions Neoclassical Economics

1. Within neoclassical economics, there are several divisions that use distinct approaches.

2. Three central principles are the foundation of all the approaches:

3. In making choices between recognizable and value-associated effects, people are logical.

4.The purpose of an entity is to maximize utility, as the purpose of a business is to maximize profits.

Various studies and methods were established with the basic assumptions above. Utility maximization, for instance, may describe the need for a product or service. Pricing and thus the distribution of output factors are clarified by the interaction of demand and supply.

Key Concepts of Neoclassical Economics

The primary concern of neoclassical economics is the effective distribution of scarce productive capital. It also considers the long-term development of capital. Growth would allow the development of products and services to be increased. It stresses that the secret to an effective distribution of capital is market equilibrium. Price equilibrium should therefore be one of a government's key economic goals.

Studies on utility and marginalism were also created by Neoclassical economics. Utility tests the satisfaction achieved through the purchase of products and services. It notes that the decision-making of individuals over consumption is dependent on their utility assessment. To increase their levels of utility, people distribute their incomes. Utility is therefore a primary factor influencing a product or service's appeal.

B) The theory of Business Economics suggests that people are able to make reasonable decisions, considering their expectations and limitations, by effectively weighing the costs and benefits of each choice available to them. The behavioral economy of Alas explains that people are not rational and unable to make reasonable choices.

1. The needs of society are limitless, but ALL resources are restricted

2. Choices must be made because of scarcity.

3. Everyone's goal is to make decisions that maximize their happiness.

4.By contrasting the marginal costs and marginal benefits of each option, Everone works rationally.

Behavioural economics and policy design: Examples from Singapore

Donald Low, World Scientific, 2011

Government observers have also noted how the policies of Singapore are grounded in rigorous economic thought. Policies are planned, even if they are not always common, to be economically effective. A different approach is taken by this groundbreaking book. It aims to show how effective policies in Singapore, even before the latter became popular, have combined traditional economic concepts with insights from the emerging field of behavioral economics. It illustrates how effective policy design also involves a combination of ideas from economics and sychology using examples from different policy domains. Not only should strategies be consistent with economic incentives, but they should also be receptive to citizens' cognitive capabilities, disabilities and prejudices. Written by Singapore government policy experts, this book is an important guide to how it is possible to intelligently apply behavioral economics and the results of cognitive science to the design of public policies. It promises to stimulate broader interest in the topic among academics, policymakers and anyone interested in developing successful public policy, as one of the few books published on the subject,