Here are explanations for some abbreviations that you may see on the graded version of your memo on the gas tax or the sugar quota. For a more detailed explanation see the web pages on “Tips on Writing a Policy Memo” and “More Tips on Writing a Policy Memo” or stop by my office.
Explain how your results are linked to your underlying input data. As discussed in class (and indicated by arrows and highlighting on the annotated version of "Tips on Writing a Policy Memo") don’t ask the reader to take your results on faith.
Example for the gas tax: "Survey data indicates that a $1 increase in gasoline prices lowers consumption by both high and low income households by 150 gallons per year." That’s the slope coefficient in the demand equations. Then you can follow up with something like "As a result, a $0.25 increase would be expected to reduce household demand by about 38 gallons per year."
Example for the sugar quota: "Historical data indicates that US producers are very sensitive to prices: a 10% decline in the price leads to a 15% decline in production." That describes the supply elasticity and you could use a similar construct on the demand side. You can then use that information to explain your results with something like "Accordingly, a 50% drop in the price would be expected to cause a 75% decline in production."
Explain the loss to consumers clearly and without using the terms DWL or CS.
Example for the gas tax: "Households lose $725 million in tax payments plus an additional $9.375 million in net benefits they used to receive on the gasoline they no longer buy (that is, gallons that were worth more than $1.75 to them but less than $2.00). That totals …"
Example for the sugar quota: "Households save $2.16 billion on the 18 billion pounds they were buying under the quota plus they gain another $162 million in net benefits on the 2.7 billion additional pounds they buy when the price falls (sugar that is worth less to them than $0.24 per pound but more than $0.12 per pound). That totals …"
If you give a DWL number by itself it needs to be explained.
For the gas tax: See the discussion about explaining CS.
For the sugar quota: See the discussion about explaining CS for the component associated with the additional sugar. For the component associated with the switch in suppliers, explain that it is savings that arise from switching from high-cost domestic suppliers to low-cost foreign suppliers.
Technical terms should be avoided on this assignment. Example terms were indicated with arrows and highlighting on "More Tips on Writing a Policy Memo".
People are sometimes reluctant to say anything definite about congestion. However, if gas consumption declines by 2.5%, that’s a reasonable upper bound on how much driving (and thus traffic) might fall. Driving might fall even less than 2.5% if people are more careful about MPG in how they drive, plus it might fall less at rush hour when congestion is worst. Since a 2.5% decline in driving is the best case, and it could be even less, the appropriate conclusion is that the tax is unlikely to do much to reduce congestion.