The government has announced a cut to stamp duty, the tax paid when people buy a property in England and Northern Ireland. The threshold at which the tax falls due has been raised to £250,000 from its current £125,000 level. Meanwhile the threshold for first-time buyers has been increased from £300,000 to £425,000. The changes should remove 200,000 people from having to pay stamp duty, Chancellor Kwasi Kwarteng said. The chancellor also increased the value of the property on which first-time buyers can claim stamp duty relief from £500,000 to £625,000. A buyer splashing out £500,000 on a home will now be charged £12,500 rather than the previous £15,000. a) Apply supply and demand theory model to the policy. Who is making the decision, and who/what are we ignoring? What technical assumptions must we

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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The government has announced a cut to stamp duty, the tax paid when people buy a property in
England and Northern Ireland.
The threshold at which the tax falls due has been raised to £250,000 from its current £125,000 level.
Meanwhile the threshold for first-time buyers has been increased from £300,000 to £425,000.
The changes should remove 200,000 people from having to pay stamp duty, Chancellor Kwasi
Kwarteng said.
The chancellor also increased the value of the property on which first-time buyers can claim stamp
duty relief from £500,000 to £625,000.
A buyer splashing out £500,000 on a home will now be charged £12,500 rather than the previous
£15,000.
a) Apply supply and demand theory model to the policy.
Who is making the decision, and who/what are we ignoring? What technical assumptions must we
make when applying the model to the real-world situation. Are these assumptions strong? You can
assess the strength of an assumption with logical argument or with empirical evidence.
b) Model the policy (or element of it) using the theory model. Use graphs to make a prediction
about the policy.
c) Make a recommendation - Explain the outcome of the modelling exercise. What trade offs
emerge? Describe how much this recommendation should be believed given modelling assumptions.
Describe what evidence you would like to see before implementing the policy.
Transcribed Image Text:The government has announced a cut to stamp duty, the tax paid when people buy a property in England and Northern Ireland. The threshold at which the tax falls due has been raised to £250,000 from its current £125,000 level. Meanwhile the threshold for first-time buyers has been increased from £300,000 to £425,000. The changes should remove 200,000 people from having to pay stamp duty, Chancellor Kwasi Kwarteng said. The chancellor also increased the value of the property on which first-time buyers can claim stamp duty relief from £500,000 to £625,000. A buyer splashing out £500,000 on a home will now be charged £12,500 rather than the previous £15,000. a) Apply supply and demand theory model to the policy. Who is making the decision, and who/what are we ignoring? What technical assumptions must we make when applying the model to the real-world situation. Are these assumptions strong? You can assess the strength of an assumption with logical argument or with empirical evidence. b) Model the policy (or element of it) using the theory model. Use graphs to make a prediction about the policy. c) Make a recommendation - Explain the outcome of the modelling exercise. What trade offs emerge? Describe how much this recommendation should be believed given modelling assumptions. Describe what evidence you would like to see before implementing the policy.
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