Question 4:

a)A tax on income that does not eventually affect the amount of savings is non-distortionary. Do you agree or disagree with this statement? Explain. (5 marks)

b)Explain an example each of informational asymmetry problems pertaining to 'moral hazard' and 'adverse selection' facing the Australian public health care and Australian private health care respectively. You just need to provide 2 examples in total (one on 'moral hazard' and the other one on 'adverse selection'). (5 marks)

c)Despite the national parks always operating below their full capacity; they usually attract some entrance fees. The charging of entrance fees, however, does not create a deadweight loss. Do you agree or disagree? Explain with the help of a clearly well-labelled diagram. (5 marks)

d)Tax credit versus tax deductibility of expenses - Which instrument would the government of a modern mixed economy would choose if it aimed at addressing important distributions issues like income inequality? Explain. (5 marks)