Public Economics

Question 2 (40 marks) (a) 20 marks Cost-benefit analysis is very important in public decision-making. Explain why it is so important and provide an overview of the methodology. Outline and explain in detail the three key elements of a cost-benefit analysis and the issues'problems that may arise in conducting a cost-benefit analysis. Explain how some of these issues can be addressed or dealt with. (b) 20 marks (i) Governments can impose taxes in order to raise tax revenue or to change people's behaviour. Discuss this statement from a public economics perspective. Illustrate and explain what determines the effectiveness of a tax in achieving these objectives. (ii) Illustrate and explain the difference between a tax on the sale of a good and a Pigouvian tax