You are hired by the government to evaluate the impact of a policy change that affects one group of individuals but not another. Suppose that before the policy change, members of a group affected by the policy averaged $40,000 in earnings, and members of a group unaffected by the policy averaged $41,000. After the policy change, members of the affected group averaged $45,000 in earnings while members of the unaffected group averaged $42,500 in earnings.

Questions:

a. How can you estimate the impact of the policy change? What is the name for this type of estimation? What is the value for this estimation in the scenario described above? (8 points)

b. What are the assumptions you have to make for the calculation in part (a) to be a valid estimate of the impact of the policy change? (5 points)