Welcome to Challenge 4 of my 6 week economics challenge series. I am currently posting information about a new challenge each week. Each challenge will relate to a different aspect of economics. Some challenges will involve participants describing how they respond to a particular situation or set of circumstances and others will involve a more technical approach to a problem or situation.
Voting for Challenge 2 is almost complete and the results of Challenge 3 will follow in a few days.
So just a quick introduction to my Steemit channel in case you are not familiar with my work. My content relates mostly to economics. I have a combination of technical, analytical, and theoretical posts. I often go into the application of economics and how we can use economics to improve our own lives. I also run several contests. I have puzzle contests that I try to run every week. I also have meme contests that I run monthly. Feel free to participate in these contests. The 6 week economics challenge series brings the economics and competition side of channel together.
Challenges in the Series
Below are a list of the 6 challenges in this series (Challenges 1, 2 and 3 have been completed and the dot point is a link to the challenge):
- Explain how you have or would adapt your lifestyle to a tighter budget.
- Explain how you gain value out of your life. E.g. watch movies, visit relatives, etc. Explain if you have a formula for happiness.
- Trading game - decide what you will buy or sell, whoever has the most money at the end wins a prize (results will be generated on a spreadsheet and presented in a video). Prizes will also be given out for presenting the logic behind each investment decision. This may sound confusing, don’t worry, the post will explain everything.
- Investment strategy - with the information provided in the post, explain which combination of investments you recommend. Mathematical explanation is optional for this challenge.
- Restaurant game - where would you set up your restaurant? What would you sell? How much would you charge? The post will provide more information on how you can go about doing this.
- Cooperation vs competition game – the post will contain several scenarios where either cooperative or competitive behaviour is possible. The participants need to decide which strategy is better and explain.
For this challenge I will be giving away three prizes. These prizes are as follows:
- Top post based on the logic used to support recommendations presented in the post wins 10 SBD (I’ll explain later in the post).
- Second post based on the logic used to support recommendations presented in the post wins 5 SBD.
- Post that receives the highest number of votes during the voting round wins 5 SBD.
I am the judge for the first two prizes
So far we have had two challenges that have involved describing a particular approach to a problem and one challenge that has involved analysis to obtain the highest possible return. This challenge is again going to be quite analytical.
Many of you who have been following my account for a while will know that I often post about cost benefit analysis (CBA). For this challenge, knowledge of CBA will be very helpful. I require participants to make investment decisions based on the information provided in this post. I have created an imaginary town called Muffins Town. Muffins Town is growing quite rapidly and requires infrastructure to be upgraded. The folks of Muffins Town have gathered and come up with 5 proposals for improvements. These proposals are as follows:
- Upgrade the local school
- Upgrade the local hospital
- Improve the local bus service
- Upgrade the local dam
- Build a football stadium
The total budget for all upgrades for the town cannot exceed $5 Million. Each proposal has a low, medium and high cost option. The higher cost options provide greater benefits to the town. The costs for each option are provided in the table below.
In addition to the costs, the scope of each upgrade is also included. The scopes of each upgrade are presented in the following table.
In order to assess the benefits of any proposals or upgrades it is essential to have a yardstick for comparison. In CBA we call that a base case. The base case is the world without the proposed initiatives. The table contains details regarding the existing infrastructure. This information will help you define the base case.
To aid you in your decision making you are provided with the following data.
In order to be able to conduct a CBA. Unit values are required. I have come up with a list of unit values you can use for your analysis.
For the purpose of this challenge I am assuming that none of the upgrades require any additional maintenance or operating costs after construction. For simplicity, cost of any additional staff such as doctors, teachers, technicians have been excluded and are not required for your analysis. This is very unrealistic but I don’t want to over complicate this challenge. You could still discuss the potential costs of hiring staff qualitatively, if choose to do so.
I have provided quite a bit of information but you will find that it is far from sufficient to just simply apply the information provided to determine the Net Present Value (NPV) for the CBA. To determine any value you will need to make some assumptions and conduct additional research. For the purpose of this challenge I will accept all assumptions with no further research required from the participant. It would be nice if you could try to make your assumptions at least sound realistic.
Additional Information for analysis
All new assets have an assumed life of 30 years and a real discount rate of 4% should be used to determine future costs and benefits.
Acquiring relevant information from stakeholders is important to help make good decisions. A random sample of 500 people returning home from the Muffins Town Annual Harry Potter Convention were asked what they would like to see done to improve the town. The results of the survey are presented below.
How you use this information is entirely up to you.
What I require from the participants
The participants are required to make a recommendation regarding the use of the $5 Million budget. The participants can recommend any combination of proposals they like as long as they are able to support their recommendations with evidence and this combination can be financed. The supporting evidence that you use could be in the form of a CBA using the data and information provided. Your recommendation could be based purely on a qualitative assessment of the proposals using the data and information provided. I would advise using both a quantitative (does not necessarily need to be a CBA if you feel information is insufficient) and qualitative approach.
As with the other challenges so far, I am happy for the participants to be as creative as they like.
This challenge should give participants a small glimpse of what it is like to be an economist offering investment advice. This challenge is massively simplified for this exercise and is unrealistic but the thought process required to make recommendations is quite similar, I hope you have fun.
I have provided links to all my cost benefit analysis posts at the end of this post.
How to Enter
You can enter any of the 3 remaining challenges. If this week’s challenge does not appeal to you, you can wait for next week’s challenge.
All you need to do to enter is:
- Create a post addressing the requirements of the weekly challenge.
- Use the tag #sixweekeconomics in your post.
- Include Economics Challenge 4 in the title of your post.
- Post a link to your post in the comments section of this post.
- Upvote this post.
The closing date and time for Challenge 4 is 6PM USA Eastern Time 25/04/2018. Responses after this time will not be accepted.
A second post will be created containing the links to your posts. Steemians will be given the opportunity to vote for the best post. The post with the highest number of votes will win 5 SBD.
Objectives of the series
A key objective of this series is to bring economics closer to everyone. Economics is not something that men in fancy suits talk about on television or only discussed in financial magazines or obscure journals. Economics is something that is all around us and it is important for all of us to understand so that we can make the most out of our lives.
Hope you like the pink car, it belongs to my sister
Good luck in the challenge, if you have any questions feel free to comment below. I am more than happy to address any queries you may have.
Cost Benefit Analysis
As an additional aid I have provided links to all my Steemit CBA posts.
Clink the links below.