Economics

Question 1
1 Look at Table 1 below and answer the following questions.

Table 1 Smoking prevalence in the UK by age group and health self-assessment
(2012) – percentages

In good health Not in good health
Age group Current smoker Never smoked Current smoker Never smoked
18–24 85.1 91.9 14.9 8.1
25–34 81.8 90.6 18.2 9.4
35–49 70.3 84.7 29.7 15.3
50–64 56.7 75.5 43.3 24.5
65+ 48.1 59.9 51.9 40.1
Source: Office
of National
Statistics – Integrated
Household
Survey 2012

(a) Explain and compare the (emboldened) figures 70.3 and 75.5 in the table. How
would you express them as a probability and as a ratio (‘1 in…’)? (4 marks)

(b) As far as life insurance policies are concerned, briefly describe how this table
may help insurers devise premiums for the different groups. (4 marks)

(c) Discuss two factors, other than health, that might reduce the premium of a life
insurance policy for a smoker. (4 marks)

2 The European Commission passed a ruling in 2012 that forbade insurers to
discriminate insurance premiums according to the gender of the policy holder.

However, women are, compared to men, more likely to live longer, less likely to
smoke, more likely to have minor driving accidents and more likely to have disability
issues after 65.

(a) Explore how this ruling might affect premiums for motor insurance and discuss
the implications for moral hazard for men and women. (5 marks)
The assignment

(b) Explain the extent to which such a ruling can solve the issue of adverse selection
for men and women considering life insurance. (4 marks)

(c) Briefly outline two other features a system of health insurance could establish to
limit adverse selection. (4 marks)
(Total marks: 25 marks)

Question 2
Ginger is a 25-year-old single mother of Roger, aged 2. She is paid hourly, works 20 hours
a week and earns £16,000 gross annually (including four weeks paid holiday). She also
receives state support for her child.

1 In the table below, outline the main three types of child-related state support Ginger is
likely to receive for Roger given her situation and briefly describe their tax treatment,
income conditions and working hours requirements. (6 marks)
Taxation Income conditions Working hours
Support 1
Support 2
Support 3

1 Using the Tax credit calculator, work out how much total tax credits she would receive
to supplement her income if she needs 25 hours per week (48 weeks a year) of
registered childcare, which charges £4 an hour. (3 marks)

2 She has grown fonder of her boyfriend (and dance teacher) Fred and asked him to
move in with her. They are looking into dividing their work to best serve caring time
requirements for Roger by comparing different options. Fred is also paid hourly and
works full-time 40 hours a week and earns £20,000 gross per annum (also four weeks
paid holiday). Using the Tax and national insurance calculator as well as the Tax
credit calculator, compare their total net household income (after childcare) under the
following options (explain your calculations):

(a) Ginger and Fred negotiate with their respective employers to equalise their
weekly working hours to 30 and manage to reduce formal childcare needs to 20
hours a week (still for 48 weeks a year and at the same hourly cost).

(b) Ginger stays at home full-time to look after Roger while Fred works full-time for
40 hours a week.

(c) Fred stays at home full-time to look after Roger while Ginger works full-time for
40 hours a week.
(12 marks)
3 Briefly describe two other considerations the couple might want to take into account
when deciding on their allocation of paid and unpaid work. (4 marks)
(Total marks :25)
Word limits for part A(1000 words).

Part B (50% of the marks)
Discuss the long-term financial implications of unequal division in paid and unpaid work
between men and women (within and between households) and the extent to which
individuals and governments can act to mitigate the implications of these differences in the
future.
Word limit for Part B: 1400 words

PLEASE NOTE
Questions you might ask yourself when constructing your essay include: how the issues
relate to broader changes in the social and economic context; how they might relate to the
interrelationships between individuals within households; and how they might impact on
financial planning across the life-course.
Please also remember when you are considering households that these come in many
different types. For example, households vary by income, age, gender and ethnicity. Also,
one individual might be a member of a number of different household types throughout the
course of his or her life.

 

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