Refer to the information provided in Scenario 21.5 below to answer the questions that follow.
SCENARIO 21.5: The tiny nation of Bugaboo consists of two virtually identical islands, Achoo and Zoink, separated by the Strait of Dingo. The islands are similar in geography and population. The only telephone service on the islands is cellular, and the only cellular provider on the islands is the government-owned Bugaboo Communications Company, which charges a standardized rate of 20 Bugabucks per minute. Both islands add on an additional $5 Bugabucks-per-minute usage tax. As a way to increase revenue, the island governor of Zoink decided to increase the usage tax to $10 per minute, effective January 1, 2017. The average monthly cellphone usage per month is listed in the table below.
Average Monthly Telephone
Use per Resident (minutes)

-Related to the Economics in Practice on p. 407: Refer to Scenario 21.5. Using the difference-in-differences method, what is the estimated effect of the increase in the usage tax on the average number of minutes used monthly per resident in Zoink?

Question

Refer to the information provided in Scenario 21.5 below to answer the questions that follow.
SCENARIO 21.5: The tiny nation of Bugaboo consists of two virtually identical islands, Achoo and Zoink, separated by the Strait of Dingo. The islands are similar in geography and population. The only telephone service on the islands is cellular, and the only cellular provider on the islands is the government-owned Bugaboo Communications Company, which charges a standardized rate of 20 Bugabucks per minute. Both islands add on an additional $5 Bugabucks-per-minute usage tax. As a way to increase revenue, the island governor of Zoink decided to increase the usage tax to $10 per minute, effective January 1, 2017. The average monthly cellphone usage per month is listed in the table below.
Average Monthly Telephone
Use per Resident (minutes)
 
-Related to the Economics in Practice on p. 407: Refer to Scenario 21.5. Using the difference-in-differences method, what is the estimated effect of the increase in the usage tax on the average number of minutes used monthly per resident in Zoink?

Quizplus · Accepted Answer

The difference-in-differences method compares the change in the average number of minutes used monthly per resident in Zoink before and after the increase in the usage tax to the change in the average number of minutes used monthly per resident in a control group (e.g., a neighboring town) before and after the increase in the usage tax. The estimated effect of the increase in the usage tax is the difference between these two changes. In this case, the average number of minutes used monthly per resident in Zoink decreased by 225 minutes after the increase in the usage tax, while the average number of minutes used monthly per resident in the control group decreased by 425 minutes. Therefore, the estimated effect of the increase in the usage tax is -225 minutes.

Refer to the Information Provided in Scenario 21