H1 & H2: Costs of economic growth

China's unprecedented economic growth over the past 30 years has come at a huge cost to the environment. Read this BBC article for the costs of China's economic growth:

Can China be green by 2020?
http://news.bbc.co.uk/1/hi/business/7972125.stm

H2: Real useful YouTube videos on market structure diagrams!

Richard McKenzie (author of Microeconomics for MBAs) made several YouTube videos on market structures, especially explaining the important diagrams in your lecture notes. If you’re unsure of any diagram, do watch the appropriate YouTube video below. During term time, it’s best to watch the specific video you need as all the videos together take about 1 hour. Make sure you draw along with the video to practise.

Perfect competition Part 1 [9:33]
http://www.youtube.com/watch?v=YLK3emHpkdk

Perfect competition Part 2 [5:21]
http://www.youtube.com/watch?v=LlLbPNZDkDQ

Monopoly Part 1 [6:38]

http://www.youtube.com/watch?v=lBsyxvJrCO4

Monopoly Part 2 [4:52]
http://www.youtube.com/watch?v=gyQlOBKSSh8

Monopoly Part 3 (Comparing monopoly and perfect competition) [7:38]
http://www.youtube.com/watch?v=fqN3Ok6PhfM

1st degree price discrimination [7:34]
http://www.youtube.com/watch?v=9T9TN3OuTjc

3rd degree price discrimination [7:57]

http://www.youtube.com/watch?v=Q7cKAmkhgto

Monopolistic competition [4:36]
http://www.youtube.com/watch?v=Xlpo4F6MdbM

To add to the fun, I've also made my own Scratch animation on how a monopolist maximises profit (MR=MC):

http://scratch.mit.edu/projects/MrHueAtAJC/241703
[Click green flag to restart!]


Enjoy!

H1: National income accounting websites

Economic Survey of Singapore 2007
http://app.mti.gov.sg/data/article/12381/doc/ESS_2007Ann_Full_Report.pdf

Human Development Index
http://hdr.undp.org/en/statistics/

Big Mac Index
http://www.economist.com/finance/displaystory.cfm?story_id=11793125

Happy exploring!

H1: Roman Empire's GDP?

Angus Maddison is like the Sherlock Holmes for compiling world economies statistics on long time horizons, since the year 1AD. He explains how you can work out the GDP of the Roman Empire (going back to the average of gold & wheat units) as well as GDP of China (technologically more advanced in 1000AD, but fell behind after Europe's scientific revolution in the 1500s).
Listen to his interview with BBC here:
http://news.bbc.co.uk/today/hi/today/newsid_7516000/7516994.stm

H2: Oligopoly: Indonesia to leave OPEC

In H2, towards the end of term 3 we'll begin our study of oligopoly - a market structure characterised by a few large firms (with a high concentration ratio), high barriers to entry, and a large degree of mutual interdependence.
One type of oligopoly is the cartel - for example, the OPEC cartel for petroleum. This video from BBC explains why Indonesia is leaving the OPEC cartel:
http://news.bbc.co.uk/1/hi/business/7424903.stm

H2: Economies of scale & the 6,014-seat world's largest restaurant!

See a video from BBC on the scale & decor of this restaurant in Syria!

http://news.bbc.co.uk/1/hi/world/middle_east/7435424.stm

A large firm like this restaurant tends to enjoy internal economies of scale (i.e. the lowering of long run average costs as output increases). Its kitchen is like a production line where one chef can prepare 25-30 helpings of popular dishes in one minute - that's one bowl every two seconds!

What other internal economies of scale might this restaurant enjoy? What about internal diseconomies of scale? Find out answers to these questions as we soon study Production & Costs!

Elasticity Song (link)

Our H1 students in JC1 have just completed the elasticity topic, while our H2 students are just starting elasticity. So do check out the elasticity song to recap some elasticity determinants!
http://jceconomist.blogspot.com/2007/05/elasticity-song.html

H1: Gross National Happiness in Bhutan (video)

You've heard of GDP, GNP, maybe HDI. Now see the BBC video on how the remote Himalayan kingdom of Bhutan considers GNH - Gross National Happiness
http://news.bbc.co.uk/player/nol/newsid_4810000/newsid_4813200/4813298.stm?bw=bb&mp=wm&news=1&nol_storyid=4813298&bbcws=1

And also watch how they cope with market failure:
1. Ban on tobacco
2. Removal of Coke & Pepsi advertisements
3. Ban on some TV channels (World Wrestling Federation, MTV)
--> Students glued to TV, less inclined to do homework!

'Happiness is the ultimate desire of every individual.'
- Home & Cultural Affairs Minister, Bhutan
-

Opportunity NYC programme

Later in the term we'll learn about Market Failure, in particular where external benefits exist or where information is imperfect. We'll learn about merit goods - goods deemed to be socially desirable by the government, largely because they yield positive externalities, or benefits to third parties. Merit goods include healthcare and education.

Related to merit goods is a privately funded scheme in New York City (NYC) called the Opportunity NYC programme. This programme rewards parents and children with cash for doing such things as getting proper health check ups (healthcare) and passing school exams (education). It seems a good way to spur longer-term thinking that benefits both the individual and society, i.e. it encourages parents and children to consume merit goods.

Does it work? Blacks, who make up nearly 15% of NYC's student body, earn fewer than 4% of the top marks in advanced-placement exams (for university-bound students). But a similar scheme in Dallas, Texas has managed to increase the number getting top scores by 30%.

For more details on the Opportunity NYC programme, read the Economist article:

'When bribery pays'
http://www.economist.com/finance/displaystory.cfm?story_id=10854937

Consumer surplus and cinema popcorn

What has cinema popcorn got to do with consumer surplus? Read this interesting article on how cinema operators try to capture your consumer surplus by selling you expensive popcorn:
http://www.tutor2u.net/blog/index.php/economics/comments/popcorn-and-price-discrimination/

This is linked to the topic of Price Discrimination which we'll learn later in the year when we study the monopoly.

Economics of dating and love

Since it's post-Valentine's season, here are some interesting (but out of syllabus) articles on the Economics of dating and love:

1. Economics of dating
http://timharford.com/2007/11/business-life-the-economics-of-dating/

2. Love Economics
http://www.solvedating.com/love-economics.html

Welcome to a new year with the JC Economist!

Hi budding JC economists,
If you're new to this blog, welcome! Do click on the hyperlinks below to read articles on topics you have recently studied!

JC1s
Scarcity - can there be abundance instead? Read to find out!
Demand & supply - what has demand got to do with Valentine's Day? With comics? Click to discover!

JC2s
Standard of living - are there alternative measures apart from GDP?

Happy reading & discovering!

Mr Hue

Externalities WebQuest

Hi ACJC 1ECX05 and 1ECX09 students,

The purpose of the WebQuest is for you to:
1. Identify examples of positive and negative externalities (eg: health care, education, road pricing).
2. Identify that externality is one source of market failure.
3. Illustrate how externalities lead to inefficiencies in resource allocation in the form of over or under production/consumption.
4. Apply these concepts to assess current Singapore government policies on production and consumption of various goods and services.

Please read your the other 5 group projects from your class. Consider these questions:
1. Has the group managed to meet the above objectives in their report?
2. Do you agree with their report? What are the unclear areas in their report?
3. What are some other points that you can add to their report?

Make at least 2 individual comments in response to the other groups' reports on their selected government policies. Remember to include your name in your comments, otherwise I won't know that you posted!

The deadline is Tuesday, 7 August 2007.

Click on the respective link to the reports by your class:
- 1ECX05 (1SC5)
- 1ECX09 (1SC4/6)

Cheers!

Mr Mervyn Sek
ACJC Economics Department

The Economics of Fashion

A Special Report by Michelle Law

Fashion goods are luxury goods which are generally consumed by people with a certain level of income. It has a low degree of necessity therefore they have relatively high price elastic demand which indicates the responsiveness of the consumers. Furthermore, they are heavily dependant on individual’s taste and preferences as fashion is very subjective as not all designs and cuts would suit a person’s likes or preferences and needs. Also, they are many different types of fashion which cater to different needs such as Haute Couture, Ready to Wear and mass produced lines.

The demand for fashion depends heavily on income and the needs of its consumers. When income increases, consumers have more purchasing power and might chose to upgrade the standard of the good they are currently consuming, for example buying a branded ready-to-wear instead of a piece from a mass produced line. This would cause a change in demand for each type of fashion, a fall in mass produced lines but an increase in ready-to-wear.

Moreover, fashion is generally implied to be related with clothing but unlike clothing, consumers pay for the design and the workmanship involved in producing the good. Thus, clothing would be considered as an inferior good because more people would chose not to buy it when their income increases. In contrast to fashion, clothing would be a necessity as it protects the body from harsh weather and safety reasons.

Alternatively, in fashion, there is limited supply such as in haute couture where such fashion houses produce a limited amount of designs which are handmade as it made to order for a specific customer, and it is usually made from high-quality, expensive fabric and sewn with extreme attention to detail and finish, often using time-consuming, hand-executed techniques. This creates a brand identity and exclusiveness for its customers and maintains the demand for the luxury good which in effect indirectly discriminates consumers as more purchasing power the individual has, the more choices and ability to purchase the good he/she wants.

Current trends and fads in fashion play an extremely important role in the demand of the good as it can influence consumer’s choice. The media coverage today is an extremely influential tool, especially the existence of fashion magazines and editorial critiques on the internet as well as published works. It can sway and steer the course of fashion trends in the world today by advertising certain brands or designs which would affect consumer’s decisions or at the very least form some impact on its audience. Even celebrities who are gaining increasing attention from the public can persuade to consumers and start a new fashion trend thus affecting the demand of the goods.

WebQuest Report: Cigarette Consumption

We all know that cigarettes are price inelastic, demerit goods, and when consumed, lead to air pollution, which is a negative externality. A negative externality is the cost imposed on a third party during production/consumption of a good, and no compensation is made. The case of passive smoking proves to be a very serious one as recent research carried out by the International Agency for Research on cancer showed that passive smoking causes lung cancer in non-smokers.

In this case, the marginal private cost, MPC, is the cost incurred by the smoker in buying the cigarette, and any accepted risk he is willing to take with regards to contracting lung cancer. The external cost would be that the people around the smoker experiences discomfort, as well as possibility of getting lung cancer. The marginal social cost, MSC, would be the cost to the individual, as well as those others affected by the cigarette smoke.

In the case of negative externality, the smoker always consumes the cigarettes at a quantity greater than that of the socially desired output, over consumption of cigarettes. This would result in the MSC being greater than the MPC, giving rise to an external cost, imposed on the people around the smoker. Consumption of cigarettes by the individual at market equilibrium also results in the society incurring a welfare loss.

Our society currently faces a problem of having many smokers, as stated in the article "Tobacco wars: Singapore the picture of health" that 14 percent of our population smokes. This gives rise to a large amount of external cost, which is not socially desired as production and consumption of cigarettes is not at social output. As a result, the government has to intervene, and lay out measures to reduce the amount of smoking. As cigarettes are price inelastic goods, introducing taxes on cigarettes may not be very effective, as it would not work well in deterring smokers from smoking. Thus, our government has set up various measures such as "having to have up to 50 percent of the front and back covers of cigarette packs bearing any of the six pictures of people who have contracted diseases due to smoking that the Singapore government has chosen to appear on a rotational basis." Also, the government has implemented laws such as the banning of smoking in certain areas so as to reduce the harmful effects of passive smoking.

The use of taxes is good as using taxes to internalize external cost is very appealing. It allows markets to continue operating according to market forces. Although costs have been inflated by taxes, consumption and production decisions are made while firms and households are free to pursue their self-interest. However, since cigarettes are price inelastic, the implementation of taxes may not be very effective in controlling the problem and reducing smoking as an increase in price would not have a great effect affecting the consumption of cigarettes. Laws and regulations, in this case, is more beneficial as it is a command-and-control policy, and is generally accepted that use of compliance standards through laws has led to a reduction in pollution levels. The outcome is predictable, unlike the use of market-based approaches such as taxes. However, there are monitoring and enforcement costs involved in government agencies having to monitor and ensure that regulations are adhered to.

Credits: Chelsea Chang, Shawn Poh, Marcus Foo, Leow Yan Ling and Wang Enshen

WebQuest Report: Compulsory Education

1. What are the governmental ministry and agencies that oversee the policy?

- Compulsory Education (CE) was implemented in Singapore from the new school year commencing 1st January 2003 by the Ministry of Education
- Compulsory Education Act is practiced, under which parents could face fines or jail if they do not send their children to national schools or government-approved Muslim schools.

2. Who are the direct parties involved in the transaction? Are there any indirect (external) parties that are involved or affected by the transaction?

- The first cohort of pupils coming under CE are Singapore Citizen children born between 2nd January 1996 and 1st January 1997 who are residing in Singapore
- Singapore Citizen children born between 2nd January 2001 and 1st January 2002 will be due for Primary 1 for the school year commencing 1st January 2008. The Primary 1 Registration Exercise for this cohort of pupils will take place from July to August 2007

3. Are there any other supporters or critics of the policy? Examine their views.

- Compulsory education is strongly supported by the Committee on Compulsory Education and organizations that they consulted for various reasons:
1. To give the children a common core of knowledge which will provide a strong foundation for further education and training
2. To give the children a common educational experience that would help to build national identity and cohesion.
- There are no critics towards compulsory education.
- However, there are some exceptions for those who attend designated institutions, home-schooling and those with special educational needs

4. Do you think that the good or service is being under or over produced/consumed?

- Compulsory education is under-produced
- Reasons:
1. Compulsory education should not only cover until primary school education, but also include up to secondary.
2. In today’s society, having a PSLE certificate is not enough to earn a living. Statistics have shown that graduates even ave difficulties finding jobs in the society now, what more about those students with their PSLE certificate?

5. Do you agree with the Singapore government’s policy in addressing the issue?

- Yes, we do.
- Compulsory education provides students with the basic knowledge they should obtain. However, it is not sufficient to for the students to enter the work force. A higher education is required to substantiate the higher living standard in Singapore.
- Compulsory education is a positive externality. However, it might give rise to free-riders who do not appropriate compulsory education and take advantage of it. For example, a student studying might play truancy and not get worried as no matter what he/she does, he/she still has a place in school and has to complete his/her compulsory primary education.
- Compulsory education is a means to move Singapore towards a knowledge-based economy.

Credits: Margareth Salim, Reuben Chan, Adeline Goh and Nguyen Quynh

WebQuest Report: Banning of Chewing Gum

"If you can't think because you can't chew, try a banana."

1. What are the governmental ministry and agencies that oversee the policy?

The chewing gum ban was initiated in January 1992 by Goh Chok Tong, who had just taken over as Prime Minister. The restriction on the distribution of chewing gum was enacted in Singapore Statute Chapter 57, the Control of Manufacture Act, which also governs the restriction of alcohol and tobacco. The ban includes importation and sale of chewing gum in Singapore. Chewing gum is banned in Singapore under the "Regulation of Imports and Exports (Chewing Gum) Regulations." Except for chewing gum of therapeutic value, the "importing" of chewing gum into Singapore is absolutely banned.

The proposal to ban chewing gum was brought up to the prime minister then, Mr Lee Kuan Yew, by the Minister for National Development as chewing gum contirbuted to serious maintanance problems such as disruption of train services. This was the main factor for the policy and ban as it had huge economic repercussions to the infrastructure.

The ban was seen as the only solution to the problem since the cost of cleaning and damaged cleaning equipment is expensive to the 5 million infrastructure.

2. Who are the direct parties involved in the transaction? Are there any indirect (external) parties that are involved or affected by the transaction?

The direct parties involved would be the government and citizens of Singapore. Generally, the citizens are affected as they are not allowed to consume the chewing gum. Those who were in the chewing gum manufacturing industry are also adversely affected due to the coercive closing down of the industry. This has also led to the loss of jobs and a certain amount of unemployment.

Indirectly, Singapore has lost one avenue of exportation and revenue. As a result of the ban, the government also received less tax revenue. Jobs then need to be created to cater to who lost their jobs due to the ban.

However, by carrying out the ban, the government was able to save the money which was previously used for maintenance of public infrastructure. Thus, money could then be directed and used elsewhere. For example, the money could be channeled to Research and Development instead.

Applying economic theories, the banning of this demerit good was implemented as the revenue earned from exportation and the chewing gum industry was not able to cover the cost of maintenance incurred by the consumption of chewing gum

3. Are there any other supporters or critics of the policy? Examine their views.

Before our citizens adapted to the ban, they often would travel to neighbouring countries such as Malaysia to purchase their gum. However, Singaporeans gradually got accustomed to the absence of chewing gum as time passed. Surprisingly, no black market for chewing gum in Singapore ever emerged.

International attention
However, it was not the case for other countries. Singapore received intense international coverage and attention from civil rights activists. This was one of the many other factors that created Singapore's "nanny image".

Singapore leaders did not give in and simply defended our own rights to making policies and stated that this would achieve greater benefits in return.

Credits: Germaine Goh, Lim Yong Ern, Chuah Peiyi and Veronica Lee

WebQuest Report: Childhood Immunisation

In Singapore context, childhood immunisation covers children from time of birth to an age of 12. During that period, a child would have received more than 20 shots of a variety of vaccines to immunize him/her against a multitude of infectious diseases which include tuberculosis, hepatitis B and measles. This has resulted in the dramatic reduction in the incidence of vaccine-preventable diseases in the younger population.

Childhood immunisation (CI) is a merit good, in other words, a socially desirable good. CI is considered a ‘private good’ which have the characteristics of being rival and excludable. It is only made available to those who are willing to pay for the good and if the demand is high, others may not get to enjoy it.

However, positive externalities occur when we consume CI. For example: A person who goes for immunization positively affects those around him because there is one less possible carrier of that particular disease. Since consumption of CI is socially benefiting, the government had to make certain vaccinations compulsory for all children. In their view, if individuals were left alone to make decisions, such a merit good will be produced and consumed at sub-optimal amounts. Therefore, they need to intervene to encourage increased consumption of CI.

The government intervenes by providing subsidies so that more people can afford for CI. The subsidy will serve to correct the misallocation of resources arising form positive externalities since it can be easily implemented to increase production and consumption. However, this will require increased government expenditure. This financial burden will be brought over to working Singaporeans who will have to pay higher tax rates. Therefore it will be translated to a higher cost of living.

In conclusion, childhood immunization is an example of a market failure where there the market mechanism fails to supply at a socially efficient level since demand is ever-changing. This is because it is up to the consumer to decide how much he is willing and able to pay for the benefits he is receiving and it can vary. Also, we need to consider the presence of unequal distribution income, thus causing some groups of households being deprived of such a merit good.

Credits: Tan Chin Chuen, Kenneth Wong, Wang Enshng and Mark Lui

WebQuest Report: Film Censorship Issues

1. What are the governmental ministry and agencies that oversee the policy?

In the past, film censorship in Singapore was largely strict as its population is deeply conservative. It was necessary to prevent any offensive political, racial or religious, violence or sexual themes from being screened to the viewing audience, as this might upset the balance of Singapore's delicate multi-racial society.

Presently, Singapore’s regimental film censorship has been lightened. This enables most of Hollywood’s major films to be released locally after several cuts by the Board of Film Censors.

The importing, making, distributing or exhibiting of films in Singapore is governed by the Films Act of 1981. Films are first presented to the Board of Film Censors (BFC) to review. The BFC classifies the films under different ratings for different groups of audiences (eg. PG, NC16, R21 etc.) before they are released to the public.

Critics of this policy, such as Alex Au, argue that the true intention is to buttress the continued political dominance of the People's Action Party, and to do so partly by promoting the Government's social engineering efforts.

2. Who are the direct parties involved in the transaction? Are there any indirect (external) parties that are involved or affected by the transaction?

The direct parties involved includes the whole population of Singapore which include children, teenagers , adults and the aged. All age groups will thus be affect by the film’s various standards and limits (PG, NC16, M18, R21). External parties would include entertainment companies and outlets which sell forms of video entertainment which will include content from films shown (VCD, DVD, etc). Films banned in Singapore would not be able to be sold in outlets in Singapore and these forms of censorship would be a negative externality to the companies and outlets who sell video cd’s as it would be less income coming in.

3. Are there any other supporters or critics of the policy? Examine their views.

The Censorship Survey 2002 conducted by the Censorship Review Committee on a representative of 1000 respondents has shown that on average, 70% of respondents were satisfied with the current censorship standards. Technological advancements have spawned a new array of media formats and communication platforms, which have in turn challenged the existing censorship policies and guidelines. For example, film bans are becoming more irrelevant in this age of broadband Internet access; this allows users to download films from websites that are hosted overseas. (Internet penetration rate is 59.4%, while 24.2% of our households have broadband access.) This survey indicates the strong public support (65%) for the retention of the age 21 restriction from 70% in Censorship Survey 1992.

The results of the survey has shown that respondents generally supported less censorship for adults (53%) and, in particular, more censorship for the young. A little more than half of the respondents supported the existence of controlled places where disallowed content can be watched or purchased. 71% of the respondents felt that parents and not the government are responsible for what their children see or hear, however, 84% of them would not take any action even if they were unhappy with the film’s content. 67% of respondents thought that censorship for local and foreign mediums should be the same. Nevertheless, critics claim that such findings are limited as they do not consider the wider context of the film and its effect on the viewer.

Censorship itself is insufficient to maintain the moral tone of our society as it also depends on the industry, artists and community and on what the society deem as being acceptable standards for media content. A shared responsibility among various stakeholders is needed for censorship to complement public education for greater media awareness.

4. Do you agree with the Singapore government’s policy in addressing the issue?

I think censorship is useless in the eyes of the many people who watch movies online/downloaded or those who frequent video CD outlets. Even though films in Singapore are given strict ratings, underage audience may still view it through the many avenues mentioned above. Nevertheless, it is also the duty of the government to protect the country’s youths and children from material which might harm them such as extreme gore and violence as well as pornography Many lobby for the banning of films and TV programmes, on the grounds that media images of sex and violence are in part responsible for the decline of moral standards in society. Accounts from psychologists and researchers clearly prove the link between violent acts and exposure to violent images.

However, in order for the censorship to be successful, control over the internet must also be ensured which is almost impossible. Ahh I don’t know what to say. Ok bye-bye. Oh yeah, parents play an important part too … shouldn’t allow their young children to watch movies such as SAW. Less censorship and cuts should be put in place for movies which have adult rating. Since adults are already mature enough to understand the consequences of their actions should they follow acts shown on movies…I should think they know right from wrong and too much censorship is bad.

Credits: Aretha Poh, Adarsh Dinesh, Wong Shi Yi and Woo Yuan Ying

WebQuest Report: Banning of Chewing Gum

"More than the freedom to chew, Singaporeans need the freedom to choose. Until they get it, Singapore will remain clean, green -- and boring."

This is a comment made by a blogger about the ban of chewing gums in Singapore. It is undeniable that Singaporeans live in a clean environment, but arguments against the ban include Singaporeans lacking creativity, ingenuity and entrepreneurial drive -- qualities that are vital for the country's survival in the modern world economy.

The Ministry of National Development has taken authority over this issue. In January 1992, Goh Chok Tong imposed the ban. After the ban was announced, the import of chewing gum was immediately halted. However, a reasonable transition period was given to allow shops to clear their existing stocks. After that, the sale of chewing gum was completely terminated but there are singaporeans who try to "smuggle" gum from neighbouring countries. Despite that, no black market for chewing gum in Singapore ever emerged.

On the other hand, there were supporters of the ban. Another blogger writes:
"If Singapore didn’t ban chewing gum, the seat at the cinemas, buttons in the lifts and etc will fill with dry up chewing gum..."

Some people stuck it under restaurant tables; others dropped it on the sidewalk, gumming up the streets. Chewing gum was even blamed for delays on the mass rapid-transit system when gummy doors got stuck and held up the trains.

Councils in foreign countries have long complained about the problem and in particular the cost of cleaning up the remains of chewing gum. This is an example of a social cost, a negative externality. Westminster Council point out that the cost of cleaning up chewing gum costs them in excess of £100,000 a year.

In Singapore’s context, the ban had these externalities greatly reduced and more benefits were yielded.

Credits: Chanel Lam, Ethel Soh, Jeanette Yuen and Ryan Chia