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
Friday, January 18, 2008
Wednesday, August 1, 2007
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 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.
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.
Tuesday, July 31, 2007
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
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
- 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
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
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
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