Tutorial Workbook Pg 29-30 Case study question on "the smoke in Asia's Eyes"
*Economics Blog A: From Mr Ho Research on and post answers to the following questions on the economics class blog:
(i) List and explain 1 form of market failure in the form of externalities that you can observe from everyday life.
(ii) List and explain in a government policy used indealing with the externality
(iii) Examine and evaluate the policy and provide arguments on the advantages and disadvantages of the policy
B: Posted by Econs Dept during Lecture
Here are the questions, start posting!
Would a ban on plastic bags achieve Economic Efficiency in Singapore? Explain your answer.
Which type of externalities do the use of plastic bags constitute? Give examples.
Suggest alternative measures other than banning the use of plastic bags.
Posted by:members of 09S109 Time: 9:29 PM
From: Mr Ho
I've thought about some of the questions the classwas asking regarding market failure just now, and these are some of myanswers
Claire's question about externalities being"subjective". She gave the example of a person who "didn't mind" beingaffected by secondhand smoke. So if the person "doesn't mind" is therestill an externality? My answer is that externalities still existbecause there is still an external cost being imposed upon the person.In the long run, he or she will still have to end up spending money onmedical bills due to the second hand smoke, so externalities are notsubjective. Please go by the definition of either an external cost orbenefit being imposed on a third party when identifying externalities.
ForCamilus's question about how the "private cost" of the suicide of aperson owing money leading to an "external benefit" to his family asthey will not have to be harrassed by the loanshark, this is totallyirrelevant to the concept of private cost and external benefit!
Theconcept of private cost and external benefit apply when it involves theproduction and consumption of goods and services, but in this case,there are absolutely no goods and services invoved. So how can you talkabout private cost and external benefit?
The last question aboutthe case study scenario I gave whereby the lady suffering asthma wasgiven first aid and hence "compensated" for the negative externality imposed on her is a valid point. I agree that in this case, there is no externality since the third party has been compensated. I should have made the externalities in the scenario clearer. But the fact that the class brought up this point is very good and shows you all are thinking through the concepts taught. Keep it up!
Posted by:members of 09S109 Time: 9:27 PM
Wednesday, April 08, 2009
economics of market failure
There is a clear economic case for government intervention in markets where some form of market failure is taking place. Government can justify this by saying that intervention is in the public interest. Basically market failure occurs when markets do not bring about economic efficiency.
Government intervention occurs when markets are not working optimally i.e. there is a Pareto sub-optimal allocation of resources in a market/industry. In simple terms, the market may not always allocate scarce resources efficiently in a way that achieves the highest total social welfare.
EXAMPLES OF POTENTIAL MARKET FAILURE
There are plenty of reasons why the normal operation of market forces may not lead to economic efficiency.
Public Goods not provided by the free market because of their two main characteristics
Non-excludability where it is not possible to provide a good or service to one person without it thereby being available for others to enjoy
Non-rivalry where the consumption of a good or service by one person will not prevent others from enjoying it
Examples: Street lighting / Lighthouse Protection, Police services, Air defence systems, Roads / motorways, Terrestrial television, Flood defence systems, Public parks & beaches
Because of their nature the private sector is unlikely to be willing and able to provide public goods. The government therefore provides them for collective consumption and finances them through general taxation.
Merit Goods are those goods and services that the government feels that people left to themselves will under-consume and which therefore ought to be subsidised or provided free at the point of use.
Both the public and private sector of the economy can provide merit goods & services. Consumption of merit goods is thought to generate positive externality effects where the social benefit from consumption exceeds the private benefit.
Examples: Health services, Education, Work Training, Public Libraries, Citizen's Advice, Inoculations
Few modern markets meet the stringent conditions required for a perfectly competitive market. The existence of monopoly power is often thought to create the potential for market failure and a need for intervention to correct for some of the welfare consequences of monopoly power.
The classical economic case against monopoly is that
Price is higher and output is lower under monopoly than in a competitive market
This causes a net economic welfare loss of both consumer and producer surplus
Price > marginal cost - leading to allocative inefficiency and a pareto sub-optimal equilibrium.
Rent seeking behaviour by the monopolist might add to the standard costs of monopoly. This includes high (possibly excessive) amounts of spending on persuasive advertising and marketing.
Libenstein's X-inefficiency may also result if the monopolist allows cost efficiency to drop. An upward drift in costs because of a lack of effective competition in the market-place can lead to consumers facing higher prices and a reduction in their real standard of living
Any exam question on market failure must make some reference to externalities. What are the potential market failures arising from externalities?
The social optimum output or level of consumption diverges from the private optimum.
Main problem is the absence of clearly defined property rights for those agents operating in the market. When property rights are not clearly defined, market failure is likely because producers & consumers may not be held to account
Don't forget that positive externalities can also justify intervention if goods are under-consumed (social benefit > private benefit)
Market failure can also be caused by the existence of inequality throughout the economy. Wide differences in income and wealth between different groups within our economy leads to a wide gap in living standards between affluent households and those experiencing poverty. Society may come to the view that too much inequality is unacceptable or undesirable.
Note here that value judgements come into play whenever we discuss the distribution of income and wealth in society. The government may decide to intervene to reduce inequality through changes to the tax and benefits system and also specific policies such as the national minimum wage
GOVERNMENT INTERVENTION AND MARKET FAILURE
Government intervention may seek to correct for the distortions created by market failure and to improve the efficiency in the way that markets operate
Pollution taxes to correct for externalities
Taxation of monopoly profits (the Windfall Tax)
Regulation of oligopolies/cartel behaviour
Direct provision of public goods (defence)
Policies to introduce competition into markets (de-regulation)
Price controls for the recently privatised utilities
How Market Failure is caused by our everyday deeds
Sup everyone this is a video done by other budding economists showing how anything and everything one does can cause Market Failure, even from watching football, you know who you are ;) Enjoy! Today's Lecture topic:Note: The extremely simplified version what i interpret of the topic after the vast amounts of knowledge imparted and divulged to us by our beloved economics lecturers at MJC, so it might not be accurate. Will continue i
oops, i forgot to add that credits for the cartoons gg to http://www.cartoonistgroup.com/search/results.php
Posted by:members of 09S109 Time: 5:36 PM
Posted by:members of 09S109 Time: 5:28 PM
abt market failure
A market failure occurs when a market fails to allocate resources efficiently. A market allocates its resources in the following ways:
Social Efficiency: where external costs and benefits are accounted for Allocative Efficiency: where society produces goods and services at minimum cost that are wanted by consumers. Technical Efficiency is the production of goods and services using the minimum amount of resources. Productive efficiency: Production of goods and services at the lowest factor cost.
Market Failure occurs when -knowledge is not perfect, -goods are differentiated, -resource immobility, -Market power, -services and goods are provided in sufficient quantity by the market -existence of external costs and benefits -inequality exists.
-Consumers do not have adequate technical knowledge -advertising can mislead/misinform -consumers unaware of all opportunities -producers cannot accurately measure productivity -decisions based on past experiences rather than future knowledge
Goods/Services that are differentiated
-Branding -Designer Labels -Technology-lack of understanding of impact -labeling and product information
-Factors that are not fully mobile -Labour immobility-geographical and occupational -Capital immobility- -Land (transport) - cannot be moved to where it is needed
-Existence of monopolies and oligopolies -Collusion -Price Fixing -Abnormal profits -Rigging of markets -Barriers to entry
Merit goods and public goods -Could be provided by the market but consumers may not be able to afford or feel the need to purchase-market would not provide them in the quantities society needs. E.g. sports facilities/ universities.
Public goods -Goods and services that markets would not be able to provide at all. E.g. headlamps on highways/street signs.
Non-excludability Person paying for benefit cannot prevent anyone from also benefiting.
Non-rivalry Large external benefits in relation to the cost -socially desirable but not profitable to supply.
De-merit goods -Goods which society over-produces -Goods and services provided by the market which are not in our best interests. E.g. Alcohol
External costs and benefits Cost of economic decision to a third party Benefits to a third party as a result of a decision made by another party. E.g. education, public transport etc. Decision-makers do not take into account the cost imposed on society and others as a result of their decision. E.g. pollution
Market Failure: -Poverty-absolute and relative -Distribution of factor ownership -Distribution of income -Wealth distribution -Discrimination -Housing
Measures to correct market failure: -State provision -Extension of property rights -Taxations -Subsidies -Regulations -Prohibition -Positive discrimination -Redistribution of income
Posted by:members of 09S109 Time: 5:04 PM
Friday, April 03, 2009
Well, because I am the first to start on the topic of market failure, I shall define what is a market failure first.
"In economics, a market failure exists when the production or use of goods and services by the market is not efficient. That is, there exists another outcome where all involved can be made better off. Market failures can be viewed as scenarios where individuals' pursuit of pure self-interest leads to results that are not efficient – that can be improved upon from the societal point-of-view.The first known use of the term by economists was in 1958, but the concept has been traced back to the Victorian philosopher Henry Sidgwick.
Market failures are often associated with non-competitive markets, externalities or public goods. The existence of a market failure is often used as a justification for government intervention in a particular market. Economists, especially microeconomists, are often concerned with the causes of market failure, and possible means to correct such a failure when it occurs. Such analysis plays an important role in many types of public policy decisions and studies. However, some types of government policy interventions, such as taxes, subsidies, bailouts, wage and price controls, and regulations, including attempts to correct market failure, may also lead to an inefficient allocation of resources, (sometimes called government failures). Thus, there is often a choice between imperfect outcomes, i.e. imperfect market outcomes with or without government interventions."
Posted by:members of 09S109 Time: 7:19 AM
Sunday, March 15, 2009
Posted by:members of 09S109 Time: 10:16 PM
Saturday, March 14, 2009
SPH cuts wages 10 min
March 13, 2009 Decision will slash wage bill by 20%; higher-paid staff to bear the brunt of the cuts By Alvin Foo
MEDIA group Singapore Press Holdings (SPH) announced salary cuts for about 3,000 staff yesterday, among other cost-saving measures to cope with the economic slowdown.
Staff were told of the measures, which also include a hiring freeze, at a briefing in the afternoon after the share market had closed.
FACING THE DOWNTURN'It is imperative that we prepare for a longer-than-expected downturn so that we can emerge stronger when the economy recovers.' ... more The pay cuts will range from 2 per cent to 10 per cent and take effect on April 1. The company will grant extra leave to staff whose pay will be trimmed.
Singapore's largest listed media company said the cuts, together with reductions in profit-related bonuses, will slash the wage bill for its key businesses by an estimated 20 per cent.
SPH chief executive officer Alan Chan said: 'We need to bring our costs down in the face of a weaker advertising market and an uncertain business environment.
'It is imperative that we prepare for a longer- than-expected downturn so that we can emerge stronger when the economy recovers.'
SPH has also instituted steps such as slashing operating expenses and a recruitment freeze.
Higher-paid staff will bear the brunt of the wage cuts. Those earning $2,000 and below a month will not be affected.
The company said the wage revision was done following negotiations with its two unions.
Mr Johari Sadli, general secretary of the 1,000-member SPH Employees' Union, said: 'It is a measure to prevent more drastic action later on. It is never easy when it comes to wage cuts, but our members generally understand the economic situation.'
From: The Straits Times Interactive Billionaire ranks shrink by 30%
Their net worth is down by US$2 trillion; only two Singaporeans on list NEW YORK: The meltdown of global financial markets slashed the ranks of the world's billionaires by 30 per cent in 2008, Forbes magazine reported yesterday in its annual tally of the planet's richest people. Russians and Indians were the hardest hit this year, losing ground to the United States, which reasserted its dominance over the world's wealthy elite.
Overall, the net worth on the list of 793 billionaires - down from 1,125 billionaires in 2008 - plummeted to US$2.4 trillion (S$3.7 trillion), from US$4.4 trillion the year before.
Only two Singaporeans were listed - down from five the year before - Far East Organisation's Ng Teng Fong and United Overseas Bank's Wee Cho Yaw.
'The world has become a wealth wasteland,' Forbes declared in its report. 'Like the rest of us, the richest people in the world have endured a financial disaster over the past year.'
Overall, the US continued to dominate the list with the most billionaires - 359. Europe had 196, Asia-Pacific 130, the Middle East and Africa 58, and the Americas outside the US 50.
Microsoft founder Bill Gates' net worth dived to US$40 billion from US$58 billion, but he reclaimed the title of world's richest man after two other billionaires - Berkshire Hathaway CEO Warren Buffett and Mexican business magnate Carlos Slim Helu - lost more on paper than he did.
Collectively, these three men lost US$68 billion in the year to Feb 13, when Forbes took a snapshot of wealth around the world to compile its annual list of billionaires.
It was the first time since 2003 that the number of people on the list decreased, and the biggest drop since the magazine began the ranking 23 years ago.
Billionaires in developing countries - including those in Asia - were especially hard hit by the global crisis.
India lost more than half of its billionaires, with the biggest gainer becoming the biggest loser. Indian businessman Anil Ambani was ranked sixth last year but fell to 34 after he had US$32 billion wiped out over the last 12 months.
'India took a huge whack,' noted Ms Luisa Kroll, senior editor of Forbes.
Singapore had three of its five billionaires fall off the list: Mr Zhong Sheng Jian, chairman of property group Yanlord Land, Wilmar International chief executive Kuok Khoon Hong, and King of the Remisiers Peter Lim.
Mr Lim, however, shrugged it off. 'Aiyah, what's the problem,' he told The Straits Times. 'Dropped out, not dropped dead.'
Other notable people who suffered the same fate included Facebook CEO Mark Zuckerberg, former Citigroup chairman Sanford 'Sandy' Weill and former American International Group CEO Maurice 'Hank' Greenberg.
There were, however, 44 people in Forbes' list who saw their wealth rise. They included New York City Mayor Michael Bloomberg, investors George Soros and Ronald Perelman - and entertainer Oprah Winfrey.
Crime, however, did not disqualify one notable new entry to the list - Mexican drug lord Joaquin 'Shorty' Guzman, who is among the world's most wanted men and now worth US$1 billion.
Chief executive of Forbes Magazines Steve Forbes said that while few would shed a tear for the plight of a billionaire, it was bad for the economy when entrepreneurs were in trouble.
'Billionaires don't have to worry about their next meal, but if their wealth is declining and you're not creating numerous new billionaires, it means the rest of the world is not doing very well,' he said.
LOS ANGELES TIMES, BLOOMBERG, ASSOCIATED PRESS, REUTERS
The list can be found at www.forbes.com/2009/03/11/worlds-richest-people-billionaires-2009-billionaires_land.html
"Who wants to be an Econaire?" This is the title of an Economics Quiz organised by the economics department. If I'm not wrong, it'll be held in Term 2. Yup, so that's how I came up with this name as 09S109's economics blog.
To start this blog, here's an interesting video from youtube.