Hi people,

As we have all known from the lecture, each CG would have to do up a 15 minutes presentation about the Singapore's Budget. Thus, I have divided the class into four groups. Each group would be allocated one question to think about and please try to answer it to the best of our abilities.

Groupings are as follows: (Approach me if there are any problems)

Group 1
Hui Xin
Sook Yee
Ying Ying
Sanchita
Zhen Qiang

Questions: With reference to examples and evidences, how well have these initiatives (2009 Budget) worked thus far?

(Est.) Time Allocated:
4.5 minutes

Group 2
Wei Jie
Ehren
Wee Chong
Kwok Cheung
Nicholas

Questions:
What are your recommendations for the 2010 budget? Explain.

(Est.) Time Allocated:
4.5 minutes

Group 3
Rui Han
Mervyn
Varian
Lee Guan

Question:
What were the aims and key initiatives of the 2009 Budget?

(Est.) Time Allocated:
3 minutes

Group 4
Sarthak
Ren Hao
Freddy
Ming Yi

Question:
What are the aims and key initiatives of the 2010 budget as delivered by the Minister?

(Est.) Time Allocated:
3 minutes

Please do take a look at the presentation rubics.
**The group leader is in bold and italics**
Please submit a PowerPoint presentation to me by next Monday. I will compile them up.
Only group 4 will submit the presentation on Wednesday as the budget is released on Monday.

Our class will present on Thursday, 25th Feb 2010.

Just in case anyone has forgotten, our CLASS BLOG is still there. Although it is not updated anymore, feel free the visit it again. (:
http://09s101.blogspot.com/

Zhen Qiang

Hey 101! Thanks a lot for putting your effort into the blog!
Hope that you would not think that I am naggy during this period of time.

Here are the winners of the Economics competition:

1st Place: S107

http://econs107.blogspot.com/

2nd Place: S101

3rd Place S102

http://09s102economics.livejournal.com/

Keep the Blog Alive! (:

Zhen Qiang

We know that one of the way the government tries to intervene in the case of market power is through taxes. But did you know that taxes imposed by government on monopolistic firms have a special name given to them? (This is just additional information)

These taxes are called Windfall Taxes.

What Does Windfall Tax Mean?
A tax levied by governments against certain industries when economic conditions allow those industries to experience above-average profits. Windfall taxes are primarily levied on the companies in the targeted industry that have benefited the most from the economic windfall, most often commodity-based businesses.

Investopedia explains Windfall Tax
As with all tax initiatives instituted by governments, there is always a divide between those who are for and those who are against the tax. The benefits of a windfall tax include proceeds being directly used by governments to bolster funding for social programs. However, those against windfall taxes claim that they reduce companies' initiatives to seek out profits. They also believe that profits should be reinvested to promote innovation that will in turn benefit society as a whole. Windfall taxes will always be a contentious issue debated between the shareholders of profitable companies and the rest of society. This issue came to a head in 2005, when oil and gas companies, such as Exxon Mobil who reported profits of US$36 billion for the year, experienced unusually large profits due to rising energy prices.

(Taken from: http://www.investopedia.com/terms/w/windfalltax.asp)


Jun Hao

Get to know more about Perfect Competition!

The model of perfect competition is built on four assumptions:

• Firms are Price takers. There are so many firms in the industry that each one produces an insignificantly small portion of total industry supply, and therefore has no power whatsoever to affect the price of the product. It faces a horizontal demand 'curve' at the market price: the price determined by the interaction of demand and supply in the whole market.
• There is complete freedom of entry of new firms into industry. Existing firms are unable to stop new firms setting up in business. Setting up a business takes time, however. Freedom of entry, therefore, applies in the long run. An extension of this assumption is that there is complete factor mobility in the long run. If profits are higher than elsewhere, capital will be freely attracted into that industry. Likewise if wages are higher than for equivalent work elsewhere, workers will freely move into that industry and will meet no barriers.
• All firms produce an identical product. (The product is homogeneous) There is therefore no branding or advertising.
• Producers and consumers have perfect knowledge of the market. That is, producers are fully aware of prices, costs and market opportunities. Consumers are fully aware of the price, quantity and availability of product.

These assumptions are very strict. Few, if any, industries in the real world meet these conditions. Certain agricultural markets are perhaps the closest to perfect competition. The market for fresh vegetables is an example.

The model can be used as a standard against which to judge the shortcomings of real-world industries. It can help government to formulate policies towards industry.

Taken from John sloman Economics Fourth edition

- - Yingying

Hey friends! A comic to kick start your thinking process!

Question 1: How is...

1. Demand and Supply
2. Productive Efficiency
3. Market Failure
4. Government Intervention

shown in the above comic strip?

Question 2: What does...

1. The Boy
2. The Girl
3. The Women

represent in a market?

Question 3: What should...

1. The boy do to increase profits?
2. The women do to solve the problem?

Question 4: In comic box 9...

What is the girl doing and what decision making is going through her head?

Some thoughts...

How is the boy acting like a monopolist?
Is there any point in Economics which the comic has wrongly potrayed?

Zhen Qiang (:

Labels: Monopoly

What's wrong with this video?

Concept: Public goods and the free rider problem. What happens in the video? Two office workers discuss a new swear jar into which co-workers are supposed to put a quarter each time they swear. The man asks what the money will be used for and the woman says, "I don't know--we'll use it to buy something for the office, like a case of Bud Light or something." The rest of the video shows office workers swearing every chance they can. (Note: This exercise may not be appropriate for high school students, since it promotes both beer and profanity.)

The commercial assumes that the office workers don't object to contributing to a pool of money that will be used to buy a collective good--beer that can be consumed by anyone in the office, regardless of how much they contributed to the swear jar.

If people really behaved this way, there would be less need for the government to provide public goods like fireworks, roads, police protection, and lighthouses, since these services could be financed through private contributions. But the free rider problem suggests that consumers tend to contribute less to public goods than the cost of what they expect to consume. In this case, economists would predict that the office workers wouldn't contribute enthusiastically to the swear jar, since they'd be able to consume beer whether they contributed or not. (Note: Beer isn't a pure public good. It's non-excludable, but rival.)

source: http://www.econoclass.com/whatswrongwithvideo.html

Mervyn

Types of Market Failure

Competitive markets:
• provide the most efficient means of allocating resources to maximise the benefits to the community
• ensure the goods and services that consumers demand are produced efficiently, and
• encourage innovation and broader consumer choice.

‘Market failure’ has a very precise meaning in economics. It does not simply mean dissatisfaction with market outcomes. It refers to a situation when a market left to itself does not allocate resources efficiently. Where market failures exist, there is a potential role for government to improve outcomes for the community, the environment, businesses and the economy.

Governments may intervene to change the behaviour of businesses or individuals to address market failure or to achieve social and environmental benefits that would otherwise not be delivered. Government intervention is not warranted in every instance of market failure; in some cases the private sector can find alternative solutions.

There are four main types of market failure which are outlined below.

Public Goods

Public goods exist where provision of a good (product, service, resource) for one person means it is available to all people at no extra cost. Public goods are therefore said to be ‘non-excludable’ and ‘non-rival’. Free-riding is a problem with public goods. Because the good is non-excludable, everyone can use it once provided. This makes it impossible to recoup the costs of provision by extracting payment from users. The definition of a public good should not be confused with phrases such as ‘good for the public’, ‘public interest’ or ‘publicly produced goods’. There are very few absolutely public goods. Examples include national defence, law enforcement, clean air, street lights and flood control dams.
There may be a role for government in providing public goods or funding private provision. However, such intervention should only take place where it is clear the market would not find a solution to this form of market failure. Government intervention should not stifle private innovation.

Externalities

Externalities are costs or benefits arising from an economic transaction received by parties not involved in the transaction. Externalities can be either positive (external benefit) or negative (external cost). The existence of externalities can result in too much or too little of goods and services being produced and consumed than is economically efficient. For example, where the cost of producing a good does not include its full costs, say in relation to environmental damage, then a negative externality is said to exist. This results in the good being over-produced (and under-priced).

The government may try to address negative externalities through:
• regulation that mandates corrective measures
• persuasion (eg an advertising campaign to ‘Do the right thing’ and not litter)
• establishing property rights in the externality, and
• charging for pollution generating behavior

Goods associated with positive externalities are sometimes termed ‘merit goods’. Governments may have a role in encouraging increased consumption of merit goods through subsidisation of or public provision of such goods (eg free access to vaccinations). Mandating consumption is a regulatory alternative (eg compulsory schooling for all children).

Information Asymmetry

Information asymmetry occurs when one party to a transaction has more or better information than the other party. Typically, it is the seller that knows more about the product than the buyer, however, it is possible for the reverse to be true. Information asymmetry can prevent consumers from making fully informed decisions.
Regulation requiring information disclosure or placing restrictions on dangerous goods can be used to address this type of market failure. For example, when providing financial advice, financial service providers are required to disclose information about significant benefits and risks, and the fees and charges associated with the financial products, as well as remuneration they receive in relation to the services offered.
It should be noted, however, that information disclosure alone may not be sufficient to change behaviour where there is information asymmetry. Behavioural economics suggests that individuals do not always make decisions in their best interests based on the information provided. It may be necessary to use other instruments in conjunction with providing information to overcome this market failure.

Imperfect Competition and Market Power

Market power exists when one buyer or seller in a market has the ability to exert significant influence over the quantity of goods or services traded, or the price at which they are traded.
In perfectly competitive markets, market participants have no market power. The ability of an incumbent firm to raise its price above competitive levels is limited by the existence of or threat of competition.
The existence of market power can result in economic inefficiency because it may:
• allow firms to increase prices without a commensurate reduction in demand
• restrict competition by creating barriers to entry by other firms.
Examples of market power include monopoly (where there is a single supplier) and oligopoly (where a small number of firms control the market). Where market power exists, governments may intervene to correct the operation of the market or set prices at a competitive level.

Source: www.betterregulation.nsw.gov.au

Soon Ren Hao