• Solutions to Market failure done by the government. (Taxes/Subsidies, Legislation)
• The governement aims to enusure MSB=MPB and MSC=MPC, such that there would be no welfare loss (Economic Efficiency is attained).

• Information Failure arises when consumers do not get the right information or lack of relevant information. In other words, ignorance.
• Merit goods are goods that are underconsumed (education, healthcare)
• Demerit goods are goods that are overconsumed (junk food, drugs)
• Both results in divergence in the benefit curves.
• Solutions include taxes/subsidies, legislation, education.

• Asymmetric Information occurs when one party has more information than the other concerning the transaction. (Insurance)
• Adverse selection is a transaction between 2 people with different amount of information.

New Questions:

1. Using economic analysis, explain why the Singapore governement is increasing its spending on Reasearch and Development (R&D).
2. Suggest reasons why the government has increased R&D expenditure gradually.

Bouns Question:

Describe the trend in the Private Sector Expenditure on R&D from 2000 to 2007.

Figure 1 : Gross Expenditure on R&D (GERD) and Private Sector Expenditure on R&D (BERD), 2000-2007

Source: http://www.a-star.edu.sg/a_star/189-Press-Release?iid=607

http://www.straitstimes.com/Breaking+News/Singapore/Story/STIStory_291903.html

Zhen Qiang