PRICES & MARKETS

Name: Boo Pei Xun

Student ID: S3531301
Tutorial 4

Bigger baby bonus and Medisave grants for parents, an article in The Straits
Times, attached.
The question for the analytical exercise is: The baby bonus is a form of
government intervention. Which market failure do you think the government is
mainly trying to correct with this bonus, and how?

The Market for Babies developed in

Singapore
Supply1 (private
cost)
Supply
2

COST OF
HAVING
BABIES

External
Benefit

[SocialCost=(Private cost
externalities)]

P1=Cost of bringing up a child

when parents consider their
private benefits
P2=Cost of bringing up a child
at social optimal number after
government intervention

P
P
0

LEGEND

Demand (private
benefit)

QM QOP
QUANTITY OF BABIES

QM= the number of babies

born when the parents
consider only their private
benefits
QOPT= the social optimal
number of babies

Due to ageing population, government intervenes to correct the negative market failure by
increasing baby bonus to subsequent child birth. Each additional child will provide benefit to
society to replenish the workforce. With a successful intervention, parents will bear a lower
cost for producing babies subsidised by government, thus promoting higher birth rate.
Therefore resulting in the shift of supply curve to S2 after receiving external benefit from the
original S1. Government will increase baby bonus to reach out to the social optimal number
of babies (QOPT). This will result in more economic growth and higher income for the nation.

Word Count: 100

Name: Boo Pei Xun

Student ID: S3531301
Tutorial 5
London New Years Eve fireworks made ticket-only for first time, an article in
The Guardian, attached.
The question for the analytical exercise is: The New Years Eve fireworks event in
London was ticketed for the first time last year. Which market failure do you think
the government was mainly trying to correct with this ticketing, and how?

Government is targeting to control free rider and overcrowding situation (Negative

Consumption Externality). Government implement the ticketing strategy as tax to individuals
who wants to view the fireworks so that they can control the number of people watching the
fireworks from close proximity.
However, Firework, being a public good, is non-rivalrous and non-excludable. Government
will barricade the platform to form a viewing area for fireworks which will only allow people
who purchase the ticket to enjoy the fireworks. Firework is not a complete public good. This
should eliminate the issue of overcrowding and restrict the number of people viewing
fireworks.

Word Count: 100

Name: Boo Pei Xun

Student ID: S3531301
Tutorial 6
EU Singapore FTA Finalised, an article in The Establishment Post, attached.
The question for the analytical exercise is: Explain whether, and if so how, you
would expect the removal of Singaporean tariffs on EU products to affect the
overall economic wellbeing of Singaporean society.

The Import Market for EU goods

in Singapore
The Import Market for EU goods
in Singapore
PRICE OF
IMPORTE
D GOODS

Domestic
Supply

LEGEND
= Producer surplus (EU surplus)
= Consumer surplus (Singapore
consumer surplus)
= Deadweight loss due to tariff
= Revenue that Singapore
government earns

P
World Price
+ Tarif
World Price

P1
A

Q1 Q2

=Domestic Price

Tariff

Q3 Q4

QUANTITY GOODS

Eu exporters will be granted immediate duty-free access to Singapore market for

all products. The tariffs will be removed, thus lowering the prices of goods for
consumers. There will be an increase in consumer surplus of areas A + B + C +
D. As imports increase from Q3-Q2 to Q4-Q1, the government will lose tax
revenue of area C. Domestic firms will tend to sell lesser and lose producer
surplus equal to Area A. There will be an increase in economic welfare of B + D.
However, the degree of increase will be dependent upon the elasticity of supply
and demand.
Word Count: 100

Name: Boo Pei Xun

Student ID: S3531301
Tutorial 7
Container firms order new ships to gain economies of scale, a Reuters article,
attached at the end of this guide.
The question for the analytical exercise is: Explain how you would expect the
upgrade to larger vessels to help shipping companies achieve economies of
scale. Is this the only way for these companies to achieve such economies?
You may need to conduct some independent research beyond your textbook to
answer this question.

Cost

Long Run ATC

Diseconomie
s of scale

Economie
s of scale
0

Constant
returns to
scale

Quantity

Economies of scale occur when the long run average total cost declines as
output increases.
With larger vessels, the shipping companies incur higher total cost from the
vessels but total output from the vessels will increase significantly higher than
the total cost. Therefore, in a long run, the cost will be reduced as larger vessels
will have more capacity to carry goods and thus achieving economies of scale.
Another alternative way to achieve economies of scale can be by specialisation
of job scope and division of labour. With proper specialisation, the output will
increase with the same amount of cost.
Word Count: 100