Impacts of Increasing Petrol Tax

HWA CHONG INSTITUTION
Year One H2 Economics 2013

Tutorials #1-8: Microeconomics I Central Problem of Economics and
Theories and Applications of Demand & Supply
STUTORIAL #8: APPLICATIONS OF DEMAND & SUPPLY

SECTION A: ESSAY PRACTICE (1h)
TYS N2001 Q2(b)
(a) Explain price elasticity of demand and income elasticity of demand. [10]
(b) A government is proposing to increase the tax on petrol. Examine the relevance
of price elasticity of demand and income elasticity of demand for this proposal. [15]
Suggested Answers
INTRODUCTION
State why the government wants to increase the tax on petrol:
1. Increase in tax revenue collected
2. Discourage use of petrol to be more environmentally friendly or to deter car usage and hence
reduce traffic congestion.
This essay will examine the relevance of PED and YED on the impact of the increase in tax on petrol
on the governments objectives, and on the producers and consumers.
Note: To fully discuss the relevance, one has to examine the impact on the government,
producers and consumers. In the examiners report, it pointed out the impact on the 1 st two
groups, but it does not mean analysis on consumers is irrelevant.
BODY
(1) Examine the Relevance of the Price Elasticity of Demand on the objectives in the
SHORT-RUN.
Identify the tax to be an indirect tax and state that supply will be affected since cost of production
is affected.
Justify the demand for petrol is price inelastic as there no close substitutes for the motorists
who drive.
Illustrate using a diagram the impact on price and quantity and area of tax revenue
collected in the petrol market.
Hwa Chong Institution Economics Unit. All Rights Reserved. (Students copy)

Figure 1: Tax in the Petrol Market

Price
S2
S1
P2
A
P1
P3
0
Tax
D1
Q2 Q1
Quantity
Referring to Figure 1, before the increase in tax, the supply is at S 1, equilibrium price is P1 and
equilibrium quantity is Q1. With an increase in tax, the supply curve shifts upwards by the same
amount of tax (P1P3). Since demand is price-inelastic, when the equilibrium price increases to P 2,
quantity demanded decreases by less than proportionate to Q2. Total tax revenue is given by tax per
unit P1P3 multiplied by the new amount sold 0Q2, i.e. the sum of areas A and B.
The consumers or motorists share of the tax is given by area A since they now have to pay
higher price for petrol.
The producers share of the tax is given by area B as they have to give part of their revenue as
tax also. Producers revenue has reduced from P1*Q1 to P3*Q2.
In this case, producers can pass the burden of tax to the motorists as they know that they have
little better alternatives to turn to.
Objective of Impact on Government:
collecting
The tax revenue collected is significant as motorists are willing to bear the
tax
burden of the tax and thus cut back their consumption of petrol by less than
proportionate. As a result, tax revenue = tax*output is substantial.
Note: If output falls significantly as in the case of a good that demand is
price-elastic, the tax revenue will be less.
Impact on Consumers:
As long as motorists want to continue driving and the vehicles are run on petrol,
they will bear with the high price, i.e. pay the bulk of the tax.
Impact on Producers:
Producers also earn much lesser than before as part of their revenue is transferred
to government, i.e. area B.
Objective of
discouragin
g the use of
petrol
or
driving
Judgment: Thus to achieve high revenue, tax on price inelastic goods with be
effective.
Existing vehicles owners especially those who live in areas that do not have good
public transport) [S-factor], want to be mobile and thus they are less responsive to
the change in price of petrol, i.e. wont cut Qd for petrol. This is especially true if
the cost of driving is of small proportion to their income.

Judgment: Thus to discourage consumption, tax on price inelastic goods with
be ineffective.
(2) Examine the Relevance of the Price Elasticity of Demand on the objectives in the
LONG-RUN.
However, given time the demand for petrol will be more price-elastic as motorists are allowed to
adjust their consumption behaviour.
Reasons:
People are more environmentally friendly and aware of the negative consequences of
using too much petrol and more willing to cut back on driving especially for shortdistances or turning to alternative fuel such as CNG.
Government uses the petrol tax revenue to improve the public transport system in terms
of comfort and frequency. A more efficient public transport system is attractive to
motorists to switch from driving.
Once demand is more price elastic, quantity demanded for petrol will fall more than proportionate with
the tax.
Objective
collecting tax
of
Tax revenue will be lesser since the same amount of tax is multiplied by a
smaller output.
Objective
of
discouraging the use
of petrol or driving
Objective is achieved since more motorists are willing to cut back on

driving.
Evaluation: The above is only true if demand is indeed more price elastic. If owning a car is
deemed to be a symbol of status, not many motorists will give up driving. Also, as country
becomes more affluent, more people will still continue to drive. Moreover, if the government
fails to provide a better public transport, given time, it has little impact on the motorists as
there are no better alternatives to turn to!
Note: An increase in petrol pricing will eventually Increase the cost of transportation for both
private and public transport and hence cost of living increases.
(4) Examine the Relevance of the Income Elasticity of Demand
State: In this case, income elasticity is less useful or of limited use
E2
Government: The YED of petrol is likely to be positive and greater than 1. This means that if income
increases, demand will increase more than proportionately. For the government, this will mean more
tax revenue but also a worsening of problem of traffic congestion.
Application for YED is mainly for producers output decision based on the performance of the
economy. However, this questions focus is on the increase in tax, which has nothing to do with
economic performance. Hence YED has no relevance to explaining the impact of increase in tax on
petrol on producers.
CONCLUSION
PED is more relevant in examining the impact the increase in tax on petrol on governments

objectives. YED on the other hand is not so relevant due to the lack of information on the state of the
economy.
Section B: STRUCTURED QUESTIONS

1.
In order to ensure unskilled workers a minimally adequate standard of living, the US

Congress instituted a minimum wage. In Singapore however, there is no minimum
wage law.
(a)
With the aid of a diagram, explain how this law will affect the market for unskilled
workers in the US.
Tutors can get students to define / clarify what is meant by unskilled labour and give
examples: Unskilled workers => low-wage; little marketable skills e.g. cleaning jobs
A minimum wage law is a regulation that makes hiring labour below a specific wage
illegal. By legislating the minimum wage workers earn, it raises the wages of the bottom
earners, reducing the income gap.
Wage
SS
Wm
Minimum wage
We
Figure 13: Price floor (minimum wage)
DD
Qd
Qe
Qs
Qty
General explanation: Referring to Figure 13, suppose initially, equilibrium is attained in the
labour market. Equilibrium wage: We and quantity exchanged: Qe units of labour.
After the minimum wage Wm is imposed,
Quantity exchanged: Qd units of labour
Qd units of labour enjoys a higher wage rate
Surplus of (Qs-Qd) units of labour
Retrenchment of (Qe-Qd) results
(b)
In imposing the minimum wage law, does it mean that the goal of US Congress has
been fulfilled?
Yes: Unskilled workers who are still employed do get to enjoy a higher wage rate.
No: Major drawbacks
Increase in unemployment (surplus or excess labour at min wage) - this is worse
than low-wage. Unemployed earns no wage! "Out of the frying pan into the fire"
Black market: Workers desperate for jobs tempted to enter the black market to seek

employment. They are willing to work for below the legal min. wage. However, as
illegal workers, they run the risk of abuse by unscrupulous employers e.g. no
medical benefits; off days; no workman compensation.
(c)(i)
Why has the Singapore government been reluctant to impose such a law? Support your
answer with various evidences from the Internet such as Ministry of Manpower, news articles,
etc.
Minimum wage laws are not considered an effective way to help the lower income
workers in Singapore.
Reason: It will increase the unit cost of production of firms, especially those in retail,
service and construction sector. If producers cannot pass down these extra cost, then
some firms may move out of Singapore to countries with lower labour cost (but equally
productive). If they can may pass down the additional cost, consumers will loss out in
the form of higher prices loss of consumer surplus and hence consumer welfare.
Either way, Singapore will be less competitive especially when we need to depend
heavily on trade and investment. if demand for our exports and/or investment decline
lower growth lower demand for workers may lose their jobs
Furthermore, minimum wage distorts the labour market, which may result in
unemployment (Ls>Ld at a wage higher the eqm wage)
Instead, the governments policy is to help raise the wages of this group of workers
through equipping them with better skills ie upgrading skills and productivity. This is
best achieved by subsidizing and providing training for them so that they can take on
jobs which are better paid.
Conceptually this approach can be illustrated by a rightward shift of the demand curve
for low-skilled labour. The benefits of this approach are:
(a) Low wage workers earn more
(b) There will be increased employment
(c) No retrenchments.
Students to present evidence to support above analysis where possible.
(ii) What alternative measures has the government undertaken to ensure unskilled labour a
minimally adequate standard of living?
SG uses a positive approach to help low-wage workers. (Instead of min wage, SG govt
took the approach of min skill to ensure that they are employable)
(1) Boosting of labour productivity and skills.
Benefit both workers as well as the economy.
For workers, they gain better skills which will increase the demand for their labour,
hence raising their wage rates.
Good for the economy as this represents an outward shift of PPC, hence achieving
potential growth. (Tutors can link this back to what students have learnt under
factors that shift the PPC outwards).

Examples: Skills upgrading programmes, helping school dropouts learn skills (such as
basic English and computer literacy skill e.g. BEST programme - Basic English for
Skills Training), Job redesign.
(2) Social safety Net
CDC bursaries/scholarship for students from financially needy households e.g.
Mendaki; Sinda.
CPF top-ups for retirement
Medifund etc.
WIS
There is no minimum wage in Singapore, but there is workfare income supplement for
older low-wage Singaporeans who earn less than S$1,700 can receive a maximum
payout of $2,400 p.a. paid usually in 2 parts ( 6 monthly payments)
Partly cash and mostly paid into Workers CPF
Conceptually it is a NIT (negative income tax scheme). Instead of paying taxes, the low
income received income supplements provided they work and contribute to CPF. A
clever way of helping them without sapping their incentive to work.
Find out more on the Workfare Income Supplement (WIS)
One should note that WIS does not result in unemployment unlike as in the minimum
wage law. In fact, WIS is meant to encourage regular work. To qualify for WIS, one has
to have at least 3 months of work for every 6 month period and two WIS payments a
year.
Secondly, it does not distort the labour market as workers are still paid the market rate
from the point of view of the employers.
The only apparent shortcoming is that the supplement comes from tax payers in the
form of wage subsidy. But the subsidy offered by the state could be argued on the
grounds of correcting income inequality.
Limitations: First, the worker must work for at least three months before he is entitled to
workfare supplement. Secondly, a substantial proportion of income supplement is
allocated into CPF. Unless the worker is entitled to Comcare and other welfare benefits,
his household income may not change substantially
Refer to Appendix 1 for additional information.
2 (a) What is meant by maximum price?

Maximum price, also known as price ceiling, is a legally established price cap below the free
market equilibrium.

Note: If the cap is fixed at say $10, sellers can legally sell the product at any price below $10.
(1)Rent control - use to provide affordable housing for the poor and low-income households.
(2) Control prices of basic necessities in times of crisis/severe shortages e.g. oil, rice, sugar
enable poorer households to gain access to these necessities
2 (b)(i) The diagram illustrates a market for wheat with a government set maximum price of 0P
above the current equilibrium price.
Price
SS
P
DD
0
Quantity
Which of the following scenario(s) could cause the set price to have an impact on the market?
(a) A bumper wheat harvest
Yes / No
(b) An advertising campaign for bread
Yes / No
(c) An increase in tax placed on wheat farmers Yes / No
(b)(ii) Explain your choice(s).
Scenarios (b): Advertising campaign Increase DD and hence could cause eqm price to
be above max price 0P. Note: It is only true if the advertisement is successful to
encourage people to eat more bread.
Similarly for Scenario (c) Decrease SS eqm price likely to exceed 0P. However, for
Scenario (a) Increase SS eqm price will fall even lower max price will not have an
impact.
SECTION C: CASE STUDY PRACTICE

TYS N2009
THE IMPENDING GLOBAL FOOD CRISIS
SUGGESTED ANSWERS
(a)
Compare the change in food prices between 2000 and 2007 with the change in petroleum prices over
the period.
[2]

Similarity
The prices of both food and petroleum have risen. [1]
Difference
However, the prices of petroleum have risen much faster than food. [1]
Examiners Report:
This was well answered by most candidates. Very few now provide descriptive, chronological
approaches to this type of question, and very few fail to make explicit points of comparison. The
most common comparative points provided were that while the price of both commodities had
risen, petroleum prices had risen most rapidly.
FYI
Skill: Ability to read from data in the form of Price index.
The question is a little tricky. Since 1995 =100 some might misread the 78.9 index for 2000 as a fall in food
prices initially. However according to this question, the starting point for comparison is 2000 not 1995!
Change:
1 Direction i.e. rise/fall/flat
2 Pace i.e. fast/slow or sharp/gradual
(b)
Weights
It is interesting to note that as a whole, petroleum takes up a heavier weightage (nearly 40% of primary
commodities) compared to food (about 21.7%) suggesting expenditures on petroleum (energy) is more
significant than food.
With the help of a diagram explain the effect of the introduction of food price controls as described in
extract 1.
FYI
Extract 1 makes references to price controls on food items e.g. milk, bread, beef and chicken in countries like
Russia and Venezuela which resulted in food shortages.
Explain using economic analysis:
Effects
With reference to figure 1, assuming a maximum price or ceiling price is imposed at (Pc) below the
prevailing market equilibrium price (P), sellers cannot sell legally at any price above Pc.
At Pc, the quantity demanded (q2) exceeds quantity supplied (q1) in the market thus creating food shortages.
[1m]
FYI Max price control is meant to stop market prices from going too high. So, it should be imposed below the
market price, which presumably is already considered too high.
Figure 1 (1m)
Shortage
P
S
P
Pc
D
Hwa Chong Institution Economics Unit.QAll Rights Reserved. (Students copy)
q1
q2
[2]

Examiners Report:
This question was also successfully answered by many candidates. The idea of price controls
seems to be well understood. The majority of candidates were aware that to be effective a price
ceiling had to be set below the equilibrium price, but that the outcome of this would be that
demand would extend and supply contract and a shortage would result. This line of explanation
confirmed the narrative of the text where food riots occurred as a result of the shortages. A
number of errors were common, however, including answers that placed the controlled price
above the equilibrium. This would, of course, have no effect. In addition, some candidates placed
the price ceiling on the diagram correctly, but failed to explain that this lower price would lead to
an excess demand for the product. This was the effect that needed to be identified, and without
this the answer was incomplete and a mark lost.
(c)
Explain why an increase of 70 million mouths to feed each year may cause food prices to rise, showing
how low stocks of food would affect the extent of this rise in the short run.
Figure 2
S1
S2
P1
P2
P
D
D1
Q1 Q2
xplain why SS curve is very steep or price inelastic [ Use SNIT acronym]
With reference to Figure 2, the supply of food tend to be a very inelastic as shown by the vertical S curve S1.
This is because due to the low stocks of food, suppliers cannot easily respond to an increase in demand in
the short run. In the case of food, it is not possible to increase supply at short notice, if suppliers do not keep
sufficient stocks as reserve.
Explain why DD curve has shifted rightwards due to rising population [ Use PTIDE acronym]
With rising population the demand for food increases, shifting the D curve rightwards.
Explain the combined effect
The combined effect of an inelastic S curve and a rightward shift of the D curve causes the price of food to rise
sharply to P1. In contrast, if supply is relatively elastic as depicted by S2, prices should rise moderately to P2.
Examiners Report:
In order to score well on this question, candidates needed to explain two aspects. Most
candidates knew that with an increase in population there would be an increase in the demand
for food and that this would result in a shift in the demand curve to the right. As a result, many
gained two marks out of the four marks available. Many candidates, however, failed to grasp the
second element of the question. This concerned the reference to how low stocks of food would
[4]

affect the extent of this rise in the short run. Many assumed that the impact of low stocks of food
would lead to a shift to the left in the supply curve of food. This was not correct. The shift to the
left in the curve could explain how the low stocks of food came about, but not the impact of such
low stocks of food on the extent of the rise in price. The correct explanation required reference
to the concept of supply elasticity. If stocks of food are low, it would result in an inelastic supply
of food and the impact would be a large rise in price. Those candidates who grasped this
important concept and applied it successfully generally scored well.
(d)
Extract 3 describe the use of subsidies in the market for bio-fuels. With the use of diagrams, explain
the way in which subsidies affect the allocation of resources between bio-fuels and food.
Figure 3: The Market for Biofuel crops
S1
Price
S2 (subsidy)
P1
P2
D
Q1
Qty
Q2
Figure 4: The Market for Food crops
Price
S4
S3
P4
P3
D
Qty
Q4 Q3
Empirical context:
Extract 3, para 3 refers to the surge in land use from 12m to more than 80m hectares worldwide over 6 years
for biofuels due largely to subsidies provided by the government. This can be explained with reference to
figure 3 and 4.
Economic Analysis:
10
[4]

Impact on market for bio-fuels
The land for growing crops has alternative uses. They could be used either to grow food crops or biofuel
crops. In other words, food crops and biofuel crops are in competitive supply. A subsidy for growing biofuel
crops, ceteris paribus lowers cost and increases profit, thus increasing producers willingness to produce and
sell biofuel crops. In figure 3, this is shown by a rightward shift of the S curve from S1 to S2 (subsidy)
As a result more resources are allocated to produce biofuel crops as indicated by an expansion of the market
equilibrium quantity from Q1 to Q2.
Impact on the market for food crops
As more land is devoted to produce biofuel crops, less is available for producing food crops. This is illustrated
in Figure 4 by a leftward shift of the supply curve from S3 to S4 . As a result the market equilibrium quantity
contracts from Q3 to Q4. Hence, less resources are allocated to producing food crops.
Examiners Report:
In response to this question, candidates needed to understand the impact of subsidies on the
market for bio-fuel and provide an appropriate diagram. The impact would be that the supply of
io-fuel would increase, leading to a fall in equilibrium price and a rise in equilibrium quantity. This
would draw resources away from the production of crops for food since it was clear from the
context of the case study that crops for food and crops for conversion into bio-fuel were in
competitive supply. This question tested the powers of comprehension of candidates and was
generally done well although quite a few candidates failed to grasp the context of the case study
and became quite confused. Those candidates who had read and carefully considered the
material contained in the case study generally did well.
Comments:
For all the work required to draw diagrams and provide a basic analysis 4 marks appear to be too
demanding. The skill we need to teach is the ability to give the right size answer according to mark allocation.
The challenge is to summarise the analysis so as to focus only on the most essential elements as befitting the
context. In this context the focus seems to be to explain the link between competitive supply and subsidies.
(e)
In a competitive market a firms profit would be competed away, whereas Shell and other oil
companies have been able to make large profits over a long period of time. Discuss.
[NOT REQUIRED FOR THIS TUTORIAL]
Contextual reference
With reference to extract 2, giant oil companies like Shell was reported to have reap obscene profits in 2007
amounting to 14 billion or the equivalent of 1.5m per hour. In theory this type of profits is a reference to
supernormal or excessive profits associated with monopoly power.
Analysis
Thesis High Barriers to Entry
This is possible because the oil market is dominated by few big/major players or firms. There are high barriers
to entry, some of which are natural (e.g. control over oil reserves; Oil exploration and extraction entails high
capital outlay) while others are artificially erected (e.g. branding; mining license). The presence of high entry
barriers enable existing firms to make supernormal profits even in the long run.
Anti-Thesis No barriers to entry
In the event that the oil market becomes more competitive these supernormal profits would be competed away
by the entry of new firms in the long run.
Illustrate with a diagram to show how in PC markets any supernormal profits would be competed away by the
entry of new firms.
Conclusion
In reality the large or supernormal profits are likely to stay as barriers to entry are high in this industry.
However, the government could intervene to bring about greater equity as suggested in extract 2 para 2 by
imposing a windfall tax to redistribute the excess profits away from the oil companies to the rest of society.
11
[8]

(f)
As a consultant economist, what options would you present to the worlds governments as possible
responses to the threat of food shortages and what would you recommend? Justify your answer.
FYI
Empirical context
The data suggest the root of the problem of food shortages is the inability of global supply to cope with the
rising demand for food as the world population grows at an estimated rate of 70 million new mouths per
year. The consequences are hunger and starvation especially for the poorer regions of the world if the problem
is left unchecked
Introduction
The threat of food shortages is essentially, in theory a problem related to a market in disequilibrium.
In theory, 3 possible approaches can be used to solve the problem of food shortages:
1 Remove price control
2 Increase SS
3 Reduce DD
Diagram to illustrate:
12
[10]

Price of food
Market for Food
Pe
Qty of food
P ceiling
13

REFLECTION
1. What have you learnt about the following concepts:
(a)
Central Problem of Economics
(b) Demand & Supply
(c)
Elasticities (PED, PES, YED, CED)
(d) Applications (Taxes, Subsidies, Price Controls)
2. What are some of the concepts that you are still unclear about?
3. What do you intend to do with these unclear concepts?
4. What have you learnt about the following skills:

(a) Essay writing
(b) Case study
5. How would you ensure that your skills in the above areas are polished?
14

Appendix 1
Resources for Tutors:
Background to min wage laws: Every country is concern about those "left behind" by the market ie
workers whose earnings fall below a certain minimum acceptable standard of living. Singapore
policy is to help this group without sapping their incentive to work:
(1) Subsidise training/skills upgrading (shift demand for labour curve rightwards) -pro-market.
(2) WIS (condition they have to work at least 3 mths for every 6mths to be entitled to WIS
Workfare Income Supplement (WIS) Scheme
The Workfare Income Supplement (WIS) Scheme was announced during the 2007 Budget Speech
as a permanent scheme following the one-off Workfare Bonus Scheme. The objectives of WIS are
to supplement the wages and CPF savings of older low-wage workers as well as to encourage
them to stay employed.
After 3 years in operation, the scheme was reviewed and two broad changes have been made.
First, enhancements have been made to WIS to refine and strengthen it. Second, the Workfare
Training Scheme (WTS) has been introduced to help low-wage workers train and upgrade so that
they can earn more.
With the latest enhancements, with effect from 1 January 2010, the maximum payout for WIS is
now $2,800 per year (up from $2,400 previously) to encourage older low-wage workers to seek and
to remain in employment. The maximum qualifying average monthly income is now $1,700 (up from
$1,500 previously).
15

Extracted from Committee of Supply (Speech 2) by Minister for Manpower Mr Gan Kim Yong,
11 March 2010, Parliament
http://www.mom.gov.sg/Home/MOM_Speeches/Pages/20100311CommitteeofSupply(Speech2)byMinisterforManpowerMrGanKimYong,11March2010.aspx
WIS review
(1)
We introduced the Workfare Income Supplement or WIS scheme in 2007 to help older lowwage workers who are more vulnerable to wage stagnation. The WIS scheme rewards work
by supplementing the workers incomes and building up their CPF savings. Since 2007, the
Government has given out over $300 million in WIS every year to about 300,000
Singaporeans.
(2)
When WIS was introduced, we said that we would review it in three years. The ESC has
also recommended that WIS be reviewed as it is an important part of our approach to bring
about inclusive growth. My Ministry has completed this review and found that WIS has
worked as intended by supplementing low-wage workers incomes while preserving work ethic
through its emphasis on rewarding work. The design of WIS is fundamentally sound, but can
be strengthened further.
Adjustment of WIS
(3)
The strong growth in 2007 and early 2008 has enabled the bottom 20% of workers to enjoy
real wage growth over the past three years. However, they remain more vulnerable to
economic shocks than other income groups. We can do more to help them.
(4)
First, we will increase the maximum WIS that a worker can receive. A low-wage worker
aged 60 and above can now receive up to $2,800 in WIS, $400 more than before. We will
also extend the income ceiling to qualify for WIS from $1,500 to $1,700.
(5)
It remains an important objective of WIS to help workers save through their CPF. With the
increase in WIS payment quantum, the cash component will correspondingly increase. For
example, a worker aged 60 with an income of $1,000 will receive $686 cash currently. With
the adjustment under WIS, he will receive $800 in cash, $114 or 17% more.
(6)
On suggestions to pay WIS quarterly and shortening the work criteria, WIS is meant to
encourage regular work. Hence, requiring at least 3 months of work for every 6 month period
and making two WIS payments a year are more appropriate.
(7)
We will however adjust how the first payment is made. Currently, we make a provisional
payment in the middle of the year based on work done in the first six months. However, once
we assess the workers overall eligibility at the end of the year, he may qualify for lower WIS,
or none at all, resulting in a need for us to recover the excess WIS payments. This is not
ideal. Henceforth, the first six-month period will be assessed independently from the end-ofyear annual assessment. This means that recipients will be able to keep the mid-year WIS
payment they receive, regardless of their income in the second half of the year.
16

(8)
As WIS is a broad-based scheme, we have to keep the scheme and the criteria simple.
Existing criteria are easy to administer and serve the purpose. There are other schemes
available to help those who may have unique family profiles.
(9)
It was earlier suggested to exclude overtime pay from WIS eligibility. Basic salary, over-time
pay or bonus are all income that helps support the worker and his family, and should be taken
into consideration. We also do not wish to motivate employers to reduce basic pay and
increase overtime. WIS is designed such that the sum of a workers pay and WIS will always
increase if a worker earns more. Let me explain with a slide. Mr Huat is a 45-year-old pipe
fitter. He earns $1,200 a month and will receive $1,283 in total average income, after adding
an average WIS of $83 a month. If his salary increased by $200 to $1,400, his average WIS
drops to $50 per month, but his total income of $1,450 is still higher than the $1,283 he used
to receive.
(10) The enhanced WIS scheme will apply to work done in 2010 onwards. The first payment for
work done in the first half of 2010, will be made in September this year. Self-employed
persons and informal workers who declare their income for the first half of 2010 and make
their Medisave contributions by 31 July can also receive their first WIS payments in
September.
(11) Self-employed persons will receive WIS automatically once they declare their income and
make the required Medisave contributions.
(12) The enhanced WIS scheme is expected to benefit up to about 400,000 workers. This is
higher than the 320,000 expected recipients for 2009. To fund the enhanced scheme, we will
increase the budget allocated for WIS to $440 million a year.
17

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HWA CHONG INSTITUTION

Year One H2 Economics 2013

STUTORIAL #8: APPLICATIONS OF DEMAND & SUPPLY

HWA CHONG INSTITUTION

Figure 1: Tax in the Petrol Market

HWA CHONG INSTITUTION

Objective is achieved since more motorists are willing to cut back on

HWA CHONG INSTITUTION

Section B: STRUCTURED QUESTIONS

In order to ensure unskilled workers a minimally adequate standard of living, the US

Figure 13: Price floor (minimum wage)

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2 (a) What is meant by maximum price?

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SECTION C: CASE STUDY PRACTICE

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Hwa Chong Institution Economics Unit.QAll Rights Reserved. (Students copy)

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Figure 4: The Market for Food crops

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HWA CHONG INSTITUTION

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Market for Food

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Central Problem of Economics

(b) Demand & Supply

Elasticities (PED, PES, YED, CED)

(d) Applications (Taxes, Subsidies, Price Controls)

3. What do you intend to do with these unclear concepts?

4. What have you learnt about the following skills:

(b) Case study

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HWA CHONG INSTITUTION

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