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Cigarettes is a type of demerit good as it exhibits negative externalities from consumption. They are deemed to be socially undesirable. Negative externalities refer to incidental costs to third parties that are not taken into account by those who are involved in the activity.

A smoker will only take into account his private costs (price of the packet of cigarettes and own smoking-related health problems) and private benefits (satisfaction derived from smoking).

However, he does not consider the negative externalities that would be generated by his smoking (smoking-related health problems on passive smokers, costs incurred to society for having to provide healthcare for smoking-related health problems as well as clearing and maintenance costs for the litter).

The social cost from undertaking the activity is the private cost faced by the smoker as well as external costs accruing to third parties. Negative externalities will lead to divergence of private cost and social cost. With the presence of negative externalities, social cost will be greater than private cost.

Market failure is likely to exist because the negative externality is underpriced by the price mechanism. If cigarettes were provided through the free market, social costs of smoking exceed the private costs. Private optimum occurs at Qe where PMB (the benefit to the individuals of smoking the last unit of cigarette) equals PMC (the cost to the individual of smoking the last unit of cigarette).

The socially efficient level is where SMC=SMB i.e. at output Qs. Therefore, there are too many scare resources devoted to the consumption of cigarettes. There will be over-consumption of cigarettes because society values an extra unit of cigarette less than what it would cost society to produce it. Shaded area represents the welfare loss to society as a result of this over-allocation of resources. Society as a whole could be made better off if the current level of cigarettes were reduced to socially efficient level. (Qs)

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Economics News by Econs Tutor Anthony Fok
Topic: Unemployment

Singapore’s total employment contracted at a slower pace in the third quarter of 2020, with resident employment rebounding to near pre-pandemic levels, according to preliminary estimates from the Ministry of Manpower (MOM). Total employment, excluding foreign domestic workers, shrank by 26,900 in Q3, slowing down from the 103,800 seen in the previous quarter. The ministry attributed the decline to the continued contraction in non-resident employment. Retrenchments continued to rise and have exceeded the peak of previous recessions with the exception of the 2009 global financial crisis, which saw 12,760 layoffs. In Q3, there were 9,100 retrenchments, compared with 8,130 in Q2. On the whole, unemployment rates continued to rise. Overall unemployment rate rose to 3.6 per cent in September compared to 3.4 per cent in August; resident unemployment rate inched up to 4.7 per cent from 4.6 per cent and citizen unemployment rate went up to 4.9 per cent from 4.7 per cent over the same period.

During a media briefing, Manpower Minister Josephine Teo said the growth in resident employment is partly attributed to the resumption of activities as Singapore began its phased reopening, following its partial economic shutdown during the “circuit-breaker” period in April and May.

“Some positions had gotten vacated in the second quarter, and so in the third quarter, since business activities have resumed, so there is a little bit more backfilling of those positions,” Mrs Teo said.

In addition, employers and workers have been very invested in collective efforts to save jobs, such as through wage cuts and retraining programmes, she said. However, Mrs Teo said it would not be wise to assume that the rebound in resident employment levels can be sustained without effort. While the fourth quarter of the year typically sees an uplift in past years, this is due to increased seasonal spending, travel and tourism, which are subdued this year, she said, as consumer sentiment turns cautious and borders remain largely closed. She added that many countries are now fighting a second or even third wave of infections, so one should not assume the path ahead to be easy.

“We have a little bit of a reprieve now – the third quarter is, to me, a source of relief. But it simply means we’ve gotten ourselves to a level where the ship is more stabilised but we need to put in the effort to keep it sailing,” she said.

Questions for discussion during economics tuition classes:

  1. Explain the various causes of unemployment in Singapore.
  2. Discuss the policies available to solve the unemployment problem in Singapore.

 

How do I write good introductions?

A good economics essay introduction captures the reader’s attention and gives an idea of the essay’s focus. It requires students to define key definitions and list the overview and scope of the question.

Clear Definitions: Define the keywords in the question

Definitions are important to showcase the student’s level of understanding of the content to the examiners. Therefore, students should make a list of definitions, as they will come in handy when preparing for the exams. Alternatively, students may purchase ready guidebooks, which list the common definitions that they need to memorise in the A-level economics syllabus.

Writing an overview

If the essay question asks about a specific country or a particular market structure, it is important to also describe some characteristics of the country or the market structure given in the question. For example, if the essay is on the Singapore economy, students need to write something like this:

“Singapore is a small and open economy. Its small population size and lack of natural resources will mean that it has a small domestic market and is heavily dependent on trade for growth and survival. Singapore is thus very vulnerable to external shocks, which cause instability to the economy.”

Next, if the essay is on a perfectly competitive market, then an appropriate introduction would be as follows:

“A perfectly competitive market is characterised by the fact that no single firm has influence on the price of the product it sells. A perfectly competitive market has several distinguishing characteristics: there are many buyers and sellers in the market; the commodity sold is homogeneous; there is free entry and exit from the industry; perfect mobility of factors of production; transport costs are assumed to be negligible; both buyers and sellers are independent in their decision making and there is perfect knowledge.”

Scope: State the scope of the question clearly

Students need to define the scope of the essay clearly from the beginning, so that they do not go out of point. Tell the examiner the areas that will be discussed in the essay briefly in the introduction so that he can anticipate what is about to come up in the script. Students can use phrases such as: “This essay aims to explain…” to state the scope of the question.

How do I write a good body?

Topic sentence and Economic Analysis

Each paragraph of the body should only contain one key idea, which should be conveyed in the topic sentence. The key idea should be based on economics theories, principles and concepts.

An example of a topic sentence is as follows:

“In Singapore, the government has encouraged employers to adopt a flexible wage system which would help reduce unemployment during economic downturns.”

Drawing Diagrams

Diagrams should be drawn whenever appropriate and references must be made to the diagrams (e.g. A rightward shift of the demand curve from DD1 to DD2). The axes should be labelled as specifically as possible. (e.g. Instead of merely labelling price and quantity, the axes could be labelled as Price of Housing and Quantity of Housing respectively). Arrows that depict the shifts of the curves should also be clearly drawn in the diagram. The diagram should be drawn using a pencil and ruler and should preferably take up about one-third of the foolscap paper.

Using Contextual Examples

Students need to include examples in their essay in order to demonstrate their ability to apply economic theories into real world events. When possible, students should use the context given in the preamble and avoid using hypothetical examples in the essays.

Example 1:

In Singapore’s context, an example of a natural monopolist is the Public Utilities Board (PUB), which supplies water. The domestic size of the market is too small to support more than one large firm.

Example 2:

The Singapore government adopts market-oriented policies such as manpower policies to upgrade the skills of workers facing the threat of structural unemployment. An example of such a policy is the Skills Redevelopment Programme introduced to retrain displaced workers for employment in the InfoComm sector, Workforce Development Agency (WDA) Workforce Skills Qualification (WSQ) programme to train workers in sector specific skills and job redesign to make jobs more attractive to workers, especially among the older workers.

How do I write good evaluation points?

The evaluation can be what sets students apart from others if written well. Here are some things that examiners are looking for when reading an evaluation:

1 Recognise underlying assumptions. For example, in dealing with questions on demand and supply, it is important to write about the ceteris paribus assumption and also to give an example of how it can be altered in the short term. i.e. taste and preferences of a consumer may change over time.

2 Consider the time frame: Different policies might have different impact on the economy in the short term versus long term. For example, supply side policies need time to take effect and thus, require a long time frame.

3 Consider the feasibility of the policy: The extent to which a particular policy can be implemented. For example, an expansionary fiscal policy might not be feasible for a country that is facing a huge budget deficit.

4 Consider the effectiveness of the policy implemented and whether it can solve the problem. Students could consider the unique nature of the economy given in the question. For example, an exchange rate policy would be more effective in a small and open economy, rather than a large and less open economy.

5 Consider the desirability of the policy: whether there are any side effects that the policy might have on other economic objectives, i.e. whether there are conflicts of goals.

6 Consider the existing state of the economy: whether the country is currently facing a recession or inflation, and the severity of the problems faced can also affect the main economic priority of the government.

What else do students need to take note of?

  • Always plan the essay before writing.
  • Ensure that the paper is completed within the allocated time

 

 

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