To what extent does "traditional" or "standard" economic theory explain Singapore's FTAs? [15]

A Free Trade Area (FTA) refers to a trade bloc where more than two countries agree to engage in free trade with one another while maintaining members’ own individual levels of external barriers against non-member nations; for instance, the North American Free Trade Area (NAFTA) and the ASEAN Free Trade Area (AFTA). This economics paper discusses the extent to which economic theory, in particular trade creation and trade diversion, explains Singapore’s FTAs, while arguing that non-traditional and other non-economic considerations also play a role in explaining Singapore’s FTAs. 

First, how do the standard economic theories of trade creation and trade diversion explain FTAs in theory? Trade creation arises when entry into a FTA causes the production of a good to be shifted from a less efficient to a more efficient producer, while trade diversion arises when entry into a FTA causes the production of a good to be shifted from a more efficient to a less efficient producer. A country joins a FTA if it expects to benefit from overall trade creation; economic theory suggests that a country chooses whether or not to enter a FTA based on whether trade creation outweighs trade diversion. When countries join a FTA, the country gains from a rise in export demand and export prices, resulting in an improvement in the terms of trade. When there is trade creation, the country benefits from importing a good at a cost that is lower that what it could produce domestically. Hence when there is trade creation, the country benefits from joining a FTA. Conversely, when there is trade diversion, the country ends up paying more for its imports as it is now importing from a relatively more inefficient foreign producer and this worsens its terms of trade. If the rise in import prices exceed the rise in export prices, the terms of trade worsens, hence the country should not join the FTA. 

However, despite standard economic analysis, since Singapore has no initial trade barriers for almost all goods and services, it experiences neither trade creation nor trade diversion, so Singapore’s decision to join an FTA must be based on other considerations other than trade creation and trade diversion, such as gaining new export markets, creating more transhipment business, attracting FDI, enhancing bilateral relations with its neighbours, and improving cooperation on security issues. 

This economics paper now discusses other possible reasons that could suggest why countries choose whether or not to enter an FTA with Singapore. The first alternative reason could be that the signing of an FTA with Singapore enables the country’s exports to bypass trade barriers and gain access to a third party market that also has an FTA with Singapore. For example, China may get to enjoy tariff-free access (or at least tariff reductions) to the USA if they were to export their goods through Singapore rather than exporting their goods directly to the USA. 

Secondly, Singapore may also be offering some other benefits to a FTA partner. For example, Singapore could offer to transfer knowledge and technology to the other country, and this would result in the signing of FTAs despite the fact that other countries already know that Singapore has little or no trade barriers on their goods. 

Thirdly, extradition treaties and cooperation in security issues could also be part of the agreement. For instance, countries could sign FTAs in Singapore in order to ensure that wealthy tax evaders do not escape the law in their country by bringing their wealth to Singapore, and these tax evaders can be extradited back home to face trial in their home countries. Hence, political considerations also come into play alongside economic ones.

Fourth, and arguably most importantly, by negotiating a vast network of FTAs, Singapore enhances its position as a shipping hub because Singapore’s transhipment is an important aspect of the Singapore economy. Transhipment refers to the shipping of goods to an intermediate destination, on their way to their final destination, and this is a major aspect of Singapore’s maritime trade. Transhipment increases Singapore’s earnings from port and shipping related services as more ships stop at Singapore to offload the goods that are meant for re-export. The FTAs also draw in foreign investments because foreign firms need to set up processing operations here in order to meet the requirements stipulated by the Rules of Origin. Hence, transhipment operations could explain why Singapore has signed so many FTAs.

In conclusion, trade creation and trade diversion go a small way to explain why Singapore enters FTAs, and it can be argued that non-economic reasons go a longer way in explaining why Singapore enters FTAs with other countries, because Singapore’s lack of tariffs does not permit her to have trade creation, which suggests that other considerations are more important. Thus, standard economic theory based on trade creation and diversion only explains at best a small part of Singapore's FTA networks, whereas practical real world considerations like third parties bypassing trade barriers, technological transfer, political considerations, and transhipment explain why Singapore signs FTAs to a very large extent. In my view, the most important explanation for Singapore’s FTAs is the rise of globalisation, which has led to the need for third parties to bypass trade barriers, increased international mobility, and led to the rise of the importance of non-economic, political reasons for such agreements.

JC Economics Essays - H2 Economics essay on trade creation and trade diversion, and Singapore's Free Trade Agreements. This economics essay was crafted by two co-authors to explain the economics ideas and concepts of trade creation and trade diversion for an economics tutorial on economic integration (a topic closely related to international trade and globalisation). Remember to reflect on the essay as you read it. Focus on the evaluative conclusion for a moment. What is good about the evaluation, and what can be made even better? What would be a better way to craft the evaluative conclusion? Thank you for reading and cheers! 

Explain whether Singapore’s trade patterns follow the outcomes as predicted by the economic theory of comparative advantage. [10]

This economics paper explains whether Singapore’s trade patterns follow the economic theory of comparative advantage, which is often called the "law" of comparative advantage, and, on the other hand, in which scenarios does comparative advantage fall short as an economic "law" in predicting Singapore’s trade patterns. 

First, what is the theory of comparative advantage? According to the famous economist David Ricardo, a country has a comparative advantage in producing a good if it has a lower opportunity cost of producing that good compared to another country. In this context, the opportunity cost of a good is the amount of another good forgone to produce an additional unit of the good. When countries specialise and trade according to comparative advantage, consumption possibilities for both countries rise.

Reflect: what diagram or diagrams would be useful in demonstrating this economic theory?

According to comparative advantage theory, developed countries tend to specialise in and export capital, technology, and skill-intensive products while developing countries tend to specialise in and export labour and land intensive products. Trade patterns will consist of inter-industry rather than intra-industry trade, which refers to trade between countries exporting and importing the same types of goods. The question is whether Singapore fulfils the predictions of this model in the real world context. First, let us consider Singapore’s real world exports. Singapore is a net exporter of chemical products, machinery, and transport equipment. Considering that Singapore is a developed economy, the specialisation in such capital and technology intensive products is in line with comparative advantage according to factor endowments, meaning that Singapore does export goods that are capital and technology intensive because of her comparative advantage. Furthermore, Singapore exports high-skilled labour-intensive services, for instance in the areas of Bio-Medical Research & Development and other high-technology that requires skilled labour, further providing proof that comparative advantage theory explains Singapore’s patterns of trade. 

Second, let us consider Singapore’s real world imports. Singapore is a net importer of non-oil products like food, beverages and tobacco and animal and vegetable oils. Considering that Singapore is a developed but small country, land and labour are expensive. Hence, the lack of specialisation in these land and labour intensive products is in line with comparative advantage, meaning that Singapore does import goods that are land and labour intensive because of her lack of these resources, because of her comparative disadvantage.

Third, in particular, Singapore has a large oil refining industry, largely based in Pulau Bukom and other offshore islands away from Singapore's mainland. In fact, Singapore imports crude oil to refine into oil-based products like diesel and petroleum. While much of the products are exported, some are for domestic use. This is the reason why Singapore is a net importer. While Singapore does not have any oil resources, it still has a comparative advantage in capital-intensive, high-tech, and high-skilled oil refining. Therefore, it would seem that, prima facie, comparative advantage theory does explain Singapore’s patterns of trade in the real world. 

However, on the other hand, there are several patterns that do not confirm to comparative advantage theory. As Singapore is a transhipments hub and is known to be a famous hub for entrepot trade, much its imports are re-exported out of Singapore, and often Singapore is only a temporary destination for goods meant for re-export. Such transhipment trade is not related to comparative advantage but more due to Singapore’s locational or geographical, positional advantage along major shipping routes. Furthermore, the existence of intra-industry trade, where countries with similar factors of production trade the same types of goods, for instance in electronics exports and electronics imports, suggests that comparative advantage is not a perfect theory. 

In conclusion, comparative advantage does explain some aspects of Singapore’s trade, but the real world context is far more complicated than theory suggests, and it is arguably the case that comparative advantage is far more likely to be a theory rather than an immutable economic law.

JC Economics Essays - This is a sample model economics essay on Singapore's trade patterns, on international trade, and on comparative advantage. This economics essay for H2 Economics at A level was co-written by two economics lecturers for a tutorial on international trade and globalisation. The essay was further edited and proofread by a Master's student who specialised in lecturing on international trade and globalisation at A levels. Perhaps, one could think about the various trade theories learnt. Think also about how this essay could be made more detailed, and how this essay can be improved. What else could the authors have done to make this an even better essay? Thanks for reading and cheers! 

"Oligopoly is the most appropriate economic model of market structures that can best explain the behavior of companies in Singapore." Discuss. [25]

There are four models of market structure, namely, perfect competition, monopolistic competition, oligopoly and monopoly. In a perfect competition market, many sellers sell a homogeneous product to many buyers. In a monopolistic competitive market, many sellers sell slightly differentiated products to many buyers. A monopoly refers to a market which has only one seller of a unique product without close substitutes. An oligopoly is a firm that has several rivals, selling either a differentiated or homogeneous product, and with high barriers to entry. Firms of different industries belong to different market structures because of their different products and conditions, and different market structures have different assumptions. This essay attempts to explain the behavior of firms in Singapore according to different market structures and conclude whether oligopoly is the most appropriate model of market structure to explain the behavior of firms in Singapore.

As oligopolistic firms are always rivals to each other and have significant market share in which they jostle and engage other rivals, there will be non-price and price competitions among the few firms in an oligopolistic market. It can be argued that non-price competition includes engagement in research and development and advertising. In the long run, oligopolistic firms usually gain supernormal profits hence they have the ability and the willingness to innovate and differentiate their products from the rest further more.

Oligopolistic firms also involve in advertising. Advertising increases the demand for a product and makes it more price elastic. This enables a firm to charge higher prices but yet sell more output, thus raising its total revenue. A firm decides to advertise if it believes that the additional revenue earned will exceed the advertising expenditure incurred, thereby raising profits. Oligopolistic firms often advertise and innovate to compete effectively for survival. 

Advertising can be seen as either being informative or persuasive in nature. Informative advertising informs the consumers about the characteristics of the product while persuasive advertising aims to create brand awareness and loyalty by creating a certain image of the company of the type of consumers that the product is targeted at. Oligopolistic firms usually implement persuasive advertising. They tend to engage in more costly forms of advertisements, like having celebrity endorsements, placing large and prominent advertisements on billboards, newspapers, popular magazines and websites and advertising frequently on television. This is because they have very large output to spread out such high advertising costs unlike monopolistic competitive firms, which have considerably lower levels of output. In Singapore, firms which are oligopolistic also set up many advertisements to attract consumers and create loyalty. For example, famous brands that operate in Singapore such as L’OREAL, VISA or Ricola, always have advertisements showing before movies in the cinema. These advertisements are usually very costly due to the fact that every audience has to watch them and the advertising effects are great.

There is also price competition between oligopolistic firms, which can often be observed in reality in Singapore. Anti-competitive pricing, for example, limit pricing or predatory pricing manage to deter the entrance of potential firms or undercut existing rivals in oligopolistic markets. In addition, the high possibility of price wars also raises barriers to entry. Therefore, only few large firms remains in several industry groups in Singapore. For instance, the fast food industry, Mcdonalds , KFC and Subways are the oligopolies. 

However, there are alternative models of market structure to explain the behavior of firms in Singapore. For instance, monopolistic competition, which has four assumptions. There are large number of buyers and sellers, low barriers to entry, differentiated products and imperfect information. As individual firm’s action has no impact on its competitors and it is thus able to make independent price and output decisions. Monopolistic competitive firms, such as restaurants (Ding Tai Fung) in Singapore, hair salons (Kimage) in Singapore, and so on, sell differentiated products. This means that the products sold by one firm are similar but not identical to those sold by its competitors. Product differentiation can be real or imaginary. Due to product differentiation, a monopolistic competitive firm has some degree of market power. A monopolistic competitive firm is able to charge more than its competitors without necessarily losing all its customers because there are some customers who would still prefer its products as it better suits their preferences. 

In the long run, monopolistic competitive firms gain normal profits due to free or low barriers to entry or leaving of the market. Hence they have much lower willingness and ability to do research and development or advertise compared with oligopolistic firms. The price competition among monopolistic competitive firms is very low. They set prices independently of other firms. There is no reason to undercut competitors or engage in price wars as impact on other firms is insignificant. In Singapore, many firms are monopolistic competitive firms. For example, all the food stalls in the food courts in Singapore are monopolistic competitive firms, just as are hawker food stalls in Singapore. This is because they sell differentiated food from each other and they set their own prices. To open a small food store is not difficult or expensive. There are many food stores in Singapore and many people having their meals at these stores.

In Singapore, the national train company SMRT can be treated as a monopoly in train service industry because it takes a large proportion of the routes. A monopoly of train service, there is no price competition because SMRT is the price setter. If people want to take the train, they generally have to choose SMRT without any close substitutes. The high startup costs and running costs deter other companies from entering the train market. Hence there is no need for SMRT to use predatory pricing or limit pricing. In the long run, a monopoly gains supernormal profits. Hence, it has the ability to innovate and do research and development although it has no need to do so. SMRT can do that for increasing profits but not for survival. However, it has to in Singapore because if it cannot provide better and safer services, the government may choose to change it to other firms. 

In conclusion, oligopoly, monopolistic competition and monopoly can be used as models of market structure to explain the behavior of firms in Singapore, while clearly the idealistic model of perfect competition is always not present in the real world. In my opinion, among the three economic models, oligopoly may not be the most appropriate model because there are more small firms present in Singapore, which are monopolistic competitive firms. Different industries have different conditions hence firms may behave differently. People cannot predict that one model of market structure can explain everything. To conclude, oligopoly is an important and quite appropriate model of market structures only in some contexts and for some firms in Singapore, but not all.

JC Economics Essays - H2, H3 economics essays - tutor's comments: The essay answer addressed the requirements of the question quite well, but in an actual economics essay examination there should be appropriate, relevant, and useful economic diagrams. This is important - diagrams are important in economics and should be used whenever appropriate. What economics diagrams could have been used here? Note that when it comes to "A" levels or even undergraduate economics, economic concepts and ideas can be expressed in words, diagrams, or mathematics (which some say is a language). Therefore, for economics essays it is best to be fluent in words and diagrams/ graphs/ picture representations (for economic pictures, think of the "circular flow of income"). Also, think of the usual questions posed: how could this economics essay have been better written? Perhaps it could have benefited from more relevant and real world examples, or perhaps the examples could have been better explained in the context of the economic models? Having said that, this economics essay was answered under examination conditions, and is therefore quite high quality, well crafted, and well thought out with the required depth and range of economic ideas and concepts given a time constraint. Time management is very important in dealing with economics questions. What else do you notice about this economics essay answer? How would yours be similar, and how would yours be different? Special thanks to the contributors. 

Evaluate economic policies currently used by the Singapore government to correct imperfect information and immobility of the economic factors of production, to correct market failure. [25]

This economics paper is about economic policies in Singapore that target market failures, in particular imperfect information and immobility of the factors of production, which hamper the workings of the invisible hand through the price mechanism. The Singapore government has been active in combating market failure through the use of taxes, subsidies and laws. These policy methods have shown to be useful in reducing imperfect information and factor immobility. However, these policies are not foolproof and they do have their limitations. Therefore, in this policy essay, I would discuss if the policies adapted by the Singapore government have achieved their policy aims.

           

One of the laws implemented by the government is mandatory pricing. This policy requires all retail stores in Singapore to display their prices, which then allows consumers to obtain the pricing information more easily than before. This policy in general therefore reduces imperfect information and also allows price discrimination since it reduces the chance for shop owners to charge some consumers more than others.

           

Another of such laws implemented by the government would be the implementation of the ‘Lemon Law’. This law allows consumers to return the products within a stipulated period and it is usually within six months of purchase. This policy protects consumer rights as they are allowed to return the goods that they deem unsuitable for themselves. This reduces the impact of having imperfect information since goods are made refundable.

           

Also, the government has made it mandatory for hospitals to display their average hospital bills on their respective websites. This is because many people do not know the cost of seeing a doctor and this would affect the ability to make decisions and to seek the most suitable medical treatment. The publishing of prices also serve to reduce the extent of principle-agent problems since consumers are now able to obtain more information than before.

           

In addition, the government heavily subsidized primary and secondary education as education is deemed as both a positive externality, which refers to the positive spillover effects it can have on third parties, and a merit good, which refers to a good which the state feels will be underconsumed if it is left to the free market. Since children may not attend schools as they do not know what is best for them and their parents may be short-sighted and hence do not let their children attend school, subsidizing education will incentivize parents to send their children to school. To complement this, the government has established a law which makes attending primary and secondary school compulsory so locals can receive at least a basic education.

           

As for factor immobility, geographical immobility is arguably not directly applicable to Singapore since Singapore is a small country and has well-established transport networks. Hence, it will be unlikely that people will experience geographical immobility.

However, occupational immobility is a problem in Singapore and the government has done much to deal with it. Some examples will be subsidizing upgrading and computer courses for people so that these people can upgrade their skills and remain competitive and relevant in today’s society. Educating locals such as having English courses would also help them to find a better job. Hence, occupational immobility is corrected.

           

Going on to discuss the benefits of these policies, the use of laws is rather effective in reducing the problem of imperfect information. Mandatory pricing is useful as customers no longer has to ask about the prices before purchasing it and more price transparency allows consumers to compare prices between shops and choose the best and most suitable product for themselves. Shop owners and retailers are also unable to exploit consumers.

           

As for Lemon’s Law, it reduces the incentive of the sales person to boast about the functions of the product so as to get customers to purchase them. This is because customers now have the right to refund the goods if they are not satisfied with them. Hence reduces the chance of firms withholding information from customers in order to push up their sales.

           

Also, getting hospitals to display prices is a good move since pricing is definitely more transparent now and patients are able to make better choices for themselves in terms of deciding on their own preferred medical treatment. They would also not be taken aback when they see the amount they have to pay at the end of the treatment since they already do have the information.

           

Furthermore, the government has successfully prevented education from being under-consumed due to imperfect information. This is because Singapore’s literacy rates are one of the highest in the world and many enjoy the privilege of going to school despite their family background.

           

Lastly, education and training programmes implemented by the government has been useful in helping the retrenched get new jobs. It has also allowed many to obtain new skills and obtain better paying jobs than before and therefore improving their standard of living. Occupational immobility can be overcome through these policy measures.

In conclusion, the policies implemented by the Singapore government to correct market failure caused by imperfect information and factor immobility have largely been successful. However, there are some drawbacks. For instance, since hospitals want to remain competitive and to reduce their prices, they may sacrifice on their quality of service in order to cut costs. Also, as for the Lemon’s Law, a lot of administrative costs could be incurred as the products can be returned and it may be troublesome for firms to keep track of these requests. This law may also be misused by consumers as consumers may purchase the good and use it for a while and then return it later on when they no longer have use for it or grown sick of it. This puts firms at the losing end and they might not be able to profit from their businesses. In addition, it is very difficult to get adults to go for skills upgrading and training as they may have lost touch with it. Some may lack basic training as well and it would be difficult to undergo training and education. Hence, not all government policies are foolproof.

JC Economics Essays - H1, H2, H3 economics questions and suggested answers - Economics tutor's comments: This economics essay on market failure in the context of Singapore is very good in the sense that it provides a lot of economics application, and real life examples and answers. Examples are very good and should be used to provide a beautiful, well rounded answer to economics questions. However, it does not define many key terms and does not explain many of the economic theories that are relevant. Always remember to define key economic concepts and key economic terms because the examiner would want to see if the candidate knows his or her economics material well. Also, there is the need to use clear, well explained, economics diagrams to illustrate key concepts and arguments, which is sorely lacking in this economics paper. However, having said that, overall this paper can do quite well because of its strengths as well as the interesting evaluative comments and analysis made towards the end of the paper. What are the other strengths of this economics essay? Special thanks to S S, A G and S H for their contributions to this economics paper. 

Explain possible economic reasons as to why the car population in Singapore grew rapidly from the late 1990s to the early 2000s. [10]

The growth of the Singapore car population indicates that the equilibrium quantity transacted has increased. This is due to a rise in both the demand and supply of cars leading to a rise in quantity supplied and quantity demanded respectively. Some factors affecting the demand for cars include tastes and preferences, level of wealth and income, population and ease of acquiring credit while those economic factors affecting the supply include productivity, government policies and number and size of firms. This Economics essay seeks to use a demand-and-supply diagram to illustrate this development described in the Singapore car market, before explaining the demand and supply factors mentioned above. It would then contextualize the theoretical economic analysis to Singapore by addressing the events which had occurred between the years 1997 to 2008.

[Insert a diagram on increase in demand and supply]

As depicted, an increase in both demand and supply of cars has resulted in an increase in the equilibrium quantity. This addresses the fundamental theoretical reasons for the rapid growth in car population in Singapore over the last ten years.

After having established how a rise in demand and supply has caused the growth in car population, this essay will now look into greater detail the reasons for them. A change in taste and preferences could have resulted in the rise in demand. Car companies could have engaged in more extensive advertising which could have attracted consumers to purchase more cars.

An increase in the level of wealth and income could also have enabled consumers to not only have the willingness but also the ability to afford a car, contributing to the rise in demand as well. This increase in level of wealth and income could have been possible because of economic growth.

Another factor would be population growth. With an increase in population, especially those in the workforce, more people can afford or would need to purchase a car as a mode of transport. Hence, an increase in population growth could have explained the rise in demand for cars.

Furthermore, the ease of acquiring credit could have encouraged more people to purchase cars. The interest rates of loans from banks could have fallen, resulting in cost of borrowing to decrease, therefore consumers found it much easier to afford a car when borrowing money to finance this purchase. Thus, the ease of acquiring credit could possibly account for the increase in demand.

Moving on, with respect to the factors for a rise in supply, one major factor could be higher productivity in the production of cars. With this, using the same amount of resources, car companies can produce a greater number of cars. This in turn addresses the growth in car population.

In addition, Singapore's government policies could have caused a rise in supply. Taxes imposed on cars could have been lowered, which would be appealing to consumers to purchase a car since it is now more affordable. Furthermore, the supply of cars could have been increased if there has been an increase in the Certificate of Entitlement, which allows Singaporeans to own a car. Thus, governmental factors also could have led to the growth in car population. 

Moreover, an increase in the number and size of car firms could have led to the rise in supply of cars. With more car firms entering the market and existing firms expanding, the production of cars would increase as well. This evidently shows an increase in car population.

In conclusion, contextualizing the theoretical analysis to Singapore, during the years of 1997 to 2008, there has no doubt been quite a few economic crises, but each time the Singapore economy came through robustly. Beginning with the Asian Financial Crisis in 1997, September 11 and the Dot-com bubble which caused a stock market crash in 2001 as well as SARS in 2003, Singapore’s economy was not severely negatively affected. In fact, the Singapore economy was able to recover quickly and experience a strong economic growth instead. Higher income levels followed this economic growth and therefore resulted in a rise in demand for cars because they were able to afford such a purchase.

On the supply side, government policies arguably played an important role in deciding the supply of cars with the Vehicle Quota System (VQS) which comes along with the Certificate of Entitlement (COE). In the final analysis, the number of COEs must have increased, accompanied by a drop in COE prices, accounting for the increase in supply of cars.

JC Economics Essays - H1 and H2 A level standard economics essays - tutor's comments: While this sound, clear, and interesting economics essay was written under timed examination conditions and is actually a very good analysis of the Singapore car market in Singapore's economic history, it could have done better had it woven the economic theory presented with real life examples instead of waiting till the conclusion to bring in exact Singapore analysis with real world examples. In other words, sound economic theory must be linked to real examples. This economics essay is very strong in economic theory, yet could have done better by using more real world and relevant examples throughout the paper. However, how else would you have made this paper better? Think of other ways to make this analysis more robust. 

Discuss with relevant examples the best way to sustaining long run economic growth for a small country, such as Singapore, with an aging population. [25]

Economic growth is defined as an increase in the real output of an economy over a period of time. Positive growth means that real output has increased while negative growth means that real output has fallen. Sustaining economic growth means long-run growth, defined as the rate of growth in real output of a country over a extended period of time. For long-run growth to occur, productive growth capacity needs to rise which means that there should be potential growth. Therefore, a sustaining economic growth needs not only actual growth but also potential growth. This essay attempts to explain the impacts on the economic growth due to small country with aging population, various methods to counter these problems and discuss about the best method to achieve a sustaining economic growth.

An aging population in a small country results in two major problems: shrinking labour force and decreasing national income. When there is a shrinking labour force, the burden on the productive workforce in supporting non-productive residents would rise. This means the number of new entrants into the workforce is smaller than the number of people retiring from it. Shrinking size of the workforce results decrease in labour supply. As a factor production, shrinking labour force leads to AS curve to shift left. Therefore, the potential growth slows down. Meanwhile, more retirees have lower income than the time when they work. They feel poorer to consume. Hence, consumption decreases. Shrinking workforce means that firms have more difficulty finding workers, so they might downsize, close down or relocate. They will not want to invest anymore. A decrease in consumption and investment results a decrease in AD as AD = C + I + G + (X – M). Hence, actual growth is reduced. Both AD and AS are likely to decrease due to an aging population; the economy would contract and economic growth would be negative. Hence, there is a need to raise AD and AS. 

[Insert diagram on increase in AD and AS]

From the diagram above, when the AS curve shifts to the right, at full employment level, an increase in AD will not cause demand-pull inflation, hence, a sustaining economic growth is achieved. 

To increase AD, there are several methods, namely, expansionary fiscal policy, expansionary monetary policy and exchange rate policy. 

Expansionary fiscal policy involves raising government spending on infrastructure like transportation, public utilities and telecommunication and on merit goods like education and healthcare. Cutting direct taxes can also have beneficial effects on long run growth. Cutting personal income taxes raises the monetary returns to work thereby increasing the incentive to work harder. Furthermore, more disposable income generates greater savings thereby increasing the funds available for investment. Lastly, cutting corporate taxes raises firm’s post tax profitability and hence their incentive to invest. As AD = C + I + G + (X – M), a increase in C and I and G will then raise AD.

The first limitation of expansionary fiscal policy is that it results in government debt as the government has to borrow to finance its budget to finance a budget deficit. Hence, future welfare is actually being sacrificed for the sake of raising current welfare. Secondly, in a small country with small multiplier (k), expansionary fiscal policy is very costly and not very effective. For instance, Singapore has a high MPS as we have compulsory savings like CPF and also a high MPM due to our dependence on imports. Since k = 1/(MPW) and MPW = MPS + MPT + MPM, Singapore has a high withdrawal and therefore a small multiplier. Thirdly, there is crowding out effect. Expansionary fiscal policy involves running a higher budget deficit that is probably financed from increasing borrowing. The demand for loanable funds rises and hence raising interest rates. This deters consumption (C) and investments (I) and also causes the currency to appreciate, thereby curbing net exports (X – M). As AD = C + I + G + (X – M), AD decreases due to decrease in C, I and (X – M). The expansionary effects of the budget deficits are therefore negated by a reduction in consumption, investments and net exports. Fiscal policy also has limitations like time lags and tax insensitivity. 

Expansionary monetary policy refers to increase money supply by Loanable Funds Theory, hence boost borrowing for consumption and investment. Lowering interest rates also causes hot money outflow, which causes the currency to depreciate because the demand for currency decreases hence boosting net exports. As AD = C + I + G + (X – M), AD is increased due to increase in C and I or (X – M). 

One of the limitations of expansionary monetary policy is the liquidity trap which refers to the situation where interest rates are already so low such that the further cuts in interest rates are unlikely to have any impact in stimulating borrowing. At the extreme, when interest rates hit zero, this means that there is no more room for further interest rates cuts and expansionary monetary policy stops being a viable policy tool. Meanwhile, small country such as Singapore is usually trade dependent. With free capital mobility, and fixed or managed exchange rate, small countries find it hard to implement monetary policy because of the economic trilemma. 

Exchange rate policy can be used to increase AD by depreciation of the currency. When the exchange rate is lowered, consumers find imports more expensive compared with domestic products, hence consume fewer imports. With lower exchange rate, country’s exports are more competitive and the quantity demanded for its exports increases. Hence an increase in net exports results in an increasing AD as AD = C + I + G + (X – M).

However, depreciation of currency will cause imported inflation which is very harmful to import-dependent small countries. These small countries prefer to have fixed or managed exchange rate, hence exchange rate policy may not be used. 

Governments can also use supply-side policies to ensure long-run economic growth. To counter the decreasing AS due to shrinking workforce, governments can choose to increase the quantity of labour or improve the quality of labour. 

The first option is to increase the size of the population with higher birth rates. i.e. pro-natal policies. Tax rebates and subsidies can be given to encourage more births. The labour market can also be regulated to allow for more flexible work arrangements so that parents can better balance work and family commitments. The size of the working population (labour force) can be increased by raising labour force participation. This can be done with policies to encourage non-working women and retirees to re-join the labour force. One way to do so is to increase the retirement age. Policies should also create more flexible and less intensive work arrangements which make jobs less demanding for older workers, hence encouraging them to remain in or to re-join the workforce. 

Besides trying to raise birth rates, a faster and easier way of increasing the size of the labour force is to allow more inflow of foreign labour. i.e. increase immigration. Allowing more inflow of higher skilled foreign labour like doctors, managers and engineers usually does not face that much social and political resistance. Being more educated and generally small in numbers, it is arguably easier for such foreigners to integrate into the local society. To improve the quality of labour force, governments have to increase labour productivity and occupational mobility. This involves two main elements. i.e. education and training. 

However, these supply-side policies have limitations as well. It is very hard to increase birth rate due to the fact that the opportunity cost of having children in terms of the sacrifice in consumption, leisure and career advancement is often too high. Re-joining the workforce is not easy as this cannot prevent people from getting old and retiring early. Immigration creates social tensions and depresses the wages of domestic low skilled labour, thus worsens the country’s income distribution. Education programs typically take many years to implement and their effects are felt only much later. Most of the labours and companies are reluctant to take and set up workshops for training. 

In conclusion, to achieve sustaining economic growth in a small country with aging population, the best way is to use supply-side policies to increase AS which is the root cause of slowing economic growth. Expansionary fiscal policy can be considered as one of the better choices if the small country has a relatively large multiplier hence it will not be so costly to use fiscal policy. Monetary policy is usually not a good choice due to the fact that small country is usually trade dependent and is limited by the economic trilemma. Small country which is usually import dependent will not choose to depreciate its currency. Therefore, supply-side policy is considered as the best way to sustaining economic growth for a small country with an aging population. 

JC Economics Essays - H2 'A' Level standard essay on the Singapore macroeconomy: Economics Tutor's comments. Macroeconomics essays covering the various macroeconomic aims and goals of governments, as well as the demand management policies and supply side policies are important. Often, macroeconomics essay topics will focus on either the goals as a standalone topic, or in conjunction with economic policies. Economics policies often come accompanied with some economics issues or economics news in a preamble, but economic policies can be assessed also on their own theoretical merits. (In a way, that's the beauty of macroeconomics - it can be quite theoretical and while often macro is in the news, and often catches attention with the headlines, in economics examinations macroeconomic policies can be considered theoretically too. The thrill of theory is often too beautiful for economists to ignore.) In any case, the usual economics tutor's questions apply: what are the strengths and what are the weaknesses of this economics paper? Does the student develop her arguments cogently, clearly, and build on theory and real world economic examples? Think about how you could help this student write an even better essay, or how you could help the student to get the highest marks possible. Having said that, this economics essay is very well written for a variety of reasons. The materials presented are wide ranging and very well applied to Singapore's context. There is a lot of economic theory, but also examples as well. The conclusion is nuanced, evaluative, and generally very well written. Note: this essay was written under examination and timed conditions by an actual A level student in a class Economics H2 test (not an economics assignment). Special thanks for AG, SS, and other students for their kind feedback and invaluable contributions and suggestions. 

The terrorist attack on New York City, USA, on September 11, 2001 precipitated a worldwide recession and an increased fear of air travel, which massively affected the demand for travel by air. This led to the closure of some major airlines in the world. Explain how the worldwide recession and the closure of some of the major airlines affected the market for air travel. [10]

Due to the terrorist attack of 9/11, there were many economic effects - recession and an increased fear of flying would lead to a decrease in demand whereas the subsequent closure of some of the major airlines of the world would lead to a decrease in supply. Recession refers to negative economic growth that affects consumption since economic growth is the key determinant of changes in average household income. Hence, this essay aims to discuss how recession and closure of major airlines affect the demand and supply and thus the equilibrium price and output of the market for air travel. 

Negative economic growth or economic decline causes a decrease in demand as it influences the average household income causing a decrease in level of income and wealth. Income refers to the earnings per time period. A fall in income due to economic decline leads to falling ability to purchase goods, in this case air travel ticket or packages. Decreasing income also leads to fall in disposable income for travelling. Thus, demand falls as a result. 

Economic decline also leads to a decrease in economic activities and hence business activities. With decreasing business activities, the need for business travels fall, contributing to the decrease in demand for air travel, shifting demand curve leftwards.

In addition, in the times of poor economic outlook or situation, the ease of acquiring credit may fall due to the need to maintain the financial stability. Hence, consumer may find it harder to borrow to finance expensive items, including holidays. Thus, demand for air travel may decrease significantly as well. Stringent financing rules that discourage borrowing also contribute to the fall.

On the other hand, closure of some of the major airlines would have a significant impact on the supply for air travel, especially when major firms are usually responsible for a significant proportion of the supply. Closure of major airlines decreases the number of firms in the industry, shifts the supply curve leftwards, decreasing supply. This can also be caused by a decrease in size of existing firms as it decrease the total capacity of the airline industry.

Terrorist attacks causing major closures and financial crisis can be considered as supply shocks, disrupting and reducing the supply of air travel, shifting supply curve leftwards. 

However, the extent of decrease in demand and supply may differ, resulting in differing price and output equilibriums. 

[Insert diagrams of market of air travel to show the difference in the fall of supply and demand causes price and output equilibriums to shift differently]

If the supply decreases to a greater extent since it involves the closure of major airlines, the price increases as supply curve shifts leftward to a larger extent than the demand curve falling. However, if the decrease in demand is a larger extent compared to the decrease in supply fuelled by fear of flying, the price decreases instead.

In conclusion, the extent of shift of demand and supply curves eventually determines the equilibrium price and output. In the long run, a new equilibrium may be reached as the economy recovers and consumers regain their confidence. Hence, this change in price is a short run outcome for the market for air travel.

JC Economics Essays (H2 'A' Level Economics Essay): economics tutor's comments - There are many economics examination questions that make reference to contemporary world events, and 9/11 is one of the major events in the world that students should know about. The focus of this essay question is, however, about the market for air travel, and in particular the economics concepts of demand and supply. How are the factors of demand and supply related to the scenario described? Fundamentally, economics students should be able to link the theoretical model of demand and supply to economics questions during examinations. This ability to link real world examples and context to economic theory is a real skill that should be developed. The usual questions apply - how would you improve this essay to make it more developed? How would you further the arguments? Think of how you would write your economics essay in response to the question. If you are able to recall the factors affecting demand and supply, how would you link those to the concepts? What revision do you need to make this essay excellent, or better? Special thanks to student contributors for this sample essay. 

Examine how automobile producers might use price elasticity and income elasticity of demand concepts (PED, YED concepts) to help determine their pricing and output decisions. [15]

In order to maximize profits, price and income elasticity of demand concepts can be applied by firms in order to come up with their business strategies. Hence, this essay aims to discuss about the impact of price and income elasticity of demand on automobile firms' decision and how the extent of elasticity can be applied to the relatively monopolistic automobile market. 

Price elasticity of demand measures the responsiveness of quantity demanded of a good to a change in its price, ceteris paribus. The demand for the good is said to be elastic if the change in price results in a more than proportionate change in quantity demanded. Conversely, the demand for the good is said to be inelastic if the change in price results in a less than proportionate change in quantity demanded. Hence, if a firm expects the demand for its good to be price elastic, then it should lower the price. 

[Insert a diagram with both demand elastic and inelastic curves]

A decrease in price will result in a more than proportionate increase in quantity demanded if demand is elastic. Therefore, total revenue is raised.

Conversely, if the firm expects its demand for good to be price inelastic, it should raise the prices to increase its revenue. This is because an increase in price will result in a less than proportionate decrease in quantity demanded.

Firms may also want to differentiate their goods in order to make the demand more price inelastic and hence raising their profits. This is because it enables firms to charge a higher price but yet sell more output, thus raising its total revenue. Product differentiation can be real differences or imaginary differences. Real differences include differences in size, colour and taste, specifications and quality of physical product. These can be altered often through research and development. Imaginary differences include brand loyalty and packaging. These can be done through persuasive advertising and innovative packaging.

Income elasticity of demand measures the responsiveness of the demand for a good to change in income, ceteris paribus. Positive income elasticity of demand of a good means that the demand for the good increases as income increases, conversely as income falls, demand for good falls. These goods are known as normal goods. These normal goods can then be classified into normal-necessity goods and normal luxury goods. Conversely, negative income elasticity of demand of a good means that the demand for the food decreases as income increases. These goods are known as inferior goods. Understanding income elasticity help firms decide in the type of goods to sell under different economic conditions. If a country is facing strong economic growth, firms should sell more normal goods, especially normal luxury goods where an increase in income will result in a more than proportionate increase in demand. However, during an economic downturn, the demand for normal goods falls. Normal necessities fall less than proportionately while normal luxuries fall more than proportionately. Firms may then want to consider producing and selling more inferior goods instead.

In the context of the automobile market which faces monopolistic competition, although there is product differentiation, demand is likely to be price elastic due to high availability of substitutes. Hence, the firms should lower its prices to raise its revenue. However, in terms of product differentiation, a monopolistic market may not have the economies of scale to spread cost overheads. Hence low cost innovation is possible but not high investments on research and development. In the long run, automobile market only earns normal profits.

Secondly, automobiles are considered to be normal luxury good that increases more than proportionately if income increases. Thus if economic growth is strong, they should decrease the price.

However, there are limitations of applying demand elasticity concepts. The estimates are based on past dates and resources hence, the data may not be applicable to current business environment as business conditions would have changed. Changes include a more affluent society due to greater economic growth and hence can represent status quo instead.

In conclusion, automobile producers are able to make use of price and income elasticity to help determine the pricing and output decisions. This allows the firms to raise output more easily and capture a greater market share. Therefore, there are a lot of possible uses for PED and YED concepts as applied to business. 

JC Economics Essays: H1 H2 'A' level Economics Essay part (b): economics tutor's comments - For A level Economics, elasticity concepts are very important - as immediate revision, try to recall the definitions, the mathematical formulae, and what the magnitude of the numbers (or the sign, negative or positive, of the numbers) mean. This would be good economics revision for elasticity questions, and a very useful skill to have during examinations. Then, after recalling the economics material, try to apply the concepts to a particular context - in this case, the context of the economics exam question. Remember that students need to use real world examples in conjunction with economic theories. Economics tutors and examiners always appreciate good examples that are relevant, clear, and well known; however, this economics paper has actually done a rather good theoretical job without having relevant examples of car companies (in the USA, or Europe, etc). How else could this economics paper be better developed or improved? Thanks to students for contributions. 

Explain the likely reasons for the increase in the car population in Singapore, from 370,000 cars to about 515,000 cars, from 1997-2012. [10]

The growth of the car population by almost 40% can be attributed to the rise in demand and supply. There are several factors that might have caused the growth such as changes in tastes and preferences, increase level of income and wealth, decrease in factor prices, increase in productivity, etc. Hence, this essay aims to discuss the demand and supply factors that have contributed to the growth, especially in Singapore.

The growth of car population can be influenced by rising demand. There are several factors that results in a rise in demand of car population. Firstly, a change in tastes and preferences are influenced by reasons such as increased advertising by car firms, encouraging more buyers, and thus the increase in car population. 

Secondly, as the economy prospers, the increase in level of income and wealth also encourages the growth in car population. Rising income levels to rising ability to purchase cars as consumers or households have more disposable income to spend on quality products such as cars. Hence, cars are considered normal goods as demand for cars rises with income. Also, income that is not spent on consumption is often used to purchase assets resulting in the accumulation of wealth. A booming stock or property market raises the wealth of households, thus raising the demand for cars as well.

Thirdly, the price and availability of related goods also contribute to the growth of car population. Substitutes are goods which are considered to be alternatives to each other and be in competing demand. In this case, a substitute for owning a car could be taking cabs in order to travel around. A rise in the price of cab fares raises the demand for cars as consumers may switch away from the one that they perceived to be more expensive. On the other hand, complements are goods that when consumed together gives rise to higher combined utility than if the goods were consumed individually. Complements are said to be in joint demand. A complement in this context can be the roads. The availability of well-constructed and well-planned roads can stimulate the demand for cars as there will be greater ease of travelling.

Lastly, the greater ease of acquiring credit can also increase the demand for cars. Consumers often borrow to finance their expensive items such as cars. For example, a reduction in interest rates or relaxation of financing rules will encourage more consumers to borrow to consume expensive goods such as cars, thus causing the demand for cars to rise. 

Apart from the rise in demand, the growth of car population can also be influenced by the rise in supply. Firstly, a fall in the prices of variable inputs lowers the marginal costs. In this case, a fall in the prices of steel of cars decreases the cost per unit output thereby increasing supply.

Secondly, higher productivity means more output can be produced using the same amount of resources, thus increasing supply. Technological advancements can allow greater output to be generated as it is more efficient and done with lesser error. 

Lastly, the entry of new firms in the car market increases the supply of cars. An increase in size of existing firms also increases the supply as firms raises the total capacity of the industry. The expansion of firm may also result in greater economies of scale, thus lowering production cost.

In the context of Singapore, thriving economic growth have increase the level of income and the affluence of people. Hence, this becomes a contributing factor as cars become affordable and many would prefer to have a car for ease of travelling.

Also, with increasing cost of public transport, which may be considered a substitute, many may switch to buying cars instead. The rising demand for cars can also be partly due to the breakdown in public transport that affected the level of confidence of it, hence people may choose to switch to cars instead. The better transport networks such as roads and highways in Singapore encourage more people to travel by car as this mode of transport is the most efficient way of getting around Singapore.

However, in Singapore, the supply of cars is limited by the government through rising car taxes and Certificates of Entitlement (COE). The rising cost of owning a car deters people from buying despite the ease of travelling.

In conclusion, we can see that the car population growth in Singapore is largely stimulated by rising demand instead of supply. Hence, in the long run, the government may aim to reduce car population by increasing the prices of car and COE to curb demand. This way, as the price of COE increases and prices of car takes a large proportion of income, people may be deterred from it.

JC Economics Essays - H1 H2 'A' Level Economics: economics tutor's comments - This economics essay is generally well written, as it is clear cut, direct, to the point, and addresses the requirements of the economics question directly. Always remember to answer the economics question as it is posed and structured, so that the examiner knows that you are addressing the question directly. In this case, the economics essay question requires the student to use the skill of application - apply the theoretical demand and supply model to the car market context of Singapore, to explain the rise in the population of cars.

It should be noted that familiarity with the standard workhorse model of introductory economics, demand and supply, is very important. (Most economics courses cover this useful economic model early on because of its central importance to economics, both at A levels and at first year undergraduate, university, and college economics courses too.)

This economics student, in his writing, has demonstrated the skill of verbal application and can explain the various factors affecting demand and supply. This is good.

However, the economics essay answer could have been greatly improved with the use of an economics diagram, and in this case the diagram should show both demand and supply increasing. Always remember to use good, clear, relevant, well-labelled and useful economics diagrams to answer economics examination questions.

Special thanks to J, A, S, and other economics students for their kind, invaluable and useful contributions. Thanks for reading, and cheers. 

Evaluate the economic policies currently used by the Singapore government to correct imperfect information and the immobility of the factors of production, two major causes of market failure. [15]

Adapted from an actual H2 'A' Level Economics examination paper

Just like many other countries, Singapore has also been experiencing problems of imperfect information and immobility of factors of production thus leading to market failure. The Singapore government has come up with some policies in hope to improve the situation. This paper discusses the economic policies used by the Singapore government to correct imperfect information and the immobility of the factors of production. 

               

First, to reduce imperfect information, the Singapore government has tried to improve the flow of information through the use of the Internet. As more people do their research on the Internet to find out more about what they really want or need, putting more information on the Internet can help to improve information flow, though it may be more helpful to only the younger generation.

               

The Singapore Government also implements rules and regulations of compulsory food labels on all packaged food. They also introduced the healthier choice and safety labels  on food and appliances respectively to help consumers to make better decisions when consuming a product. As for the insurance company, there is a certain guideline where consumers have to report their medical condition or the company will not cover for them. Although it is easy to implement these regulations, there is a high regulatory cost to it.

               

The Singapore Government also set up many job agencies like Recruit Express and JobsCentral to improve the flow of information so that workers and employers can find a job or worker more easily and efficiently.

               

The Singapore Government can also initiate campaigns to raise awareness among consumers to read up on the product and look for labels on them before consuming a product in order to make a better decision. However, this might have time lag and it is difficult to for them to start making it a habit instantly.

              

As for occupational mobility, since workers do not have the right skills to work, government can provide tax cuts for employers who send their employees for courses to upgrade themselves or learn a new skill so that they will be more efficient and have better ability to handle their tasks better. Nonetheless, this may not be a popular policy among employers as they are making a loss by sending their employees for courses as it will result in a smaller workforce working thus lesser production while having higher cost incurred due to the course fees. Although, the firm will most likely benefit in the long run, employers cannot be certain that the employees will stay with them for a long time, therefore losing the long term benefit.

               

The Singapore Government has also set up the Workforce Development Agency (WDA) where they work with the unique tripartite trade union that Singapore has to subsidise firms that send their employees for courses to upgrade themselves or individuals to pick up a new skills so as to increase job opportunities for especially the unemployed. WDA will also try to link up the unemployed with a job during the training sessions so as to reduce the amount of lag time. Furthermore, government has set aside a Skills Development Fund to aid these people since Singapore is a small and open economy that often experiences structural unemployment due to an ageing population with many older workers. However, this may not be effective as it is difficult for older workers or less educated individuals to pick up a new skill especially since they have no basics to build on. Also, many workers will only see these courses as a waste of their time since they can be using the time to earn more money in order to cover their living expenses.

               

In addition, the Singapore government has implemented compulsory primary education for all citizens. Being educated will help them to take up new skills in future since Singapore’s small and open economy forces us to adapt to changes quickly by developing new comparative advantages to catch up with time. However, this requires a large amount of budget to be placed into education in order to make education affordable for all.

               

Lastly, the Singapore government has come up with urban planning to solve the problem of geographical immobility. We started to have small regional business areas like Tampines rather than all firms to concentrate at City Business District (CBD). This will not only help individuals to travel less since most housing estates are in the East, it also helps to divert traffic away from CBD.

                

In conclusion, the Singapore government should use a combination of market-based and non-market based solutions, as well as consider their long term and short term effects, in order to better achieve pareto optimality and reduce market failure.

JC ECONOMICS ESSAYS - Economics Tutor's Comments: This economics essay has a lot of good material on the Singapore government, economic policies, and the Singapore context, which is excellent - always address your material to the context of the question. Answering the essay question with reference to real world, relevant, and specific examples is an incredibly effective exam strategy in economics examinations. Remember always to have good examples alongside excellent understanding of economic theory and models. However, the usual questions apply - how would you improve upon the essay introduction? What is good or what is not so good about the body of the paper? What is good about the essay conclusion? Take note of the excellent use of signposting in the conclusion. However, how could the conclusion be buttressed and developed? What else could the student have written, or how could the student have written the evaluative conclusion better? Think about how you would write a better conclusion to make this economics essay the best that it can be. 

Hints and Approaches to H1 and H2 A Level Economics Essay Questions for Practice

H1 and H2 A Level Economics Essay Questions for Practice (Hints and Approaches)

Essay Questions: Quick Recap and Introduction

These are the promised Economics hints (covering Economics concepts, definitions, ideas, arguments, and logical approaches) for the Economics essay questions for practice posted in my earlier post. 

(Do please see the bottom of this page for the relevant links if you want to refer to that post.)

Suggested Economics Tutor's Hints

Q: "Protectionism is better than free trade.” Discuss. [15]

HINT: Define protectionism, and international trade. List and explain various methods of protectionism (tariffs, quotas, subsidies). Talk about gains from trade, and maybe terms of trade. Thesis argument: protectionism is better than free trade. Why? Think about the infant industry argument and other arguments you could use. Anti-thesis argument: on the other hand, free trade is beneficial. Why? Define comparative advantage, opportunity cost. Show the diagram for the small country case, demonstrating deadweight loss from tariffs. You may discuss quotas too. Discuss other reasons why trade is beneficial. Be sure to give examples from Singapore/China/USA/UK. Conclude with a justified argument – which is better, why, or are both equally important?  

Q: Explain how imperfect information can lead to market failure, using examples from Singapore. [10]

HINT: Define market failure, and imperfect information. Define merit and demerit goods also. Explain how this leads to market failure – overconsumption (in what case?) and underconsumption (in what case?). Draw and explain diagrams. Use examples from Singapore, such as healthcare (Medisave, Medishield), etc. You may bring in other areas if you wish. List other forms of market failures. Other forms of market failures are important too, such as externalities. How would you conclude?  

Q: Explain comparative advantage and why international trade is beneficial for countries. [10]

HINT: Define comparative advantage and international trade. Talk about gains from trade, and terms of trade. Free trade is beneficial. Why? Demonstrate that countries can consume outside their PPC (on the PPC is for the autarky case) when their consumption possibilities increase (the trade case has CPC); draw diagrams. Explain the diagrams. Can also show the diagram for the small country case, demonstrating deadweight loss from tariffs; argue that protectionism is bad. Define and explain protectionism briefly. Discuss other reasons why trade is beneficial. Be sure to give examples from Singapore or China/USA/UK. 

Q: Explain the likely demand and supply factors affecting the oil (petroleum) market. [10]

HINT: Define demand and supply; talk about market prices and equilibrium output and how these are determined. Factors affecting the demand for oil are: derived demand (define), substitutes and complements (define), population changes, expectations, and rising incomes. Which of these is most likely? Factors affecting the supply of oil are: cost of production, expectations on the part of producers, number of firms, and government policies on the part of OPEC producers.  Which of these is most likely? Draw the demand and supply diagram with simultaneous shifts, explain it, and conclude your essay.

Q: Explain the difference between public goods and merit goods, using examples from the United Kingdom. [10]

HINT: Define public goods and merit goods. Define market failure, and say that these are instances of market failure. Why? Public goods are non rival and non excludable – leading to P = MC = 0 and also to the free rider problem, respectively. Give UK examples. Merit goods are goods that have positive externalities or due to imperfect information are underconsumed. Give UK examples (see next question for further hints). What is the difference, based on the explanations that you have written? Which is the most important difference?

Q: Explain using economic theory why in the United Kingdom, entry to national museums and art galleries is free and tickets to the opera are subsidised. [10]

HINT: Define public good and merit goods, and define market failure. The central problem here is underconsumption. National museums and art galleries can be considered quasi-public goods or merit goods. Why (for each of the possibilities), justification? Opera can be considered a merit good. Why, justification? Talk about imperfect information and positive externalities. Talk about a paternalistic state; talk about government intervention. Conclude.

Q: Discuss how the Singapore government deals with negative externalities in Singapore. [10]

HINT: Define market failure, externalities in general, and talk about negative externalities in particular. Focus on car congestion, cigarette smoking for this paper to make it easier. Draw the negative externality diagram and explain why it is a problem. What should the government do? Either impose taxes or quotas. Define those, explain, show. For congestion in particular, talk about ERP and COE. Conclude with the limitations of government policies.

Q: Explain how fiscal policy in the USA can be used to increase the circular flow of income in the USA. [10]

HINT: Define fiscal policy, and circular flow. Draw the circular flow diagram. Explain it. When G is increased, what happens to the circular flow? When corporate taxes are lowered, what happens to I, and in turn what happens to circular flow?  I, G, X are injections, and S, T, M are withdrawals. Talk about net injections and net withdrawals, but focus on injections. Give examples from the USA. (You may also in the course of the essay, define and discuss GDP, national income, standard of living.)

JC Economics Essays - Economics Tutor's Comments: These are some suggested hints (possible approaches, possible ideas/ concepts/ logic/ economics materials) to the Economics essay questions posted earlier (with a few general instructions, ideas, and pointers/tips for students). Do remember to think through them, and see if there are other Economics ideas, concepts, and approaches that you could use in addition to those provided by Economics tutors. 

For the earlier post on JC Economics Essays' questions for practice: H1 and H2 A Level Economics Essay Questions for Practice. 

For ease of reference, here is my List of Economics Exam Questions for Practice. Note that these questions are practical, heuristic, and training questions that test fundamental Economics understanding and fundamental, basic application. Some students have kindly, and rightly, pointed out that these questions in the "List" are for training purposes, and not all are reflective of the rigour of A levels or introductory undergraduate Economics - true!  

Discuss the likely causes of inflation in Singapore. [15]

Introduction: Causes of Inflation in Singapore

This Economics paper discusses the likely causes of  inflation in Singapore. First, a few definitions are in order. 

What is inflation? Inflation occurs when there is a persistent and sustained rise in the general price level of goods and services, and is a macroeconomic problem when the rise in general price level is persistent and inordinate. With inflation, a given amount of nominal income buys fewer goods and services than before, which poses socio-political problems in countries that suffer from inflation. 

Inflation caused by the demand-side is known as demand-pull inflation while inflation caused by the supply-side is known as cost-push inflation. This paper argues that both demand-pull and cost-push inflation are present in Singapore, but cost-push is far more important to the Singapore economy, especially when it comes to imported inflation in Singapore's case. 

Demand Pull Inflation in Singapore 

What is demand pull inflation? Firstly, demand-pull inflation occurs in Singapore when Aggregate Demand (AD) rises as the economy is at or near the full employment level of national income. 

Why would AD rise, or what are the factors causing AD to rise? There are many reasons why AD will rise, but they can all be attributed to the components forming AD, which are C, I, G, and (X-M), as AD = C + I + G + (X-M). 

[Tutor's Note: Draw and explain the correct AD/AS diagrams. Think also - where do the diagrams fit in, have I labelled them correctly, and what do these economics diagrams show the reader?]

First, it can be argued that AD will rise if there is a decrease in interest rate as when there is a decrease in interest rate, it becomes cheaper and easier for people to consume and invest causing consumption and investment to increase. However, this is not that likely in Singapore's case, given her unique context. 

Secondly, AD will also rise when there is a decrease in personal income tax as people will tend to have more disposable income and this increases their purchasing power and will cause consumption to increase. Since AD comprises C + I + G + (X-M), which are consumer spending, investment spending, government spending, and net exports, a rise in consumption and investment spending will cause AD to rise. This is slightly more likely in Singapore's case. 

Lastly, factors like increases in government spending (G), for instance on the Singapore Armed Forces or Singapore Police Force, and increases in net exports (X-M), due to foreigners buying more of our domestically produced exports, will also cause AD to rise, leading to demand-pull inflation in Singapore as the GPL increases. This is also quite likely in Singapore, but there are also supply side factors to inflation to consider. 

Cost Push Inflation in Singapore

On the other hand, demand is not the full picture when it comes to inflation. 

What is cost push inflation? Cost-push inflation occurs when Aggregate Supply (AS) rises due to economy-wide rises in production costs. As labour cost is often the largest component of total costs in Singapore, a sudden rise in wages can cause significant cost-push inflation in Singapore. 

However, having said that, rising food, fuel, property prices, exchange rates and the foreign sector are also factors that cause AS to rise, leading to cost-push inflation as the general price level increases when the AS curve shifts upwards. 

[Tutor's Note: Draw and explain the correct AD/AS diagrams. Think also - where do the diagrams fit in, have I labelled them correctly, and what do these economics diagrams show the reader?]

Imported Inflation in Singapore

Imported inflation can lead also lead to cost push inflation. As Singapore is a small and open economy with limited natural resources (factors of production), she has to depend heavily on imports from other countries for both her consumption goods and factor inputs. In fact, Singapore's exports are made from imported inputs. Thus, the biggest threat to inflation in Singapore would be the depreciation of the Singapore Dollar (SGD). This could be due to lack of export competitiveness which lowers the demand for Singapore's currency, or this could also be due to Singapore dollars flooding the foreign exchange market. 

If the Singapore dollar depreciates too quickly, it causes severe imported inflation which impacts households directly through rising goods, food, and energy prices. Imported inputs also become more costly, thus raising production costs and product prices, and since Singapore's exports depend on imported inputs this has a massive knock on effect on Singapore's exports.

With small domestic market, highly export-oriented Singapore is dependent on external rather than domestic demand. If the Singapore dollar were to appreciate too quickly, her exports and hence AD would plummet and this potentially could trigger a recession. Hence, Singapore’s central bank, the Monetary Authority of Singapore (MAS) has a primary objective to promote price stability through Singapore's version of monetary policy, which is a kind of exchange rate policy. 

[NOTE: In order to effectively manage Singapore’s exchange rate, the MAS could potentially buy back its own currency from the foreign exchange market which reduces the money supply to raise the Singapore exchange rate. Conversely, the MAS also could sell domestic currency on the foreign exchange market which raises the money supply to lower the Singapore exchange rate.]

Conclusion

Hence, imported inflation is the most important factor affecting Singapore's economy and is the most likely cause of inflation in Singapore, along with cost push inflation, and with demand pull inflation being the least likely form of inflation in Singapore. 

JC Economics Essays: Tutor's Comments - This Economics essay is approached in a rather different way from this other essay, also here on this site, on inflation in Singapore's case: Singapore's Inflation: Explain the causes of inflation in Singapore. Compare and contrast. Why is this the case, which economics essay approach is better, and how could you improve on either of these papers? Do also think about why the approaches from different students can vary considerably when answering or responding to the same question. Which approach or angle is more useful and relevant in crafting an excellent economics essay, especially when under time pressure? Also, there are a few small problems with this economics essay - can you spot these small errors or mistakes, and improve on these flaws or inadequacies? Think about it for a moment. If you can identify the mistakes or the small inadequacies, plus suggest improvements upon them, then clearly you are in a good position and have really understood the material. This economics essay is a contribution from my companion website and has been adapted and amended a bit. Thanks for reading and cheers!