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.