MC pricing: monopoly charge a price that is equal to MC in order to achieve allocative efficiency
But monopoly incurs a loss – shut down – public deprived of vital service Need to be supplemented with government subsidies: costly to government,
burden on taxpayers
2-tier pricing: consumers pay a fixed sum of money for access to service and price per unit consumed to cover marginal cost
Eg. electricity, gas
Producer meets all COP and minimizes loss of social welfare
AC pricing: monopoly charge a price equal to AC – lower price and greater output – increase in society’s welfare
Normal profits – viable in long run Still not allocatively efficient
Firms no incentive to keep costs low since price is at whatever AC they are at Problems
Difficult to obtain accurate information on demand and cost estimates: firms tend to overstate cost, market conditions change constantly, costly to acquire new information
Regulatory lag: firms may have to operate at a loss during time lag Costly to administer
2. Taxation
Lump-sum tax on monopolist’s excessive profits – shifts AC curve upwards – profits reduced – normal profits
Redistribute income from producer to consumer
Use tax revenue to subsidise welfare schemes / production of merit goods May create disincentive for monopolist to be cost-efficient
Monopoly can pass burden to consumers due to price inelastic demand Dynamic efficiency compromised
3. Legislation
Anti-trust laws: Anti-trust Act (US) / Competition Law (Singapore): break up monopoly
Eg. Microsoft Corporation: one firm own Windows operating system, the other will own applications
May not be applicable to natural monopoly / monopolies with great incentives to undertake r+d
Forbidding certain practices: eg. predatory pricing: setting price below COP to eliminate competition
47 Imposing standards of provision eg. Public Transport Authority in Singapore
governs standards of public transportation to ensure guaranteed quality of product
Insisting on certain levels of competition in industry: Singapore government increasingly deregulates monopoly
4. Nationalisation Growth
Industries with major investment eg. steel and coal industry, large spending on r+d required
Unfair competition of state-owned enterprises with private sector Efficiency
Natural monopoly, presence of positive externalities, eliminate wasteful duplication
Lack of competition pressure – lack of incentive – X-inefficiency Bureaucracy – heavier burden on tax payers
Sunset industry
Decision may be made for political rather than economic reasons eg. just to keep employment figures high
Equity
Special pricing policies eg. free bus rides for pensioners
Service which would otherwise not be provided eg. bus route to remote areas
State monopoly no less disadvantageous to consumer than private one – no higher authority to maintain checks and balances
Stability
For strategic reasons eg. national defence Seen as a move towards communism 5. Privatisation
Competition
Increased competition – cost efficiency + benefits for consumers eg. lower prices, wider choice, improved quality
Unfair competition of state-owned enterprises with private sector Could be worse outcome
If state monopoly replaced with private monopoly, possibly lower output and higher price
Efficiency
Greater efficiency
Commercially sounder decision making eg. higher returns on investments
Greater accountability to public – constantly need to perform well or risk takeover by another firm
Natural monopolies, externalities, equity issues Revenue
Revenue from selling state assets
Higher corporate tax receipts if privatized company is profitable Long term loss of revenue had the privatized firm been profitable
49
No. Title Page No.
29 Chapter 9: Key Economic Indicators 50-51
30 How far can this information lead you to conclude that there is a rising
standard of living in Singapore? 52-53
31 Discuss the factors that contribute to economic growth in a country. 54 32 Chapter 10: Income and Employment Determination 55-58 33 Explain what information an economist would require to decide whether
the US needed ‘an economic stimulus’. 59
34 Explain what is meant by the equilibrium level of national income. 59 35 Analyse the effect on the equilibrium level of income of an increase in
the level of savings and an increase in the level of exports. 60 36 Discuss the extent to which the US fiscal stimulus might lead to a
sustained increase in national income. 61
37 What are the main causes of Singapore’s recessions? 62
38 Chapter 11: International Economics 63-66
39 Explain the theory of comparative advantage. 67
40 To what extent does the theory of comparative advantage explain the
pattern of trade between Singapore and the rest of the world? 68-69 41 Discuss whether protection offers any advantages over specialization. 70-71 42 Explain the rationale for free trade and discuss the extent to which FTAs
are beneficial. 72-74
43 To what extent can economies benefit from globalisation? 75-76 44 Discuss the opportunities and threats of globalisation for Singapore and
other Asian economies. 77
45 Consider the effects, other than on the general price level, of Singapore’s
changing tax structure. 78
46 Policies to remedy Singapore’s recession 79
47 Evaluate methods the Malaysian government might use to slow down
import growth and increase new export business. 80
48 “To be considered successful, an economy needs to achieve low unemployment, low inflation and stable economic growth.” How far do you agree with the statement?
81
49 “To be considered successful, an economy needs to achieve low unemployment, low inflation and stable economic growth.” Explain this statement.
81
50 Discuss whether fiscal policy is the most effective way for Singapore to
sustain a successful economy. 82
51 In the fourth quarter of 2004, Singapore’s unemployment rate rose to 3.7%. Discuss whether supply-side policies are the best way of achieving full employment in Singapore.
83
52 Why Singapore does not use interest rate policy 84
53 Problems with exchange rate instability 84
Chapter 9: Key Economic Indicators