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Name:____________________________

Civics Group:_________________

Worksheet 1: Assessment on the effectiveness of government intervention to correct


market failure
Source of market failure:
Policy to be assessed:
How the policy works:
(include diagram, if necessary)

Advantages of the policy:

Disadvantages of the policy:

Possible limitations on its effectiveness:

Other comments:
You may include suggestions to improve on policys effectiveness here

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Appendix #2: Effectiveness of Indirect Taxes


Worksheet 1: Assessment on the effectiveness of government intervention to correct
market failure
Source of market failure:
Negative externalities in consumption of cigarettes
Policy to be assessed:
Indirect (per unit) Tax
How the policy works
(include diagram, if necessary):

Costs, Benefits
MSC = MPC + MEC
MPC (after tax)
MPC
C
B

Deadweight*loss*

per unit tax of AC


cost of production
MEC is internalized in the form of higher
cigarette prices
consumers will now have to pay a
higher price to buy cigarettes
MPC by the per unit tax (MEC)
amount
private equilibrium will now be at point B
society consumes at Qs, socially
optimum level
deadweight loss is eliminated

MPB = MSB
0

QS

QP

Output level

Over%consump- on.

Advantages of the policy:


- Ideally, problem of over-consumption of cigarettes by the society is completely eliminated
- Easy implementation
- Not much monitoring required
- Revenue for government to be used on development of economy
Disadvantages of the policy:
- Administrative cost on government
- Takes time and labour resources to research on appropriate tax amount and to implement
policy
- Unhappiness among citizens
Possible limitations on its effectiveness:
- MEC is difficult to measure, difficult to set amount of tax.
- Time lag
- May be ineffective to the rich, who doesnt mind paying a little more
- Incidence of tax is dependent on relative PED and PES values.
- Consumers may still purchase illegally imported cigarettes at a cheap price

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Appendix #3: Effectiveness of direct regulation (partial ban on smoking)


Worksheet 1: Assessment on the effectiveness of government intervention to correct
market failure
Source of market failure:
Negative externalities in consumption of cigarettes
Policy to be assessed:
Direct regulation partial ban on smoking in public places such as bus stops and coffeeshops
How the policy works:
(include diagram, if necessary)
- This is a form of direct regulation by restricting consumers to smoke only within a certain
area in the coffee shop (yellow boxes)
- These methods have been effective so far to reduce external costs incurred on third parties
such as second-hand smoke.

Advantages of the policy:


- Effective in reducing external cost such as second hand smoke on third parties (nonsmokers) in public areas such as coffeeshops and bus stops
- Promotes the idea of a clean and green Singapore
- Fines collected contributes to government revenue

Disadvantages of the policy:


- Incurs high monitoring cost. Summon officers are needed to monitor that citizen follow the
regulation.
- Extra administrative cost on government
- Bad reputation of Singapore being a fine city when tourist are also forced to comply to
regulations that they have not heard of in their countries
Possible limitations on its effectiveness:
- Difficult to ensure compliance at all times
- Difficult to monitor
- Difficult to measure how effective has the policy been

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Appendix #4: Effectiveness of Anti-smoking campaigns


Worksheet 1: Assessment on the effectiveness of government intervention to correct
market failure
Source of market failure:
Negative externalities in consumption of cigarettes
Policy to be assessed:
Anti-smoking campaigns
How the policy works:
(include diagram, if necessary)
- This is a form of intervention on moral suasion to educate the public in efforts to reduce
demand for cigarettes such that society will consume at the socially optimum level
- Ideally, smokers will internalize the external cost of smoking such as the harmful effects
(second hand smoke) it may cause to their families and friends around them from the
campaigns and this should raise MPC by MEC amount as shown in the diagram below
- The society will then consume at the socially optimum level
Costs, Benefits
MSC = MPC + MEC
MPC (after anti-smoking campaign)
MPC
C
B

Deadweight*loss*

MPB = MSB
0

QS

QP

Output level

Over%consump- on.

Advantages of the policy:


- If people are responsive to the campaign, it will successfully reduce consumption to the
socially optimal level
- Allows for social bonding at the same time
Disadvantages of the policy:
- Incurs very high implementation costs
opportunity cost on other aspects of government
spending, such as on merit goods
- Difficult to justify amount of government expenditure on it
Possible limitations on its effectiveness:
- Difficult to measure the extent of effectiveness
- Difficult to ensure that people respond to the intended effects
- People may not be responsive to the campaign

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Appendix #5: Effectiveness of direct regulation (age limit and legal regulations to restrict imported
cigarettes)
Worksheet 1: Assessment on the effectiveness of government intervention to correct
market failure
Source of market failure:
Negative externalities in consumption of cigarettes
Policy to be assessed:
Direct regulation legislation by setting age limit and regulations to restrict imported cigarettes
How the policy works:
(include diagram, if necessary)
- This is a form of direct regulation using legislation that aims to restrict the consumption of
cigarettes to the socially optimum level
- These methods have been effective thus far to directly reduce the consumption of
cigarettes, and limit the availability of the good in the market

Advantages of the policy:


- Effective in directly reducing the supply of cigarettes available in the market, and hence
reducing consumption level
- Fines collected contributes to government revenue

Disadvantages of the policy:


- Incurs high monitoring cost. Summon officers are needed to monitor that citizen follow the
regulation.
- Extra administrative cost on government
Possible limitations on its effectiveness:
- Difficult to ensure compliance at all times
- Difficult to monitor
- Difficult to measure how effective has the policy been

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Appendix #6: Effectiveness of Subsidies


Worksheet 1: Assessment on the effectiveness of government intervention to correct
umarket failure
Source of market failure:
Positive externalities in consumption of health check-ups
Policy to be assessed:
Subsidies for elderly
How the policy works
(include diagram, if necessary):

Costs, Benefits

MPC = MSC
C

Deadweight*loss*
A
B
D

MPB after subsidies


MSB = MPB + MEB
MPB
0

QP

QS

Output level

Subsidy of AD
- Cost of production
- Price of health check
- MEB is internalized in the form
of lower prices for health check
- MPB by the per unit subsidy
(MEB) amount
- Private equilibrium will now be
at point A
- Society now consumes at Qs,
socially
optimum level
- Deadweight loss is eliminated

Under&consump- on.

Advantages of the policy:


- Ideally, problem of under-consumption of health checks by the society will be eliminated
and society will consume at the socially optimum level
- Easy implementation
Disadvantages of the policy:
- Administrative cost on government
- Takes time and labour resources to research on appropriate subsidy amount to provide and
to implement policy
- Strains on government revenue, opportunity cost incurred (money could be spent on other
areas such as education, infrastructure etc)
Possible limitations on its effectiveness:
- MEB is difficult to measure, difficult to set amount of subsidy.
- Time lag
- May be ineffective to increase total consumption by the population to the socially optimum
level, some may not respond to the price change
- Producers may pass on only a small amount of the subsidy to consumers
- Subsidies are provided mostly at government hospitals or polyclinics, which have long
waiting time. Citizens may not be able to fully enjoy these benefits

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Appendix #7: Effectiveness of regulation to allow the use of Medisave for health check-ups
Worksheet 1: Assessment on the effectiveness of government intervention to correct
market failure
Source of market failure:
Positive externalities in consumption of health check-ups
Policy to be assessed:
Direct regulation legislation to allow the use of Medisave for health check-ups
How the policy works:
(include diagram, if necessary)
- This is a form of regulation to lower the perceived MPC (in monetary terms) for the
consumption of health check-ups
- It is aimed at increasing the consumption of health check-ups by society to the socially
optimum level

Advantages of the policy:


- Ideally, the problem of under-consumption of health checks by the society will be eliminated
and society will consume at the socially optimum level
- Easy implementation
- Does not strain on government budget
- Encourages most citizens to go for regular health checks, since it does not affect their
disposable income

Disadvantages of the policy:


- Extra administrative cost on government
- As mentioned in the extract, Singaporeans may deplete their savings for costly but
unbeneficial health checks

Possible limitations on its effectiveness:


- Medisave is, after all, the savings of individuals, therefore citizens may not respond to this
measure because they do not really see the reduction of cost of health checks
- Does not tackle the root cause of the problem, which is the external benefits, such as a
healthier workforce and lower risk of third parties contracting illnesses, generated from the
consumption of health check-ups
- Certain groups of people, for example, the elderly who does not have enough medisave, or
needy families, may not benefit from this scheme
- Difficult to measure how effective has the policy been

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Appendix #8: Effectiveness of Direct Provision of health check-ups for Elderly


Worksheet 1: Assessment on the effectiveness of government intervention to correct
market failure
Source of market failure:
Positive externalities in consumption of health check-ups
Policy to be assessed:
Direct provision of health check-ups for elderly
How the policy works:
(include diagram, if necessary)
- This is a form of regulation to directly provide health check-ups to elderly at no cost
- In this case, MPC is zero, quantity supplied of the good is at the socially optimum level
- It is aimed at increasing the consumption of health check-ups by society to the socially
optimum level

Advantages of the policy:


- Society will consume at the socially optimum level if the correct amount of direct provision
is estimated by the government
- Provides an opportunity for social bonding as volunteers come forward to help out the
needy families or individuals

Disadvantages of the policy:


- Incurs very high implementation and planning cost
- Citizens may exploit this good intention of the government and go for health-checks more
often than what is necessary for them

Possible limitations on its effectiveness:


- Difficult to ensure that all the intended recipients (elderly) of the benefit responds and go for
the health check
- Elderly may be stubborn or unwilling to go for the health check, even if it is free, due to
superstition or fear of health check results
- Citizens still do not see the true benefits of health check-ups, including the external
benefits, such as third party benefits of a healthier workforce in the economy, generated
from their consumption of health checks
- Difficult to measure how effective has the policy been

Policy Assessment Guiding Worksheet

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Appendix #9: Public campaigns to induce demand for health check-ups


Worksheet 1: Assessment on the effectiveness of government intervention to correct
market failure
Source of market failure:
Positive externalities in consumption of health check-ups
Policy to be assessed:
Moral suasion public campaigns to induce demand for health check-ups
How the policy works:
(include diagram, if necessary)
- This is a form of intervention on moral suasion to educate the public in efforts to increase
the consumption for health check-ups to the socially optimum level
- After campaign, individuals will recognize the external benefits generated such as
contributing to the creation of a healthier nation and stronger workforce for the economy,
and lower risk of the health of third parties being affected by their.
- Ideally, individuals will internalize these external benefits of consuming health check-ups
after the campaigns and this should raise MPB by MEB amount, and society will consume
health check-ups at the socially optimum level

Advantages of the policy:


- Ideally, problem of under-consumption of health checks by the society will be eliminated
and society will consume at the socially optimum level
- Tackles the root cause of the problem and educates the public on the importance of
maintaining good health
- Contributes to the revenue of the medical sector and hence the economy

Disadvantages of the policy:


- Incurs very high implementation costs
opportunity cost on other aspects of government
spending, such as on campaigns to reduce consumption of demerit goods
- Difficult to justify the appropriate amount of government expenditure on it
Possible limitations on its effectiveness:
- Difficult to measure the extent of effectiveness
- Difficult to ensure that people respond to the intended effects
- Participation in campaign is on volunteer basis, therefore people may not respond to the
campaign, and there will still be an under-consumption in the society

Policy Assessment Guiding Worksheet