JC Economics Essay Market Dominance & Externalities Model Answers
How many of you realise that, whenever possible, most of your classmate would skip the test question on Market Structures topic question in your “A” Levels H2 Economics? Unfortunately, the section on Monopoly and its impacts on society is also assessed as Market Dominance, which means it can be combined with other forms of Market Failure, including externalities (positive or negative), market imperfections, merit goods, etc.
How many of you in JC1 can afford to skip this essay question? Not many actually, as most JC Promos exams do set one question for Market Structures. Worse, if it is set as a compulsory section on its own!
Question
In Singapore, the 2 Integrated Resorts comprise museums, convention spaces, theme parks and casinos. The S’pore government was involved in the development and operation of the IR, including the building up of infrastructure supporting the IR and controlling access to the casino.
a. Explain the reasons why the S’pore government is involved with the development and operation of the integrated resort. [10]
b. Discuss the view that the SG government should introduce more competition into the industry to reduce market dominance. (15)
JC Economics Essay – Positive & Negative Externalities
Suggested Answer:
Introduction:
Development of integrated resorts in S’pore [IR: Marina Bay Sands (MBS) and Resorts World Sentosa (RWS)] due to positive externalities (show and explain why government should intervene)
Control operation of IR due to negative externalities (show and explain why government should intervene)
Outline: Introduction:
Why do governments intervene in markets? Market failure.
Define market failure as the failure of the market to allocate resources efficiently. Briefly state sources of market failure
Developing IR:
IR generates positive externalities → creates greater buzz for Singapore due to presence of convention space which encourages businesses to hold conventions here, theme parks and casinos improves tourism sector.
Museums is an educational tool, so generates positive externalities eg. visitors to the museum will learn things, can share with others. Learn cultural heritage of self and others, etc.
Goods with positive externalities are under consumed (show)→ government intervention to increase production.
However, IR also has a casino, which has negative externalities → . Gambling causes social issues (addiction leading to heavy losses, causing stress on families as gamblers go into debt) Goods with negative externalities are over consumed (show)→ government intervention to curb consumption.
Conclusion:
The different aspects of the IR bring about different effects. Want to bring in maximum benefit to Singaporeans while reducing harm.
Marking Scheme
Level 1: Able to identify either positive or the negative externalities related to IR but unable to explain well or lacking economic analysis
Level 2: Able to identify and explain the positive and negative externalities associated with the IR. Lack of good examples. If only one market failure is very well discussed, max 6m
Level 3: Able to show, using clear and relevant examples, why (includes the welfare loss, the over/underconsumption reason) the Singapore government intervened in the operation and development of the IR. Both positive and negative are considered. Minimal or no conceptual errors
JC Economics Essay – Market Dominance
(b)
Introduction:
Define market dominance
Thesis: SG Gov should introduce more competition into the industry to reduce market dominance.
Explain harms of market dominance. Use monopoly diagram to show exploitation of consumers and also underproduction of IR services, aka allocative inefficiency
A way to introduce more competition is to issue more licences to new firms. This is reduce the legal barrier to entry (BTE)
(Sketch a suitable diagram if you r able to show the impact of this government measure.)
Anti-thesis: SG Gov should not introduce more competition into the industry to reduce market dominance.
With limited competition, incumbent firms can continue to earn supernormal profits. Can be rechannelled to maintaining the infrastructure, amenities and facilities of the IR.
Also, restricted paid access of Singaporeans means lower revenue to earn from local consumers and dependent more on foreigners and tourists.
Evaluation: market dominance in Singapore is not very serious to begin with. (Monopoly power is undesirable in theory.)
(Why? More of this important evaluation in our Econs Intensive Revision Lessons.)
Note: Any possible macroeconomic rationale to support IR development and operation?
Conclusion:
With such a small population and tiny land space, 2 IR are most likely sufficient to serve consumers from local and the region.