| Quick recap | |
| The session covered various economic concepts, including market failure, resource allocation, productive and allocative efficiency, and government interventions in the market. Mr Koh discussed the pros and cons of different policies, such as price ceilings and subsidies, to address market failures and help consumers and producers. The session also included information about upcoming classes, revision sessions, and guidance on essay writing and exam preparation. | |
| Next steps | |
| • Students to review and practice using the essay structure for discussing government intervention policies (R1-E1-R2-E2-Summative Conclusion). | |
| • Students to study the pros and cons of price ceilings and subsidies for helping low-income consumers. | |
| • Students to prepare for next week’s lesson on policies to help producers. | |
| • Mr Koh to send resources and notes from today’s class to students via WhatsApp. | |
| • Students to download and review the shared resources on government intervention policies. | |
| • Students who need help with tutorials or have questions to contact Mr Koh. | |
| • Students to consider attending the intensive revision classes in June (31st May and 7th June). | |
| Summary | |
| Syllabus Coverage and Revision Classes | |
| Mr Koh discussed the upcoming syllabus coverage for the Wednesday classes, which will include market failure and firms. He also mentioned the possibility of switching the order of these topics for those who prefer to do firms first. Mr Koh introduced intensive revision classes in June, which will focus on examinable themes and common mistakes. He also mentioned that he will be giving financial literacy lessons to the students after they complete their A-levels. Lastly, Mr Koh encouraged the students to go through the CAM structure to assess their preparedness for the impact on the market topic. | |
| Resource Allocation and Efficiency Discussion | |
| Mr Koh discussed the fundamental questions of resource allocation, which are what and how much, how and for whom to produce. He explained that the goal of resource allocation is to achieve allocative efficiency, which maximizes social welfare. He also introduced the concept of productive efficiency, which aims to produce at the lowest possible cost. Mr Koh then discussed the concept of equity, which aims to provide goods to those who need them the most. He briefly touched on the command economy and the market economy, explaining that the market economy is driven by self-interest and operates through the price mechanism. | |
| Achieving Allocative Efficiency in Free Markets | |
| Mr Koh discussed the concept of productive efficiency and its achievement in a free market. He explained that profit-driven producers minimize costs to maximize profits, sometimes to the extreme. Mr Koh also introduced the concept of allocative efficiency, which is achieved when social welfare (typically consumer and producer surpluses) is maximized. He used a demand and supply curve to illustrate how consumer and producer surpluses are maximized at the equilibrium point. Mr Koh then introduced the concept of market failure, which occurs when the price mechanism fails to achieve allocative efficiency. He gave an example of a public good, street lighting, which is non-rivalrous and non-excludable, and cannot be priced due to its nature. | |
| Addressing Market Failures and Equity | |
| Mr Koh discussed the unintended consequences of policies and the importance of considering market failures. He highlighted the role of governments in addressing these failures, using healthcare as an example. Mr Koh also emphasized the limitations of the free market in achieving equity, as it prioritizes self-interest over altruism. He used the example of a subsidized ward in a hospital to illustrate the need for government intervention in ensuring equity. Finally, Mr Koh introduced the concept of fairness and the need to help vulnerable consumers and producers, specifically low-income consumers, to afford necessities. | |
| Helping Consumers and Producers Economically | |
| The discussion focused on how to help consumers and producers in the economy. Mr Koh explainedthat to help consumers, the goal is to lower the price of necessities through three approaches: price ceiling, subsidies, and measures to lower demand or increase supply. He then outlined a framework for discussing whether a policy is the best approach, emphasizing the need for comparison when evaluating policies. Mr Koh also provided guidance on identifying the focus of essay questions and understanding the government’s objectives in implementing economic policies. | |
| Price Ceilings and Market Efficiency | |
| Mr Koh discussed the concept of price ceilings and their impact on the market. He explained that a price ceiling set below the equilibrium price can lead to a shortage, as quantity demanded exceeds quantity supplied. This results in a loss of social welfare and efficiency. Mr Koh emphasized the importance of considering the dashboard and its relevance to the discussion. He also mentioned the limitations of price ceilings, including the potential for a shortage and the lack of maximized social welfare. | |
| Consumer and Producer Surplus Explained | |
| Mr Koh discussed the concept of consumer and producer surplus, explaining that consumer surplus is the area above the equilibrium price and below the demand curve, while producer surplus is the area above the equilibrium price and below the supply curve. He also introduced the concept of deadweight loss, which occurs when a price ceiling or floor is implemented, representing a loss of efficiency in the market. Mr Koh emphasized that the loss of excess represents the difference between the original equilibrium quantity and the new quantity after the price ceiling is implemented. He concluded by highlighting that the last point is to emphasize that the bulk of the surplus is scored by the government, not by the consumers or producers. | |
| Black Market and Social Surplus | |
| Mr Koh discussed the concept of a black market, where goods are sold at prices not regulated by the government. He explained that in a black market, the price is determined by the demand curve, and the black marketeers buy all the goods at the maximum price allowed by the government. Mr Koh then showed how the black market affects the social surplus, which is the difference between the consumer surplus and the producer surplus. He pointed out that the black market increases the deadweight loss, which is the loss of economic efficiency due to the price ceiling. Mr Koh also mentioned that if the price is kept artificially low, producers may lose money and close down, potentially worsening the shortage in the long run. | |
| Price Ceilings vs Subsidies Discussion | |
| Mr Koh discussed the pros and cons of price ceilings and subsidies. He emphasized that subsidies are generally preferred because they lower prices and increase output without the risk of a black market. He also mentioned that subsidies can be unsustainable in the long run, especially for countries with limited budgets. Mr Koh provided examples of countries that implemented price ceilings, such as Venezuela and Malaysia, and highlighted the limitations of subsidies, including the potential strain on government budgets. He also shared a sample essay on the topic and offered to review it for students. The class ended with Mr Koh expressing gratitude for the students’ attentiveness and looking forward to discussing how to help producers in the next session. Follow TET’s Balance, Content and Context approach to score L3 for your next essay. Join us for a trial class now! |
