3. Is Monopoly A Problem? Discuss When It Is, And When It Is Not, Using Economic Theory And Diagrams, And Bringing In Evidence Relevant To Singapore

The essay topics • Choose ONE question:

1. “The market mechanism leads to efficient outcomes” (Mankiw-Taylor, Chapter 7). Discuss when this statement is likely to be true and when not (e.g., externalities), using economic theory and diagrams, and bringing in evidence relevant to Singapore.

2. “Common resources tend to be used excessively when individuals are not charged for their usage” (Mankiw-Taylor, Chapter 10). Discuss when this statement is likely to be true and when not, using economic theory and diagrams, and bringing in evidence relevant to Singapore.

3. Is monopoly a problem? Discuss when it is, and when it is not, using economic theory and diagrams, and bringing in evidence relevant to Singapore.

4. “Various policies aimed to help the poor include: minimum wage laws, social security, and tax credits….Although each of these policies helps some families escape poverty, they also have unintended side effects” (Mankiw-Taylor, Chapter 18). Discuss this statement, using economic theory and diagrams, and bringing in evidence relevant to Singapore.

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The essay

• Length: text 2000 words (references, tables, graphs are included from the count)

• Your main aim is to present a discussion of basic economic theories, illustrating your discussion with Singapore experience (1 or 2 examples)

• At least one economics diagram is required

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Structure • Introduction:

–first, give a brief overview of the main issues involved in your problem.

–second, give your plan

• Main body: –Economic analysis: explain the simple economics behind the issue

–Give the more extensive analysis

–Provide one or two examples of Singapore’s policies and their implications

• Conclusions: – Briefly discuss what you have done, and where the economic theory helps

and where it does not

• Use sub-headings. These help the reader by providing signposts

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Area Theories

market mechanism

Efficiency of prices and markets; problems when goods do not have prices

Common resources

Externalities, tragedy of the commons, prisoners’ dilemma

Monopoly Models of monopoly vs competition, models of cartels and collusion

Wages Theories of minimum wages, welfare “dependency”, work subsidies

Examples of Economic theories

Reading

• The starting point is Mankiw and Taylor, also other textbooks such as Sloman

• Relevant authorities webpages will help – e.g. National Envisonment Agency (essay 2), the Competition Commission (essay 3), the Ministry of Manpower (essay 4)

• Academic articles – google scholar search will help find these

• An extensive review of the literature is not the aim – keep it simple

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Requirements • Clear structure, with Introduction; Main body;

Conclusions; References

• Introduction sets out your questions

• Main body: develop your arguments and analysis

– Conclusions – provide a brief summary and discuss implications (if any) for business

– References need to be complete

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Writing the essay (see example essays on Canvas as well)

• Stick to the word limit

• Paragraphs must have a structure: – beginning, middle and end

– clear leading sentence, and concluding sentence to each paragraph

• It is good to discuss matters with others in preparing the essay, but write everything yourself

• Leave yourself time to proofread before submitting

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Explaining the Economics

• In your essay, you should show that you can understand and apply some of the economics we have covered in this module

• Explain the theory that relates to the case you choose

• You must use a diagram for your explanation (e.g. contrasting competition with monopoly, then showing possible welfare losses)

• Discuss the good points and the bad of the economic theories that you use when examining Singapore

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Example from Competition (Note a detailed written example from the Wages area is given on Canvas)

• Exploitation of monopoly power tends to lead to high prices and may lead to competition authorities investigating

• The theory

– Profit maximisation by monopolists leads to lower output and higher prices than in more competitive markets

– Consumer surplus falls

– Total welfare falls – deadweight loss

• Defence of monopoly

– Monopoly not wrong in itself – cases rest on abusing monopoly power

– High profits may allow investment and research

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Example cont. – collusion • Like monopoly, collusion leads to high prices and, unlike

monopoly, it is usually illegal

• The theory

– Monopoly profits are higher than profits from a competitive (price or quantity setting) oligopoly

– This provides an incentive for firms to collude to restrict output to the monopoly level

– Can be difficult to maintain, although facilitated by factors including growing markets, capacity constraints and price information

• The main challenge for competition authorities is to prove that collusion has occurred

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Example cont. – mergers

• Unlike monopoly and collusion cases, merger cases are usually considered by authorities before the event. – Authorities judge whether future mergers will be allowed

• The theory – Horizontal mergers will tend to reduce competition and raise prices

– But this can be offset by cost reductions

– Vertical mergers will potentially benefit firms and consumers by removing double marginalisation

– But could have negative effects if they prevent rivals from accessing suppliers or customers

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Plagiarism

• Make sure you use your own words when writing the essay

• All sources need to be correctly referenced

• Do not copy and paste: this is the best way to avoid plagiarism

• Use direct quotes only when absolutely necessary

• Beware of collusion: working closely with a friend on a similar topic and writing very similar essays

• Your essay will be checked for plagiarism

• Consequences can be significant

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Summary of advice

• Collect information for you chosen essay

• To get a good mark you need to show that you understand and apply the relevant economics

• It is a short essay:– every word must be necessary

• Make sure your essay is written in your own words all essays are checked for copying using Turnitin

• Support over the next month: email me – but I cannot help actually writing of course

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