1) Do you know how people make decisions?
2) Do you know what it means by allocative efficiency?
3) Do you know the 4 main causes of market failure?
4a) Are you able to define these terms: private cost, private benefit, external cost, external benefit, public good, merit good, demerit good?
b) Are you able to give an example for each of the above term?
5a) Do you know what characteristics a public good has?
b) Do you know what each characteristic mean?
c) Can you give an example to illustrate each characteristic?
d) Are you able to explain why the government needs to provide public goods?
6a) Can you give examples of merit and demerit goods?
b) Are you able to explain why the government needs to intervene with regards to these goods?
7) Are you able to use diagrams to illustrate two cases where there's external cost and where there's external benefit?
8) Do you know the different steps to conducting CBA?
9) Do you know why the government wants to correct market failure?
10a) Do you know the different ways the government can deal with the problem of imperfect information?
b) Are you able to give examples?
11a) Do you know how the government can control monopoly power?
b) Are you able to give examples?
12a) Do you know how the government can control externalities?
b) Are you able to explain how they work?
c) Are you able to give examples?
13a) Do you know why income inequality is a problem?
b) Do you know how the government can intervene to solve it?
Well, 13 main points and you're quite there.
Saturday 25 August 2007
Friday 24 August 2007
Market structure Section 3 Q3(b)
Hi folks,
Many people had feedbacked that you'll want to read model essays. To be honest, such resources are unavailable. Therefore, the only way for you to read sample essays is if I write them myselves.
Thank goodness I actually enjoy writing essay.
I will try to explain a few techniques in essay writing as I go along writing it. For this entry, I'll be taking the Q3b as an example.
***********
Using examples from your country, consider whether monopolistic competition or oligopoly is the preferred form of market structure.
Firstly, before we start doing any essay, read the question a few times (3 times for me, 5 times for you :p).
Step 2, understand the implication of the question (What does it mean by "preferred"?), think through the concepts to apply (characteristics of oligopoly and MC).
Then, break down the question into different parts. In this case, the part a of the question can be divided into:
1) How does Oligopoly benefit producers or consumers more than MC?
2) How does MC benefit producers or consumers more than Oligopoly?
Take note that the question also asked specifically for "examples from your own country", in other words, you have to take great care to select good examples to illustrate your points.
Thereafter, plan your essay.
For every essay, the structure should look (more or less) like this:
1) Intro
i) Definitions of keywords
ii) Describe the issue that the question wants you to discuss (Why are they even asking this question? What's the contention? Why is it worth discussing? What's interesting about this question?)
2) Body:
i) Topic sentence (a topic sentence should be at the start of each new point and reads like a direct response to the question)
ii) Elaboration and explanation
iii) Examples
iv) Conclusion for this topic sentence (the "link" back to the question. the "so?" to the question. this can be included if your elaboration, explanation and examples are not adequate to illustrate your point well enough)
3) Final conclusion
i) Give a stand (if the question require you to do so)
ii) Describe the trend that you saw from your answers (is there similarities/differences? comparison/trend in LR and SR?
iii) Give your evaluation (if required)
*******
The monopolistic competition and oligopoly are two market structures that are very realistic in today's society. A monopolistic competitive industry is characterized by the presence of many small firms, selling similar but slightly differentiated products that are close substitutes to one another. Examples of such industry in Singapore includes: bubble tea shops and neighbourhood hairdressing salons. An oligopoly is defined as an industry with a few large firms which may sell either identical or differentiated products. The telecommunications industry, for instance, is an example of an oligopolistic industry.
In this essay, I define "preferred" by "the benefits that the producers or consumers receive". As producers are concerned about profits, which can be increased by higher prices and higher quantity demanded (which leads to higher revenue) and lower costs and consumers are concerned about lower prices, better quality products (which requires higher cost on the part of producers) and wider variety of products, there seem to be a contention between what is preferred by the producers and what is preferred by the consumers. Therefore, it is interesting to take a look at which of these market structures can give the most benefits to both producers and consumers.
Firstly, the oligopoly is preferred due to its ability to earn supernormal profits. The oligopoly is characterized by its high barriers to entry. Factors that lead to the high barriers to entry include: high start-up cost, strict requirements for getting license, strong branding. Due to the high barriers to entry, supernormal profits earned by the industry cannot be easily competed away by new entrants into the industry. On the other hand, the firms in a monopolistic competition has low barriers to entry. This means that firms that are attracted by the supernormal profits earned by the industry can enter the industry easily to compete them away. Therefore, a monopolistic competitive firm is only able to earn normal profits in the long run. Thus, an oligopoly is preferred by the producers.
(*note that I didn't include any examples here because it is not easy to discuss supernormal profits with real examples)
Moreover, oligopolistic firms are preferred by consumers as they can plough the supernormal profits into Research and Development (R & D). The incentive to innovate will result in the production of better quality products, which will in turn benefit consumers. An example of this is Creative, a local oligopolistic firm, which sells IT products. It is able to innovate and market new products like the Zen mp3 player. The firm later also improved the gadget to having mp4 functions. Another example of an innovative local oligopolistic firm is Osim which sells health-enhancing equipment. The firm markets new products (uZap, iGallop, uPapa) very frequently due to its ability to invest in R & D. The ability to market new and better quality products makes the oligopoly preferred by the consumers.
The oligopoly is also preferred by both producers and consumers because of its ability of enjoy economies of scale. Economies of scale refers to the production process in which an increase in the scale of the firm results in a fall in the long run average cost (LRAC). Since an oligopoly is characterized by its large output, it is able to enjoy economies of scale, whereas a monopolistic competition, with its small output, is unable to do so. Examples of economies of scale includes: purchasing (bulk buying of materials through long-term contracts), managerial (increasing the specialization of managers), financial (obtaining lower-interest charges when borrowing from banks and having access to a greater range of financial instruments), marketing (spreading the cost of advertising over a greater range of output in media markets).
As the oligopolistic firm reduces its LRAC, it is able to pass the cost-savings to the consumers as lower price, thus benefiting the consumers. This is beneficial for the firm as it keeps it competitive in the industry.
An example of a firm that is able to enjoy economies of scale and benefits its consumers is NTUC Fairprice hypermart. Its large size, compared to that of a provision shop in the neighbourhood, allows it to enjoy purchasing economies. It is able to receive larger discounts from its suppliers due to the ability to bulk buy. This cost savings allow NTUC Fairprice to have the ability to absorb the GST hike this year, which in turn, benefits the consumers.
However, it will unfair to say that it is always good to have large output in order to enjoy economies of scale. This is because, for the case of many monopolistic competitive firms, it is actually more cost efficient for them to stay small. This is so when the firm is only serving a small market.
For example, for a neighbourhood bakery, whose market consist only of the residents staying in its proximity, it is not cost efficient for it to increase its output. If it increase its production, the result will be that there will be a demand that is too low to take up the supply. Especially for the case of a bakery, products that are unsold in a day cannot be kept fresh for sale the next day and have to be discarded. This will result in wastage. Therefore, in the case where the market is small, monopolistic competition is preferred by the producers.
The monopolistic competition, characterized by many small firms can also be preferred by consumers as it is able to provide a wider variety and more unique products. For example, compare the jewelleries sold by an online shop (a monopolistic competitive firm) and those mass-produced by a jewellery shop (an oligopolistic firm), the online shop will provide more unique designs with wider variety too, as output is small. For products like jewelleries, clothes, shoes, where uniqueness and variety are preferred, the monopolistic competitive industry will be preferred by consumers.
The monopolistic competition is also preferred by consumers when it comes to the ability to provide personalized services. The neighbourhood hairdressing salons for instance, can allow you to bring pictures of hairstyle you want as reference to how you want to do your hair. They also are able to know their customers by name and remember their hair conditions and types to give personalized service to cater to individual customers each time they visit. For products where personalized service is preferred, a monopolistic competitive firm, with its smaller size, will be able to cater to it. Thus, it is preferred by consumers.
In conclusion, the preference of the two market structures is dependent on different factors. Although when it comes to efficiency and profits, the oligopoly is preferred, the size of the market and the type of product sold have to be considered as well. For a larger market, the oligopoly is preferred, whereas it is more cost efficient to operate at the monopolistic competitive level if the market is small. For products that are preferred to have wider variety or uniqueness or require personalized service, the monopolistic competition is preferred by consumers. But for products that do not need to be so (for example, telecommunications), the oligopoly with its higher efficiency is preferred.
**************
For this essay, according to those scripts that I've marked, I noticed that the common mistake is that of no examples. This is very grave for this question since they asked for it specifically. Another problem is that of no elaboration of examples ("An example is the bakeries in the neighbourhood area FULLSTOP". Like, huh? SO WHY is that an example?). The other problem (which seem to be a trend for most essays), is poor organization- main points are there but they jump all over the place and make the reader go around a maze.
Alritey, enough about my comments. Please take note that I'm doing 3b as a question on its own, with no regards to (a) at all. If (a) is taken into consideration, I probably wouldn't define "oligopoly" since i will already have be defined it in part a.
Also, feel free to give comments as to how helpful this is or whether there's still anything that is unclear. I will try my best to clarify. Just remember to leave your name and class after the comment :)
Oh, and as a practice, you may want to try this question: Explain why the oligopoly is more likely to collude than monopolistic competition. You may hand it in for me to take a look, but as for how fast or how detailed the marking will be, I really can't be sure, considering the large pile of scripts that just came in from your recent case study test *groanx* and the assignments that just came in due to late submission *double groanx*
Endnotes: I referred to wikipedia.org for quick access to definitions and Osim official website for the official names of equipment.
Many people had feedbacked that you'll want to read model essays. To be honest, such resources are unavailable. Therefore, the only way for you to read sample essays is if I write them myselves.
Thank goodness I actually enjoy writing essay.
I will try to explain a few techniques in essay writing as I go along writing it. For this entry, I'll be taking the Q3b as an example.
***********
Using examples from your country, consider whether monopolistic competition or oligopoly is the preferred form of market structure.
Firstly, before we start doing any essay, read the question a few times (3 times for me, 5 times for you :p).
Step 2, understand the implication of the question (What does it mean by "preferred"?), think through the concepts to apply (characteristics of oligopoly and MC).
Then, break down the question into different parts. In this case, the part a of the question can be divided into:
1) How does Oligopoly benefit producers or consumers more than MC?
2) How does MC benefit producers or consumers more than Oligopoly?
Take note that the question also asked specifically for "examples from your own country", in other words, you have to take great care to select good examples to illustrate your points.
Thereafter, plan your essay.
For every essay, the structure should look (more or less) like this:
1) Intro
i) Definitions of keywords
ii) Describe the issue that the question wants you to discuss (Why are they even asking this question? What's the contention? Why is it worth discussing? What's interesting about this question?)
2) Body:
i) Topic sentence (a topic sentence should be at the start of each new point and reads like a direct response to the question)
ii) Elaboration and explanation
iii) Examples
iv) Conclusion for this topic sentence (the "link" back to the question. the "so?" to the question. this can be included if your elaboration, explanation and examples are not adequate to illustrate your point well enough)
3) Final conclusion
i) Give a stand (if the question require you to do so)
ii) Describe the trend that you saw from your answers (is there similarities/differences? comparison/trend in LR and SR?
iii) Give your evaluation (if required)
*******
The monopolistic competition and oligopoly are two market structures that are very realistic in today's society. A monopolistic competitive industry is characterized by the presence of many small firms, selling similar but slightly differentiated products that are close substitutes to one another. Examples of such industry in Singapore includes: bubble tea shops and neighbourhood hairdressing salons. An oligopoly is defined as an industry with a few large firms which may sell either identical or differentiated products. The telecommunications industry, for instance, is an example of an oligopolistic industry.
In this essay, I define "preferred" by "the benefits that the producers or consumers receive". As producers are concerned about profits, which can be increased by higher prices and higher quantity demanded (which leads to higher revenue) and lower costs and consumers are concerned about lower prices, better quality products (which requires higher cost on the part of producers) and wider variety of products, there seem to be a contention between what is preferred by the producers and what is preferred by the consumers. Therefore, it is interesting to take a look at which of these market structures can give the most benefits to both producers and consumers.
Firstly, the oligopoly is preferred due to its ability to earn supernormal profits. The oligopoly is characterized by its high barriers to entry. Factors that lead to the high barriers to entry include: high start-up cost, strict requirements for getting license, strong branding. Due to the high barriers to entry, supernormal profits earned by the industry cannot be easily competed away by new entrants into the industry. On the other hand, the firms in a monopolistic competition has low barriers to entry. This means that firms that are attracted by the supernormal profits earned by the industry can enter the industry easily to compete them away. Therefore, a monopolistic competitive firm is only able to earn normal profits in the long run. Thus, an oligopoly is preferred by the producers.
(*note that I didn't include any examples here because it is not easy to discuss supernormal profits with real examples)
Moreover, oligopolistic firms are preferred by consumers as they can plough the supernormal profits into Research and Development (R & D). The incentive to innovate will result in the production of better quality products, which will in turn benefit consumers. An example of this is Creative, a local oligopolistic firm, which sells IT products. It is able to innovate and market new products like the Zen mp3 player. The firm later also improved the gadget to having mp4 functions. Another example of an innovative local oligopolistic firm is Osim which sells health-enhancing equipment. The firm markets new products (uZap, iGallop, uPapa) very frequently due to its ability to invest in R & D. The ability to market new and better quality products makes the oligopoly preferred by the consumers.
The oligopoly is also preferred by both producers and consumers because of its ability of enjoy economies of scale. Economies of scale refers to the production process in which an increase in the scale of the firm results in a fall in the long run average cost (LRAC). Since an oligopoly is characterized by its large output, it is able to enjoy economies of scale, whereas a monopolistic competition, with its small output, is unable to do so. Examples of economies of scale includes: purchasing (bulk buying of materials through long-term contracts), managerial (increasing the specialization of managers), financial (obtaining lower-interest charges when borrowing from banks and having access to a greater range of financial instruments), marketing (spreading the cost of advertising over a greater range of output in media markets).
As the oligopolistic firm reduces its LRAC, it is able to pass the cost-savings to the consumers as lower price, thus benefiting the consumers. This is beneficial for the firm as it keeps it competitive in the industry.
An example of a firm that is able to enjoy economies of scale and benefits its consumers is NTUC Fairprice hypermart. Its large size, compared to that of a provision shop in the neighbourhood, allows it to enjoy purchasing economies. It is able to receive larger discounts from its suppliers due to the ability to bulk buy. This cost savings allow NTUC Fairprice to have the ability to absorb the GST hike this year, which in turn, benefits the consumers.
However, it will unfair to say that it is always good to have large output in order to enjoy economies of scale. This is because, for the case of many monopolistic competitive firms, it is actually more cost efficient for them to stay small. This is so when the firm is only serving a small market.
For example, for a neighbourhood bakery, whose market consist only of the residents staying in its proximity, it is not cost efficient for it to increase its output. If it increase its production, the result will be that there will be a demand that is too low to take up the supply. Especially for the case of a bakery, products that are unsold in a day cannot be kept fresh for sale the next day and have to be discarded. This will result in wastage. Therefore, in the case where the market is small, monopolistic competition is preferred by the producers.
The monopolistic competition, characterized by many small firms can also be preferred by consumers as it is able to provide a wider variety and more unique products. For example, compare the jewelleries sold by an online shop (a monopolistic competitive firm) and those mass-produced by a jewellery shop (an oligopolistic firm), the online shop will provide more unique designs with wider variety too, as output is small. For products like jewelleries, clothes, shoes, where uniqueness and variety are preferred, the monopolistic competitive industry will be preferred by consumers.
The monopolistic competition is also preferred by consumers when it comes to the ability to provide personalized services. The neighbourhood hairdressing salons for instance, can allow you to bring pictures of hairstyle you want as reference to how you want to do your hair. They also are able to know their customers by name and remember their hair conditions and types to give personalized service to cater to individual customers each time they visit. For products where personalized service is preferred, a monopolistic competitive firm, with its smaller size, will be able to cater to it. Thus, it is preferred by consumers.
In conclusion, the preference of the two market structures is dependent on different factors. Although when it comes to efficiency and profits, the oligopoly is preferred, the size of the market and the type of product sold have to be considered as well. For a larger market, the oligopoly is preferred, whereas it is more cost efficient to operate at the monopolistic competitive level if the market is small. For products that are preferred to have wider variety or uniqueness or require personalized service, the monopolistic competition is preferred by consumers. But for products that do not need to be so (for example, telecommunications), the oligopoly with its higher efficiency is preferred.
**************
For this essay, according to those scripts that I've marked, I noticed that the common mistake is that of no examples. This is very grave for this question since they asked for it specifically. Another problem is that of no elaboration of examples ("An example is the bakeries in the neighbourhood area FULLSTOP". Like, huh? SO WHY is that an example?). The other problem (which seem to be a trend for most essays), is poor organization- main points are there but they jump all over the place and make the reader go around a maze.
Alritey, enough about my comments. Please take note that I'm doing 3b as a question on its own, with no regards to (a) at all. If (a) is taken into consideration, I probably wouldn't define "oligopoly" since i will already have be defined it in part a.
Also, feel free to give comments as to how helpful this is or whether there's still anything that is unclear. I will try my best to clarify. Just remember to leave your name and class after the comment :)
Oh, and as a practice, you may want to try this question: Explain why the oligopoly is more likely to collude than monopolistic competition. You may hand it in for me to take a look, but as for how fast or how detailed the marking will be, I really can't be sure, considering the large pile of scripts that just came in from your recent case study test *groanx* and the assignments that just came in due to late submission *double groanx*
Endnotes: I referred to wikipedia.org for quick access to definitions and Osim official website for the official names of equipment.
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