Mugalomaniac.

Saturday, October 07, 2006

Haze, a negative externality.

Do you know why it is so hazy now in Singapore? Because it's the examination period now, and everyone is smoking through their examination papers.

Let's see this in greater detail using economic concepts:

See, the haze is a negative externality derived from the consumption of examinations. When students consume examination papers, students tend to use the smoking method in their scripts which tends to, well, produce smoke. Now, at a private level, imagine one student consuming 4 examination paper during each examination period. So in one year, the student consumes 16 examination papers.

Now, looking at it at a social level, if we take in account every student that resides in Singapore, can you imagine how much smoke is produced? Because the production of smoke is not reflected in the market when examination papers are consumed, it is a demerit good as too much examination papers are being consumed, resulting in this phenomenon we call haze.

Because of information failure, suppliers of examination papers fail to see the full costs imposed on society and thus, continue to provide examination papers at MPC. The market has thus failed as it has failed to allocate goods where MSC=MSB, instead, the price and quantity of goods exchanged remains at MPC=MSB. In this case, the government can intervene by reducing the quantity of examination papers supplied by using legislation. And legislation is the only method that works because the supply curve of examinations is insensitive to price changes.

The government can impose stricter regulations to ensure that examinations are not supplied excessively, or even propose a total ban on examinations. Using this method, the MPC can fianlly shift leftwards towards the MSC, so that a economically efficient output and priced exchanged can be achived.

Damn, must be post-promo syndrome setting in.

Lecture delivered at 2:42 PM by bengx