Tuition Wednesday Essay

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Wireless@SG is a wireless broadband programme developed by Infocommunications Development Authority of Singapore. Registered Wireless@SG users are able to enjoy free wireless broadband access with speeds of up to 1 Mbps at public areas within its coverage. Wireless@SG is powered by the network of three wireless operators: iCell, M1 and SingTel. a) Explain the key differences between “public good” and “merit good”, and consider whether Wireless@SG is an example of a public good. [12] Intro Define Public Gd & Merit Gd *Don’t talk abt mkt failure intro cos qn never ask why mkt fails! Body (key differences between public & merit goods) Degree of rivalry Public goods Nonrival in cnsmption which means that the consumption of the good by one user doesn’t diminish the amount of the gd available to additional users. MC of providing to additional user = 0 eg national defence as the provision of national security protection for one citizen doesn’t diminish the level of security provided to additional citizens. Merit good A private food and may be rival in consumption, eg healthcare service, when one user goes for health screening, it will diminish the resource available such as time or disposable thermometers to additional users Wireless@SG, on the surface, seems to be a public good. Access to the network by one user does not mean that an additional user will be excluded in the consumption ie it can support multiple users Yet, closer examination on the mkt as more and more additional users access the network, this will slow down the speed of access additional user can lead to rivalry in consumption in terms of speed of access Degree of excludability Public goods Nonexcludable to a nonpaying user ie it isn’t possible to prevent a nonpaying user from enjoying the benefits of consumption of a good potentially lead to a freerider problem since there is no incentive for crs to pay eg once a pedestrian sheltered walkway is built, it isn’t possible to prevent non payers from using the walkway. Merit good Eg, education it is possible to exclude nonpayers of school fees from enjoying the service Wireless@SG seems more likely to be a merit gd rather than a public gd. Only registered users can enjoy the free access. Similarly, if charges need to be imposed, nonpayers can be easily excluded via nonregistration. Extent of provision in the market/extent of market failure & govt Public gd Due to nonrivalry in consumption, the marginal cost of providing the service to another user is zero, while nonexcludability gives incentive for crs to conceal their demands, which leads to freerider problem. Merit gd It doesn’t face the freerider problem and a direct charge can be levied on the user as it generates private benefits to consumers (a healthier life). Yet, there is some of

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Transcript of Tuition Wednesday Essay

Page 1: Tuition Wednesday Essay

Wireless@SG  is  a  wireless  broadband  programme  developed  by  Info-­‐communications  Development  Authority  of  Singapore.  Registered  Wireless@SG  users  are  able  to  enjoy  free  wireless  broadband  access  with  speeds  of  up  to  1  Mbps  at  public  areas  within  its  coverage.  Wireless@SG  is  powered  by  the  network  of  three  wireless  operators:  iCell,  M1  and  SingTel.      a)  Explain  the  key  differences  between  “public  good”  and  “merit  good”,  and  consider  whether  

Wireless@SG  is  an  example  of  a  public  good.                 [12]    Intro  Define  Public  Gd  &  Merit  Gd    *Don’t  talk  abt  mkt  failure  intro  cos  qn  never  ask  why  mkt  fails!    Body  (key  differences  between  public  &  merit  goods)  Degree  of  rivalry  

Public  goods  Non-­‐rival  in  cnsmption  which  means  that  the  consumption  of  the  good  by  one  user  doesn’t  diminish  the  amount  of  the  gd  available  to  additional  users.  à  MC  of  providing  to  additional  user  =  0  eg  national  defence  as  the  provision  of  national  security  protection  for  one  citizen  doesn’t  diminish  the  level  of  security  provided  to  additional  citizens.  

Merit  good  A  private  food  and  may  be  rival  in  consumption,  eg  healthcare  service,  when  one  user  goes  for  health  screening,  it  will  diminish  the  resource  available  such  as  time  or  disposable  thermometers  to  additional  users  

Wireless@SG,  on  the  surface,  seems  to  be  a  public  good.  Access  to  the  network  by  one  user  does  not  mean  that  an  additional  user  will  be  excluded  in  the  consumption  ie  it  can  support  multiple  users  Yet,  closer  examination  on  the  mkt  à  as  more  and  more  additional  users  access  the  network,  this  will  slow  down  the  speed  of  access  à  additional  user  can  lead  to  rivalry  in  consumption  in  terms  of  speed  of  access  

Degree  of  excludability  

Public  goods  Non-­‐excludable  to  a  non-­‐paying  user  ie  it  isn’t  possible  to  prevent  a  non-­‐paying  user  from  enjoying  the  benefits  of  consumption  of  a  good  à  potentially  lead  to  a  free-­‐rider  problem  since  there  is  no  incentive  for  crs  to  pay  eg  once  a  pedestrian  sheltered  walkway  is  built,  it  isn’t  possible  to  prevent  non-­‐payers  from  using  the  walkway.  

Merit  good  Eg,  education  à  it  is  possible  to  exclude  non-­‐payers  of  school  fees  from  enjoying  the  service  

Wireless@SG  seems  more  likely  to  be  a  merit  gd  rather  than  a  public  gd.  Only  registered  users  can  enjoy  the  free  access.  Similarly,  if  charges  need  to  be  imposed,  non-­‐payers  can  be  easily  excluded  via  non-­‐registration.  

Extent  of  provision  in  the  market/extent  of  market  failure  &  govt  

Public  gd  Due  to  non-­‐rivalry  in  consumption,  the  marginal  cost  of  providing  the  service  to  another  user  is  zero,  while  non-­‐excludability  gives  incentive  for  crs  to  conceal  their  demands,  which  leads  to  free-­‐rider  problem.  

Merit  gd  It  doesn’t  face  the  free-­‐rider  problem  and  a  direct  charge  can  be  levied  on  the  user  as  it  generates  private  benefits  to  consumers  (a  healthier  life).  Yet,  there  is  some  of  

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intervention   To  achieve  allocative  efficiency  in  resources  allocation,  price  must  be  equal  to  marginal  cost  and  in  this  case,  price  equals  to  zero.  Moreover,  the  free-­‐rider  problem  means  that  producers  wont  be  able  to  price  the  goods  as  there  is  no  expression  of  demand.  As  such,  it  is  not  profitable  to  produce  the  good  and  hence,  there  will  not  be  any  production  of  any  public  goods  à  complete  market  failure  

govt  intervention  as  merit  goods  are  deemed  to  be  under-­‐consumed  if  left  to  the  free  mkt.  consumption  of  healthcare  provides  an  external  benefit  to  firms  such  as  from  having  healthier  and  more  productive  employees,  who  will  help  firms  to  earn  higher  profits.  These  external  benefits  are  not  reflected  in  the  price  of  the  good.    

Conclusion  In  this  light,  Wireless@SG  seems  more  likely  to  be  a  merit  gd  rather  than  a  public  gd.  Wireless  networks  have  been  provided  by  the  various  telecommunication  companies  profitably.  The  main  reason  for  govt  intervention  is  due  to  under-­‐consumption  rather  than  non-­‐provision.    b)  Discuss  the  extent  to  which  the  Singapore  economy  would  likely  benefit  from  the  free    

provision  of  Wireless@SG.                     [13]    • Explain  that  Wireless@SG  is  a  merit  gd  as  concluded  in  part  (a)  • Explain  how  there  is  a  divergence  between  PMB  &  SMB  • Explain  the  3rd  party  benefits,  quantify  this  benefits  to  the  economy!àunder-­‐consumed  if  

left  to  the  free  mkt    • Explain  how  free  provision  will  result  in  shifting  PMB  to  meet  up  to  SMB  

Evaluation  1:  • Cost  to  wireless  network  operators  –  loss  of  profits  in  the  SR  as  compared  to  when  it  imposes  

charges  on  every  use  of  wireless  network,  especially  when  wireless  network  is  considered  as  a  necessity  in  which  the  demand  will  be  price  inelastic.  yet,  MC  for  providing  for  the  extra  user  is  near  zero  

• Moreover,  as  the  society  becomes  more  wired  and  technologically  advanced  à  higher  DD  for  higher  bandwith  (higher  than  1Mbps)  à  higher  DD  &  à  profits  in  the  LR  

Evaluation  2:  • Not  all  group  of  people  will  benefit  this  especially  the  less  tech-­‐savvy  people  • May  need  to  encourage  the  narrowing  of  the  digital  divide  • Yet,  needs  the  use  of  communication  devices  such  as  mobile  phones  and  laptop  conputers  • Extent  of  which  depends  on  whether  the  lower-­‐income  group  can  assess  to  such  hardware  • In  itself  may  not  be  sufficient  à  need  to  be  complemented  with  other  programmes  such  as  

providing  for  cheap  laptops  to  schools  and  educating  the  masses,  especially  the  less  tech-­‐savvy  group  of  people  

Overall  conclusion/evaluation  The  Sg  economy  will  largely  benefit  from  the  free  provision  of  Wireless@SG  as  wireless  network  has  increasingly  become  a  necessity  especially  in  this  digital  era.  Wireless  network  can  help  in  every  aspect  of  life,  such  as  social  life  and  education.  Moreover,  free  provision  reduces  the  problem  of  under-­‐consumption  and  hence,  leads  to  a  greater  efficiency  in  allocation  of  resources.    The  extent  to  which  it  benefits  will  largely  depend  on  how  accessible  it  is.  The  govt  may  need  to  complement  with  other  policies  such  as  education  or  advertisement  about  the  free  provision  of  Wireless@SG  to  better  enhance  the  effectiveness  of  this  free  provision.