- INTEREST RATE AND EXHANGE RATE will be covered in the sixth and seventh weeks of term 1 in economics tuition. Students can refer to Economics - A Singapore Perspective for the diagrams. The book is available in the major bookstores in Singapore. 1 INTRODUCTION Interest rate and exchange rate are two economic variables which influence a large number of other economic variables such as national output and hence national income, unemployment, inflation and the balance of payments. In some economies such as the United States, the central bank chooses to control interest rates to manage the economy. However, in some economies such as Singapore, the central bank chooses to control exchange rates to manage the economy. The difference in the choice of policy instrument to manage the economy is largely due to the difference in the sizes and hence the composition of the economies. Therefore, it is important to have a good understanding of interest rate and exchange rate before proceeding further. This chapter provides an exposition of interest rate and exchange rate. 2 [...]
Category archives: Uncategorized
- NATIONAL OUTPUT/NATIONAL INCOME DETERMINATION will be covered in the third, fourth, and fifth weeks of term 1 in economics tuition. Students can refer to Economics - A Singapore Perspective for the diagrams. The book is available in the major bookstores in Singapore. 1 INTRODUCTION In Chapter 8, we learnt that national output/national income is an important economic variable which is used for several purposes such as measuring the size of an economy and the standard of living. However, the determination of national output/national income is omitted from the chapter. In order to have a good understanding of national output/national income, we need to understand how national output/national income is determined. Different schools of economic thought such as the Classical school, the Keynesian school and the Neoclassical school have different views of how national output/national income is determined. This chapter provides an exposition of the determination of national output/national income. 2 THE CLASSICAL THEORY VERSUS THE KEYNESIAN THEORY ‘Classical economists’ is a term [...]
- NATIONAL OUTPUT/NATIONAL INCOME ACCOUNTING will be covered in the first and second weeks of term 1 in economics tuition. Students can refer to Economics - A Singapore Perspective for the diagrams. The book is available in the major bookstores in Singapore. 1 INTRODUCTION There are two main branches of economics: microeconomics and macroeconomics. Microeconomics deals with the analysis of individual parts of the economy. It concerns factors determining the behaviour of a consumer, the behaviour of a firm, the demand for a good, the supply of a good, the price of a good, the quantity of a good, the performance of a market, etc. Thus far, we have been dealing with microeconomics. Macroeconomics deals with the analysis of the whole economy. It concerns factors determining aggregate variables such as aggregate demand, aggregate supply, national output, national income, unemployment, inflation, the balance of payments, etc. As opposed to microeconomics which focuses on the individual parts of the economy, macroeconomics looks at the big picture of the economy. In order to understand macroeconomics, we first need to understand the concepts of national output and national income[...]
- MARKET FAILURE will be taught in the first, second, third and fourth weeks of term 3 in economics tuition. Students can refer to Economics - A Singapore Perspective for the diagrams. The book is available in the major bookstores in Singapore. 1 INTRODUCTION In the free market, the equilibrium of a market is determined by the market forces of demand and supply. However, the equilibrium price and the equilibrium quantity of a good may not be the optimal price and the optimal quantity. For example, tobacco and alcohol will be over-consumed and education and healthcare will under-consumed in the absence of government intervention. Market failure occurs when the free market fails to allocate resources efficiently. Allocative efficiency is achieved when it is impossible to change the allocation of resources in the economy in a way that will increase the welfare of society. This occurs when marginal social benefit is equal to marginal social cost where marginal social benefit is the sum of marginal private benefit and marginal external benefit and marginal social cost is the sum of marginal private cost and marginal external cost. External costs and benefits, or externalities, [...]
- MARKET STRUCTURE will be taught in the first, second, third and fourth weeks of term 2 in economics tuition. Students can refer to Economics - A Singapore Perspective for the diagrams. The book is available in the major bookstores in Singapore. 1 INTRODUCTION Economists are interested to study the behaviour of firms such as whether they will charge a high or low price, whether they will make a large or small amount of profit and whether they will produce efficiently. The answers to these questions will depend on the market structure. Market structure refers to the characteristics of a market such as the number of firms, the nature of their products, the availability of knowledge and the extent of barriers to entry which affect the behaviour of the firms in the market. For example, a firm that faces competition from many firms is likely to charge a low price, make a small amount of profit and produce efficiently. The converse is also true. To maximise profit, a firm may not charge the same price for each unit of a good and this practice is known as price discrimination. Price discrimination affects the firm,[...]
- PRODUCTION AND COSTS will be taught in economics tuition in the eighth and ninth weeks of term 1. Students can refer to Economics - A Singapore Perspective for the diagrams. The book is available in the major bookstores in Singapore. 1 INTRODUCTION Production is the process by which factor inputs are transformed into output. An increase in the quantity of factor inputs will lead to an increase in output. The theory of production is the study of how the output level changes as the quantity of factor inputs changes. To increase output, firms need to employ more factor inputs which will lead to an increase in costs. The theory of costs is the study of how the cost of production changes as the output level changes. When a firm expands its scale of production, its average cost will usually fall and this phenomenon is called internal economies of scale, or simply known as economies of scale. However, when the scale of production of a firm reaches a certain size, a further expansion may lead to a rise in its average cost and this phenomenon is called internal diseconomies of scale, or simply known as diseconomies of scale. A firm may experience a fall or rise in its average cos[...]
- GOVERNMENT INTERVENTION IN THE MARKET will be taught in economics tuition in the sixth and seventh weeks of term 1. Students can refer to Economics - A Singapore Perspective for the diagrams. The book is available in the major bookstores in Singapore. 1 INTRODUCTION In the free market, the equilibrium of a market is determined by the market forces of demand and supply. However, the equilibrium price and the equilibrium quantity may not be the optimal price and the optimal quantity. For example, the price of food may be too high especially in times of war, the quantity of education will be too low and the quantity of tobacco will be too high in the absence of government intervention. Therefore, there is a role for the government in the market. This chapter provides an exposition of government intervention in the market through tax, subsidy, maximum price and minimum price. 2 TAX 2.1 Effects of an Indirect Tax on Price and Quantity A tax is a levy imposed on a good, service, income or wealth by the government. Taxes are often classified into direct taxes and indirect taxes. A direct tax is a tax imposed on income or wealth. Examples include personal income[...]
- ELASTICITY OF DEMAND AND SUPPLY will be taught in economics tuition in the fourth and fifth weeks of term 1. Students can refer to Economics - A Singapore Perspective for the diagrams. The book is available in the major bookstores in Singapore. 1 INTRODUCTION In Chapter 2, we learnt that a fall in price will lead to an increase in quantity demanded and vice versa. However, given any change in price, in addition to the direction of the change in quantity demanded, economists are interested to find the magnitude of the change. In other words, they are interested to find the degree of responsiveness of consumers to a change in price. To measure this, they use the concept of price elasticity of demand. Furthermore, economists are also interested to find the degree of responsiveness of consumers to a change in income and a change in the prices of related goods. To measure this, economists use the concepts of income elasticity of demand and cross elasticity of demand. This chapter provides an exposition of the concepts of price elasticity of demand, income elasticity of demand, cross elasticity of demand and price elasticity of supply. 2 PRICE ELASTICITY OF DEMAND 2.[...]
- DEMAND AND SUPPLY will be taught in economics tuition in the second and third weeks of term 1. Students can refer to Economics - A Singapore Perspective for the diagrams. The book is available in the major bookstores in Singapore. 1 INTRODUCTION In Chapter 1, we learnt that the allocation of resources in the market system is determined by the market forces of demand and supply. Therefore, to have a good understanding of the allocation of resources in the market system, we need to understand the concepts of demand and supply. Indeed, as demand and supply are two fundamental economic concepts which permeate the study of economics, a good understanding of the concepts is essential for understanding economics. To draw an analogy, the importance of demand and supply in economics is equivalent to the importance of the four mathematical operations of addition, subtraction, multiplication and division in mathematics. This chapter provides an exposition of the concepts of demand and supply. 2 DEMAND 2.1 Relationship between Price and Quantit[...]
- THE CENTRAL PROBLEM OF ECONOMICS will be taught in economics tuition in the first week of term 1. Students can refer to Economics - A Singapore Perspective for the diagrams. The book is available in the major bookstores in Singapore. 1 INTRODUCTION Economics is the study of how society allocates limited resources to the production of goods and services to satisfy unlimited human wants. There are two main branches of economics: microeconomics and macroeconomics. Microeconomics deals with the analysis of individual parts of the economy. It concerns factors determining the behaviour of a consumer, the behaviour of a firm, the demand for a good, the supply of a good, the price of a good, the quantity of a good, the performance of a market, etc. Macroeconomics deals with the analysis of the whole economy. It concerns factors determining aggregate variables such as aggregate demand, aggregate supply, national output, unemployment, inflation, the balance of payments, etc. As opposed to microeconomics which focuses on the individual parts of the economy, macroeconomics looks at the big picture of the economy. Economists ofte[...]
- The following is the list of command words which students taking economics tuition at Economics Cafe are expected to understand in order to excel in the Singapore-Cambridge GCE 'A' Level Economics. Command Word Explanation Account for Students are asked to provide an explanation of how an event or situation came about. Analyse Students are asked to break down an argument or information into its component parts and identify ways in which the parts are related. Students are required to recognize the underlying assumptions. If this command word is augmented by “the extent to which”, then a judgment is also sought. Assess Students are asked to make a judgment about the magnitude or the relative importance of the issue raised in the essay question, taking into account the influence of other factors or events on the issue. Compare Students are asked to describe two or more situations or economic concepts and show the similarities and the differences between them. Criticise Students are asked to present a view on an argument, point of view or theory, based on the evidence available. Define Students are asked to provide the meaning of an economic c[...]
- The following is the set of thinking skills which students taking economics tuition at Economics Cafe are expected to demonstrate in the Singapore-Cambridge GCE 'A' Level Economics examination. Thinking Skill Explanation Evaluation Ability to detect fallacies in arguments Ability to question underlying assumptions Ability to consider the arguments for and against to reach a reasoned conclusion Ability to recognize the limitations of economic theories and concepts in the analysis of economic questions in particular applications Analysis And Synthesis Ability to break down an argument or information into its component parts, identify ways in which the parts are related, and reorganise them into a new entity using economic analysis Ability to distinguish between statements of fact, value judgments and hypothetical statements Application Ability to apply economic theories and concepts to explain economic questions presented in a novel way Ability to apply economic theories and concepts to explain contemporary events Comprehension Ability to apply economic theories and concepts to explain economic questions of a rout[...]