Econ p1 rwe

TRAGEDY OF THE COMMONS

A good example of the tragedy of the commons is deforestation in the Amazon rainforest in Brazil. The Amazon is a common access resource because it is non-excludable (it is difficult to stop people from using it) but rivalrous (one person’s use reduces the amount available for others). Farmers and logging companies clear land to earn income from timber or cattle ranching. While this benefits each individual, it leads to over-exploitation, causing long-term problems like biodiversity loss and increased carbon emissions. This shows how non-excludable and rivalrous resources can be overused, leaving society worse off.

Positive externality of production

• Building of renewable energy resources in the US

• The green tech companies do not benefit as society does from this

• The world receives fewer carbon emissions, the US reduces its dependency on foreign gas imports, and people will experience less pollution.

• The US government has implemented a new “Inflation reduction Act” which subsides green energy facilities

• boost production of solar panels 

• Government R&D funding for biotech + green energy.
  Creates spillover benefits → innovation + jobs. in singapore

Negative externalities in consumption

India’s food and safety act in 2006 to make ingredient labels mandatory.

singapore cigarettes Smoking in public.
Second-hand smoke harms others → external cost.
Gov response: sin taxes + designated smoking areas + packaging regulation. 2023 - 75% tax on cigarettes

Negative externality of production

• A coal power plant in Poland pollutes as much CO2 as the entirety of Switzerland (!!!), just as a by-product for energy production. This is an enormous negative externality, as the world has to suffer from tens of millions of tonnes of extra CO2, which is a much higher cost than the power plant operator experiences themselves. (MSC > MPC)

• An effort that could limit this pollution was proposed by the Polish state energy company, namely being tradable permits. This solution would have put a cap on total pollution in the country but allow the various power plants to trade permits for polluting, which would have encouraged this power plant to improve its efficiency

Positive externalities in consumption

Vaccinations = When individuals get vaccinated (e.g., COVID-19), they protect themselves AND reduce disease transmission → benefiting society. in singapore

• funded by the government - vaccination drives

Singapore subsidies education from primary to secondary years.

Price floor

Us - 7.75 dollars an hour. Value hasnt changed since 2009, despite inflation, many demand higher wages.

Price ceiling

NYC rent controls - keep housing prices low 

Venezuela fuel price controls - massive shortages - long ques - surplus + black markets

Indirect tax 

• singapore 75% excise tax 

Subsidies

China electric cars

Dirext provision of goods and services

Singapore SMRT

Command & control

Regulation/legislation:Singapore limits the number of cars on the road using the COE system.

• To own a car, you must purchase a COE via a government auction.

• Only a fixed number of COEs are issued per category per year → quantity control.

Consumer nudges:

• Instead of banning cigarettes, many countries instead have rules about the packaging design of cigarettes to make them less appealing and attractive for consumers.

• First pioneered in Australia but now used across the world, cigarette boxes have to use a specific brown color considered ugly and unappealing, and plain text describing the content rather than a colorful logo.

• Additionally, messages encouraging you to quit, such as "SMOKING KILLS" or "QUITTING WILL IMPROVE YOUR HEALTH" are written in large letters across the package.

Price Elasticity of Demand (PED)

• Fast fashion clothes (H&M, Cotton On) – many substitutes; consumers switch if price rises.

• Airline tickets for leisure travel – if price rises, travelers can postpone or choose alternatives.

YED

Type	Example	Reason
Inferior	Instant noodles / frozen food	Demand falls as income rises
Inferior	Public bus transport (high-income earners)	Switch to private cars or taxis as income rises
Necessity	Rice / basic groceries	Demand rises slowly with income
Necessity	Electricity / water	Required for households regardless of income
Luxury	Overseas holidays	Spending rises more than proportionally with income
Luxury	Luxury cars (BMW, Mercedes)	Higher income → more likely to buy
Luxury	Designer fashion (Chanel, Louis Vuitton)	High-income consumers increase consumption a lot

PED

Type	Example	Reason
Elastic	Fast fashion (H&M, Uniqlo)	Many substitutes; consumers can easily switch
Elastic	Airline tickets for leisure travel	Not essential; many alternatives; sensitive to price
Inelastic	MRT / public buses (Singapore)	Necessity; few substitutes
Inelastic	Electricity / water	Essential goods; demand changes little with price

PES

Type	Example	Reason
Elastic	Soft drinks / canned beverages	Easy to produce more; can store in warehouses
Elastic	Fast fashion clothing	Quick production adjustments possible
Inelastic	HDB flats	Construction takes years; supply fixed short term
Inelastic	agricultural goods	limited by land, growing seasons, time