Discussion on whether the introduction of maximum prices by a government would solve the problem of scarcity.
A maximum price is a price set by government to limit the amount sellers are allowed to charge for their products or services. This is to prevent sellers from setting high prices and thus, making goods more affordable for the general public. While their intention to protect the welfare of consumers is well-meaning, this measure can sometimes backfire when the price equilibrium is disrupted.
In terms of scarcity issue, setting a price ceiling can escalate the problem instead of solving it. This is because when a maximum price is established, the profits of the producers are limited and often reduced. Therefore, existing producers will produce less supply or even withdraw from the market, while potential ones will hesitate to enter the market due to the lack of incentives to do so.
Consumers also tend to buy more at lower prices, ceteris paribus, further intensifying the problem of shortage, on top of the reduced supply.
In this report, the author will discuss the complications of a shortage in supply using the pharmaceutical industry as an example and the measures that can be taken to ease them.
2.0. Complications of Shortage in Supply
A drop in profit will cause pharmaceutical manufacturers to limit the supply of their drugs, due to lesser enticement and resources to produce. The potential issues that will arise from the situation will be discussed as follows:
2.1 Unfair trading and Black Markets
The limited medication supply will not be able to meet the demands of all its consumers, therefore, some medications may be sold on biased basis (MORTON, 2001), for example if a consumer has relations with someone from the medical industry. Unlawful transactions will also take place when a consumer offers to pay a higher price in discreet, or perform bribery to instigate a medical worker to obtain supply from their workplace. In economics, the risks of such unlawful acts are added to the cost of the product, and together with the higher price the buyer paid, the final cost of the product turns out to be more than the initial market price (ROCKOFF.H, 2008).
A surge of excess demand caused by the shortage of supply attracts unlicensed dealers to enter the ‘Black Market’. The drugs are usually sold higher than the market prices, and inferior or imitated versions of the drugs may be brought into the market by unscrupulous sellers. This can cause monetary damage to the buyers or deteriorate their health when the products issued to them are of inferior quality or imitations.
2.2 Misdistribution of supply
Due to the shortages, consumers are not certain if they would be able to obtain the drugs, especially for patients who require the medications on a long term basis. This market situation can result in leaving out consumers who are in real need but lack resources to obtain them.
2.3 Hindrance to Research and Development
A reduction in production causes a fall in revenue for the producers, in turn deterring them from having excess funds for researching and developing new or improved products. They may even consider lowering the quality of the products to cut costs. This creates loss to the medical industry and the benefits of consumers.
3.0 Solutions to Resolve Issues Caused by Shortage
The government can provide subsidies and implement tax reduction to aid producers cope with the challenge of maintaining the quality due to incurring costs and reduced revenue. Funding their research and development activities can also help with innovation and production of more effective drugs to benefit the consumers.
Strict product standards guidelines can also be set to prevent the production of inferior drugs. A higher penalty for illegal trading of controlled-price drugs can also be implemented to deter the black market movements.
Setting a price ceiling is not a feasible solution to ease scarcity. Instead, the government can consider resolving any existing political issues affecting the trading systems of the country (LALOR.J, 1899). With more imports, the increased number of suppliers and goods will create a free competitive environment which will be effective in pushing the prices down. (MORTON. F, 2001) Adjusting the prices according to market conditions will also help prevent scarcity, this is because if the available disposable income has increased due to a thriving economy, setting a price too low will increase the demand, leading to a shortage of goods. When the supply of goods and demand of consumers are managed accordingly, the price of the products will return to equilibrium.
Discussion on the key macro-economic aims of the Singapore government and the best policy measures to overcome the most significant macro-economic problem that is currently being experienced by the Singapore economy.
Singapore, being a fast-growing economy depends heavily on trade and services for its economic growth. It focuses on upholding its political stability, developing its telecommunications and infrastructure, stabilizing its currency and prices and developing into a leading financial and tourism centre (SGS, 2013). Manpower is the only resource due to its scarce lands for cropping and the lack of natural resources, thus maintaining full employment of a skilled and educated workforce is exceptionally important for Singapore. In this report, the author will discuss about the potential issues caused by unemployment and the feasible solutions to achieve the goal of full employment in Singapore.
2.0 Potential Issues of Unemployment
In Singapore, unemployment rate is defined as the percentage of unemployed persons to economically active persons (i.e. employed and unemployed persons) aged fifteen years and over. (MOM, 2013)
High unemployment rate can lead to potential social issues when the unemployed turn to illegal professions and activities. Poverties and low self-esteem can also affect their psychological health and relationships (MILLER.R, 2002). The country can also be set in debts in the long run in a situation where welfare benefits increases and tax income falls. Productivity output will also be affected when unemployment rate rises, as the demand of goods and services will decrease, resulting in the decrease of supply from producers as well.
3.0 Reducing Unemployment Rate in Singapore
The 3 major categories of unemployment reflected in Singapore’s labour force today are frictional unemployment, structural unemployment and cyclical unemployment (MOM, 2013). The solutions in respect of their categories of unemployment will be discussed as follows. 3.1 Frictional Unemployment in Singapore
To reduce time spent on job searching, jobs have to be created or redesigned to make them more attractive to the job seekers. Retaining the workers in their vocation is also important. For example, the Work Development Authority of Singapore (WDA) provides job matching services to assist job seekers to shorten hiring process and identify suitable jobs so as to promote work satisfaction and encourage retention. Redesigning low-waged jobs such as cleaners and labourers and promoting respect and fair treatment will encourage the citizens to take up the jobs. For example, in a recent commercial created by Ministry of Manpower Singapore to promote awareness of employment rights featured a cleaner and her rights to receive timely wages, CPF contributions and paid-leave entitlement. (MOM SINGAPORE, 2013)
3.2 Structural unemployment in Singapore
A shift to a knowledge-based and technology advanced economy reduces the demand on low-skilled labour workers. (MOM, 2008).Thus, upgrading the skills of the unemployed and promoting education will help close the skills gap. For example, the WDA offers government subsidized programmes to upgrade the work and language skills of individuals to help them stay competitive and competent in the labour force. Many companies may be reluctant to hire women, taking into consideration the chances they will leave the firm after having a baby. To ease this problem, the Singapore government offers childcare subsidies that help provide an alternative child tending option, thus enabling the women to remain in the workforce after childbirth. For older unemployed workers, extending retirement age, upgrading their skills, and changing the mind-set of employers about hiring older workers are good measures to resolve unemployment. (MOM, 1999). Capping the number of foreign workers will also help prevent Singapore citizens from losing their job opportunities in the workforce. Due to lower wages with the same ability to accomplish tasks, many companies prefer hiring foreign workers to Singaporeans. Therefore, if no policy is implemented to control this situation, the unemployment rate of Singapore residents will rise enormously. 3.3 Cyclical unemployment in Singapore
The government can practise expansionary fiscal policy such as increasing the aggregate demand and aggregate expenditure. For example, building new roads or infrastructure will boost the construction and raw materials market (ABEL, BERNANKE, 2001). Investing in developing world-class tourist attractions such as integrated resorts will also help boost the service and other related sectors.(TAN. JS, 2011) Re-distributing of income through tax rebates can increase its people’s disposable income, which will in turn be effective in raising the GDP. Thriving business activities will lead to an increase in manpower demand and reduce retrenchment and non-hiring due to cost cutting.
As on third quarter of 2013, Singapore’s unemployment rate remains low at 1.8% (SBR, 2013), with most of the employment driven by services and construction. Analysts have suggested that labour productivity has to increase for Singapore to achieve its 3 to 3.5 percent GDP growth target.(Chan. Y, 2013. CNA), signifying the close relationship between Singapore’s employment rate and its economic growth on the whole.