2022 SH2 H2 Prelim EQ3 (Suggested answer).docx

3 Children who grow up in lower-income families have less access to quality education. Singaporegovernment will start to level the playing field by providing more assistance to those in danger ofbeing left behind during pre-school years. Inaddition, thegovernment will alsodoublespendingonthe pre-school sector to $1.7 billion by 2022. Discuss thefactors that theSingaporegovernment shouldconsider initsdecisiontointerveneinthepre-school education market.[25] Suggested Answer Outline Introduction ● Indecidingwhether tointerveneinthepre-school educationmarket,thegovernmenthastogatherthe necessary information fromvarious economic perspectives, consider its constraints, weighthebenefits versus the costs of such intervention and consider its unintended consequences. Thisapproach is known as the decision-making framework. Body Benefits of intervening in the pre-school education market Benefit 1 Correct market failure due to positive externalities in consumption to achieve allocativeefficiency ● The benefits of early education extend to society as a whole. The third party (society) benefitsthroughbetter workforceinthelongtermaspre-schooleducationmightenabletochildtodevelopgood cognitive skills which will translate to more year of schooling and better labour work forcewhich will bring about more innovation and higher productivity.● Hence, thepresenceof marginalexternalbenefits(MEB)createsadivergencebetweenthemarginalprivate benefits (MPB) and marginal social benefits (MSB) where MSB= MPB + MEB.● Assuming no negative externality, marginal private cost (MPC) equals to marginal social cost (MSC).

Figure 1: Market failure from the underconsumption of pre-school education ● Inthepursuit of self-interest, consumers will onlyconsider their ownprivatecostsandbenefitsandconsume at 0Qp, where MPC=MPB. However, the socially optimum output level is 0Qs, whereMSB=MSC.● Thus, there is an underconsumption of QpQs units leading to a deadweight loss of areaABCandallocative inefficiency. ● Hence, government intervention can be beneficial via attaining allocative efficiency (the aboveexplain the need for government intervention not the benefit of it).● The subsidy will reduce the MPC, shifting the MPC curve from MPC to MPC + subsidy per unit,causing the consumers to consume pre-school education up to the level of Qs, hence coinciding withthe socially optimal output level. Figure 2: Subsidy for pre-school education Evaluation of benefit 1 ● Due to imperfect information, it is difficult to accurately measure the amount of MEB. Benefit 2 Correct market failure due imperfect information to achieve allocative efficiency ● If left tothefreemarket, it is likelythat pre-school educationwill alsobeunder-consumedbecausethe family/household undervalue the family’s private benefits from the consumption of pre-school.● Most parents perceivedtheMPBof pre-school educationtobeacquisitionof simpleknowledgebytheir children.● However, parents have underestimated the amount of true benefits t