According to the article : ‘The main problem is that Singaporeans have grown use

Question

According to the article:

‘The main problem is that Singaporeans have grown used to paying prices that the market can no longer bear. When the government moved the first generation of hawkers off the streets and into fixed locations with electricity, clean running water and regular hygiene inspections, it kept rents artificially low as an incentive. Roughly half of the 6,258 government-managed stalls pay rents as low as S$160 ($120.80) a month. The other half, however, must pay market rates, which can exceed S$4,100 a month. These stallholders must compete with each other.... But with the first generation of hawkers retiring and their replacements paying market rents, food prices will certainly rise....’

Q: Suppose that the government decides to provide a subsidy to all firms on their monthly rent. Firms sign an annual contract for the rent they pay. How does the subsidy affect the fixed and variable costs of the firms? What is the impact of the subsidy on the firms in this market and on the price of hawker food in the short run and in the long run? Illustrate your answer using diagrams

Explanation / Answer

When the government provides subsidies to the producers there will be a big impact on the production cost i.e it affects fixed and variable cost. The effect of subsidies on fixed and variable cost is given below:

1.If the subsidies is on fixed expenses like land rent it becomes a big releaf to producers

2. If it is on variable expenses like material cost it will have favorable effect on profits

3.subsidies on production will shift the supply curve to the right until the vertical distance between the two supply curves is equal to the per unit subsidy;

4.because of the above effect, it decreases the price paid by the consumer ( when other things remaining constant)

5.subsidy helps producers to take a part of benefit obtained by consumers

6.mainly subsidies reduces overall cost of production and makes firm near to economic profit.

Effect on Singaporean market:. If the government provides subsidy for all stalls then :

1.the group stalls can easily compete with the first group stalls

2.all the firm's in market provides goods at almost uniform price .

Effect on hawker price in long run and short run:. When firms can enjoy subsidies it reduces cost and because of this in short run firms can achieve normal profit and in long run it can achieve abnormal profits.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.