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Economics Tuition – Bishan Tuition Centres – Explain the impact of a rise in oil price on inflation and unemployment

Explain the impact of a rise in oil price on inflation and unemployment.

When there is a rise in oil prices, the cost of production is increased which will lower aggregate supply, resulting in an excess demand condition, thus raising general price level. Hence, cost-push inflation arises.

An oil price hike leads to inflationary pressures. The increase in the price of raw materials and natural resources, such as crude oil, leads to an increase in manufacturing and transportation costs for many industries. Consequently, producers will pass on the increase in cost of production to consumers in the form of higher prices and inflationary pressures ensue, as illustrated by upward shift of the horizontal portion of the aggregate supply curve.

Oil price hike also leads to higher unemployment. For firms that are unable to pass on the increased cost of production to consumers will have to scale on their production process, including labour. A prolonged oil price hike will lead to the erosion of comparative advantage for firms in these industries which rely extensively on oil for production purposes. Hence, this results in structural unemployment. In addition, firms will seek cheaper alternatives, such as renewable energy and natural gases, thus reducing the severity of structural unemployment.


This article is contributed by Mr. Keiran Tan, JC Economics Tutor of Economicsfocus, who has 5 years of teaching experience. Currently, Mr. Keiran Tan provides specialized Economics Tuition. To read more articles on Economics issues and skills development, please refer to the JC Economics Essays blog.

Economics Tuition – Explain how the Monetary Authority of Singapore uses the managed-float exchange rate system to regulate the exchange rate.

Economics Tuition – Explain how the Monetary Authority of Singapore uses the managed-float exchange rate system to regulate the exchange rate.

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The Monetary Authority of Singapore (MAS) adopts a managed-float exchange rate system, which requires direct government intervention in the foreign exchange market through the direct buying and selling of the Singapore Dollars and foreign currencies.

The MAS will set a trading band for the exchange rate to fluctuate within. The central bank will intervene to manipulate the exchange rate if the rate rises above the upper band or falls below the lower band.

In exceptional cases, the central bank will adopt a neutral monetary policy stance, meaning that it will either raise or lower the trading band, enabling the exchange rate to rise or fall beyond the initial range. This means that the MAS allows market forces to determine the new market equilibrium for the Singapore Dollar.

When the MAS seeks to appreciate the exchange rate, particularly with the aim of dampening the harmful effects of imported inflation, it needs to increase the demand for Singapore dollar. Appreciation of the local currency is conducted through the buying of the local currency and the selling of foreign currencies.

In conclusion, the managed-float exchange rate system is an important monetary policy tool for the Singapore government to achieve various macroeconomic objectives, such as price stability.


This article is contributed by Mr. Simon Ng, founder and principal JC Economics Tutor of Economicsfocus, who has 20 years of teaching experience. Currently, Mr. Simon Ng provides specialized Economics Tuition and GP Tuition. To read more articles on Economics issues and skills development, please refer to the JC Economics Essays blog.

Economics Tuition – Explain the theory of Comparative Advantage

Economics Tuition – Explain the theory of Comparative Advantage.

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Purpose of comparative advantage
The concept of comparative advantage explains how countries which are efficient in production can specialise and trade with countries which are inefficient so as to maximise total production and consumption, based on the concept of opportunity cost

Definition of comparative advantage
Comparative advantage is seen when a country has a lower relative opportunity cost in the production of a good when compared to another country in the respective areas of production for similar given resources, despite not producing more units of goods as compared to another country. (One country is efficient in the production of both goods while the other country is inefficient in the production of both goods: specialisation for the efficient country is based on the goods with higher relative efficiency while specialisation for the production of country which is inefficient is based on the good with lower relative efficiency.


This article is contributed by Mr. Simon Ng, founder and principal JC Economics Tutor of Economicsfocus, who has 20 years of teaching experience. Currently, Mr. Simon Ng provides specialized Economics Tuition and GP Tuition. To read more articles on Economics issues and skills development, please refer to the JC Economics Essays blog.

Economics Tuition – Explain the factors that limit free trade

Economics Tuition – Explain the factors that limit free trade.

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The factors that limit free trade can be seen in terms of the artificial barriers to trade, and natural barriers to entry.

The artificial barriers to trade refers to protectionism, in which countries implement policies that prevent the import of foreign goods into the country. For example, a country can impose import tariffs to lower the profitability of imports, thus discouraging foreign firms or countries to sell their goods to the country. Consequently, the imposition of protectionism contributes to the presence of trade barriers that will hinder the ease of free trade.

Also, natural barriers to entry will limit free trade. One such natural barriers to entry is the high transportation cost, which will raise the cost of production, such that the price of imported goods and services is relatively higher than the price of domestically-produced goods. Consequently, there will be an increase in consumption of domestic goods and the fall in demand for imported goods, implying that such a natural barriers to entry would hinder free trade.


This article is contributed by Mr. Simon Ng, founder and principal JC Economics Tutor of Economicsfocus, who has 20 years of teaching experience. Currently, Mr. Simon Ng provides specialized Economics Tuition and GP Tuition. To read more articles on Economics issues and skills development, please refer to the JC Economics Essays blog.

Economics Tuition – Explain why government tries to maintain price stability to maintain or enhance its level of investments

Economics Tuition – Explain why government tries to maintain price stability to maintain or enhance its level of investments.

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Firstly, a high level of inflation introduces business uncertainty and hence reduces investors’ incentive to invest. Specifically, hyperinflation disrupts the derivation of cost of production, making it difficult to set price which discourages trading activities and heightens the cost of investment. This contributes to lower investment rate in the country, which raises a cause of concern for government to maintain price stability.

In contrast, price stability via a mild level of inflation is desirable as it stimulates investment. Mild inflation raises production and national income when inflation rate is low as it induces growth of profitability. As production cost lags behind product prices, producers can pass on the rising cost condition to the consumers, enabling to gain greater revenue and profitability.

In addition, price stability, via modest price appreciation, will raise revenue under price-inelastic demand condition and when increase in total revenue is higher than the increase in cost of production, profitability will rise and entrepreneurs are more willing to invest because of their expectations of higher profit margins.


This article is contributed by Mr. Simon Ng, founder and principal JC Economics Tutor of Economicsfocus, who has 20 years of teaching experience. Currently, Mr. Simon Ng provides specialized Economics Tuition and GP Tuition. To read more articles on Economics issues and skills development, please refer to the JC Economics Essays blog.

Economics Tuition – How to explain cost-push inflation?

Economics Tuition – How to explain cost-push inflation?

Cost-push inflation occurs when there is a rise in cost of production which will lead a fall in the aggregate supply that will lead to an excess demand condition, contributing to increase in price level. When the cycle becomes cyclical, it will develop as wage-price spiral or price-wage spiral.

Economics Tuition - JC Economics Essays - Economicsfocus - Cost-push Inflation Diagram

Economics Tuition – JC Economics Essays – Economicsfocus – Cost-push Inflation Diagram

As seen from the diagram, the rise in cost of production will lead to a fall in aggregate supply from AS0 to AS1 which will create an excess demand condition at P0 which will prompt the rise in price from P0 to P1.


This article is contributed by Mr. Simon Ng, founder and principal JC Economics Tutor of Economicsfocus, who has 20 years of teaching experience. Currently, Mr. Simon Ng provides specialized Economics Tuition and GP Tuition. To read more articles on Economics issues and skills development, please refer to the JC Economics Essays blog.

Economics Tuition – Explain the impact of a rise in oil price on inflation and unemployment

Economics Tuition – Explain the impact of a rise in oil price on inflation and unemployment.

When there is a rise in oil prices, the cost of production is increased which will lower aggregate supply, resulting in an excess demand condition, thus raising general price level. Hence, cost-push inflation arises.

An oil price hike leads to inflationary pressures. The increase in the price of raw materials and natural resources, such as crude oil, leads to an increase in manufacturing and transportation costs for many industries. Consequently, producers will pass on the increase in cost of production to consumers in the form of higher prices and inflationary pressures ensue, as illustrated by upward shift of the horizontal portion of the aggregate supply curve.

Oil price hike also leads to higher unemployment. For firms that are unable to pass on the increased cost of production to consumers will have to scale on their production process, including labour. A prolonged oil price hike will lead to the erosion of comparative advantage for firms in these industries which rely extensively on oil for production purposes. Hence, this results in structural unemployment. In addition, firms will seek cheaper alternatives, such as renewable energy and natural gases, thus reducing the severity of structural unemployment.


This article is contributed by Mr. Simon Ng, founder and principal JC Economics Tutor of Economicsfocus, who has 20 years of teaching experience. Currently, Mr. Simon Ng provides specialized Economics Tuition and GP Tuition. To read more articles on Economics issues and skills development, please refer to the JC Economics Essays blog.

Economics Tuition – Explain the problems of comparing living standards of Singapore over time

Economics Tuition – Explain the problems of comparing living standards of Singapore over time.

In Singapore, the enforcement of a good crime enforcement system has significantly reduced the level of crime rates and illegal activities in Singapore. However, in the past, where the presence of illegal activities/pirated transactions was rampant, it may have otherwise undermined the level of Gross Domestic Product (GDP) and hence living standards by excluding a large portion of the income and activities generated in the underground economy. Hence, there is an overestimation of the improvement in living standards of Singapore.

Furthermore, if the percentage increase in price level or population or both are to rise above the percentage increase in GDP, the percentage increase in real per capita income will not rise, implying that there is no improvement in standard of living (SOL).

The increase in national income may not imply that the SOL of the whole nation has improved since the increase in real per capita due to a rise in GDP may not take into consideration the actual distribution of income. This means that not all the citizens will experience rise in real per capita income, indicating an increase in purchasing power.

It is also important to take note of the composition of production. Even if the GDP increases does contribute to growth in production capacity, the low level of production of welfare good such as does not improve the lives of the people.

Lastly, it is imperative to assess the qualitative aspect of standard of living such as the stress level and level of externalities. Therefore, qualitative indicators like Measurement of Economic Welfare (MEW) or Human Development Index (HDI) will be needed as MEW reflects the monetized value of intangible aspects of SOL, while HDI reflects the progress of well-being of the individuals.


This article is contributed by Mr. Simon Ng, founder and principal JC Economics Tutor of Economicsfocus, who has 20 years of teaching experience. Currently, Mr. Simon Ng provides specialized Economics Tuition and GP Tuition. To read more articles on Economics issues and skills development, please refer to the JC Economics Essays blog.

Economics Tuition – What is standard of living?

Economics Tuition – What is standard of living?

Standard of living refers to the average quality of life of a population that includes the material and non-material aspects of life. The material aspect or quantitative value of SOL is determined by the quantity of goods and services enjoyed by the individual through the value of real per capita income which can be derived from real GDP, whereas the non-material aspect or qualitative aspect of SOL includes things such as life expectancy, crime rates, education standard, etc.


This article is contributed by Mr. Simon Ng, founder and principal JC Economics Tutor of Economicsfocus, who has 20 years of teaching experience. Currently, Mr. Simon Ng provides specialized Economics Tuition and GP Tuition. To read more articles on Economics issues and skills development, please refer to the JC Economics Essays blog.

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