(2017) A Level H2 Econs Paper 2 Essay Q3

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3. Government policies to restrict the use of cars and encourage the public to use the Mass Rapid Transit (MRT) system continue to be a source of heated debate in Singapore.

Assess the effectiveness of the policies available to the Singapore government in overcoming market failure in Singapore’s land transport market. [25]

Explain market failure in Singapore’s land transport market 

1. In the consumption of roads via motor vehicles, individuals only take into consideration their own MPC & MPB  

   • cost of driving like petrol, car and the  

   • convenience derived from driving 

2. However, they contribute to congestion which generates negative externalities 

   • Extra travelling time, less leisure, less work 

   • Increased business costs 

   • Increased pollution 

   • Higher probability of accidents 

3. These are not taken into consideration, causing divergence between MPC & MSC 

4. Since consumption occurs at the market equilibrium Qm instead of the socially optimal level Qs, and Qm > Qs, there is overconsumption resulting in deadweight loss and therefore market failure occurs

Taxes 

Electronic Road Pricing

• a form of congestion pricing to force individuals to internalize the external costs associated with driving on congested roads during peak hours – will directly get motorists to avoid such roads and help alleviate congestion on these roads 

Registration Fee, Additional Registration Fee, Road Tax –

• $220 – Registration Fee 

• 100% to 180% of Open-Market Value – Additional Registration Fee 

• Varies based on engine capacity – Road tax 

• These various taxes adds towards the cost of car ownership and discourage the use of cars in Singapore (in general) 

Effectiveness of taxes 

1. ERP may not be significant enough to reduce congestion significantly as vehicle owners may see it as a small % of the total cost of car ownership 

2. Broad-based taxes does not directly reduce congestion 

Quotas 

Vehicle Quota System

• Vehicle population growth rate is currently allowed at 0% (reducing from 3% prior to 2009). Those who wish to buy a car will have to bid for COEs based on these quota. Prices of COE will be determined by demand & supply. The Vehicle Quota System directly limits the population of cars in Singapore. So long as the growth of roads exceed the growth of car population in Singapore (currently 0%), the problem of congestion should ease. 

Effectiveness of quotas 

1. Problem of buffet syndrome – where users seek to maximise car usage to account for the high costs of ownership that they have already paid for 

2. Does not directly address the problem of road usage causing congestion 

Encouraging the use of public transport 

Improving the accessibility, convenience and comfort of public transport

• as part of the Transport Masterplan, the goal is to have a train station within 5 minutes’ walk of each residential home in Singapore. By making public transport a better substitute to private transport, it will reduce the use of cars on roads, helping to address the problem of congestion 

Effectiveness 

1. Worsens congestion in the immediate term with the vast number of public works project causing significant road diversions 

2. Takes a long time and costly

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