Scarcity

In my first post, let us talk about the underlying principle in economics--Scarce resources used to satisfy unlimited wants.

Because resources are limited and our wants are unlimited, we are forced to make a rational decision to maximise our satisfaction. Hence, for every decision we make, there is an opportunity cost involved, which is the real cost in terms of the next best alternative.

Let us not turn to the local scene.

It is common knowledge that many of the government-linked companies or statutory boards invest overseas. For example, we know that Singapore Power invests extensively in countries like Australia. The profits earned by the company is not being returned to the citizens, but instead, leaked out of the economy to provide capital for overseas company.

I am personally not too happy about this. I would understand if a company want to invest overseas because of better returns, but in cases of companies like Singapore Power, they are granted a monopoly on our electricity prices precisely because they are supposed to provide the prices at a low level to benefit the residents. Unfortunately, the company itself does not have such altruistic motives. They want to make profits, and the profits they had earned had gone to investments in countries like Australia to earn even more profits instead of going back to the residents in Singapore. After all, that is how they manage to earn billion-dollar profits. The government owns the company, and the government is doing nothing about it, because everybody wants profits.

However, as was mentioned, with all decisions come the opportunity costs. In this case, I would broaden the scope of opportunity cost to contain not just purely a monetary value, but also potential loss of goodwill from consumers aka citizens.


















The above diagram is a Production Possibility Curve(PPC). PPC shows the maximum combination of goods that one can attain given scare resources. PPC illustrates the theory of scarcity in two ways.
1. Each point on the curve represents the maximum possible combination of goods attainable given scarce resources.
2. Points outside of the curve are unattainable due to scarcity of resources.

In the diagram, I have labeled the two axes, one as citizens' goodwill, the other as profits. By focusing single-mindedly on profits, the government has neglected the needs of Singaporeans. Right now, the point we are at now is dangerously close to the lower axis.

Focus more on profits and risk losing votes come the next election. Bring prices down, lose some profits, and gain citizens' goodwill. Shouldn't be too hard to understand.