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Sunday, November 17, 2013

Possibly The Worst Economic Analogy I've Seen

From Fabrications About The PAP:


"What if the government decides to set a minimum price for a plate of Char Kway Teow? If the price is set at $2.50, it serves no purpose since the cheapest Char Kway Teow is already set by the free market mechanism at that price. What if it is set at $5? Now you can only eat a plate of Char Kway Teow at $5 by 'legislation'! Many hawkers selling Char Kway Teow will have to close shop unless it is worth the $5 consumers willing to pay. No body will want to eat a plate of $5 Char Kway Teow if it's not worth that amount. Those consumers will just switch to other food instead of Char Kway Teow.

On the surface, it appears that setting the minimum price of Char Kway Teow is helping the poor Char Kway Teow hawkers. Do you think it is so?"


In the labour market, employers (purchasers of labour) are fewer than employees (sellers of labour). In the extreme case, we have a monopsony (one purchaser of labour). Power rests with the side with fewer parties, so it's the employers who have power and any legislation would be to protect the employees. One example of which is a minimum wage.

In the char kway teow market, hawkers (sellers of goods) are fewer than customers (buyers of goods). In the extreme case, we have a monopoly (one seller of goods). Power rests with the side with fewer parties, so it's the hakwers who have power and any legislation would be to protect the consumers. One example of which is a maximum price.

Furthermore this misrepresents the dynamics of the labour market and the char kway teow market. Char kway teow is a good that is bought and consumed within an hour, and the consumer is free to go to another char kway teow hawker after that (or even to change to another hawker dish or a non-hawker dining option). There are no costs to changing hawker. On the other hand, labour market contracts are persistent and there are high costs to changing employer.
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