One of the externalities in Singapore will be the “recent” Formula one race held in the central area of Singapore. It was said that the night race has attracted more than 40,000 foreign visitors and generated 168 million sing dollars.

Why is it an externality?

The sole benefiter of the event should only be the organizers of F1. (Who are selling the tickets) However hotels and other sectors nearby benefitted from the event.

External benefits (Positive externality)

Shopping centres near the F1 race will have an increase of sales due to the increase of crowd in that area. Food courts/restaurants in the shopping centres will earn more as tourist and viewers will have their dinner before going for the event. Several hotel suites offering a view of parts of the track priced from 8000 Singapore dollars a night. Hence there will be an economic surplus for the hotels as they do not get to charge their customers at this rate during usual days. In addition, it was told that alcohol was expected to increase at least 50% in sales during F1 weekend. This is because alcohol(compliment) are being bought by people while viewing the event and hotels are offering champagne and wines to customers who have booked suites for viewing of the F1 race. All these are under external benefits, as hotels benefitted from the event even though they did not pursue the event.

External cost (negative externalities)

Due to this event, road blocks were being set up; public transports were being diverted away from the event venue. As the event was held at the central area of Singapore, people who work there and even people who are just passing by will have to take two busses instead of the usual one as roads were being closed, as a result individuals will have to spend more on transportation so as to reach their destination. Cars need to take more detours; as a result more oil is being spent on going extra miles. Thus this affect resources allocation, money that could be spent on other things were being spend more on transportation for individuals. Because of the blockage of roads near the event venue, many other roads will be conjested as a result, traffic will be slow, and individuals might end up late for work and hence individual has to pay for the cost of being stuck in a traffic jam. The cost may come in the form of money (those who are paid on a hourly basis), energy (the need to wake up earlier so as to get away from the congestion) and many other factors.

Jonathan Lau

Labels: externality

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