Tuesday, June 12, 2007

The NETS fee hike

Hi 07S6E,

Hope all of you are getting a good balance of work and leisure during this June break.

I have probably mention this in class before but here is one recent story that you will be able to apply the elasticity concepts that you have learnt. You may have heard of how NETS is going to increase the cost to retail firms that installed facilities allowing customers to pay using their local bank ATM cards.

Here is a quote from the above article

CASE is also worried that businesses may pass the cost increase to the consumers.

Although existing regulations do not allow this, Mr Yeo said retailers could still tweak product prices if they want to.

Now, I hope all of you remember the fundamental lesson in tax incidence. It really does not matter which party, by law, is responsible to pay the Net surcharge. By law, NETS is levying this extra charge to the firms. Can you apply your elasticity concepts and state which industries might see the firms passing the burden to the consumers and which industries may see firms absorbing the surcharge?

Finally, a related topic, if your parents urge you to quickly make big purchases before July 1st because after that, you will have to pay more due to the GST increase, again, how would you answer them using your knowledge of elasticity?

All the best to your revision for the common tests!

Mr Tan

Kelvin Tan loves s6E. 3:27 PM