Contents:

Title Page number

Article 1

Article 2

Article 3

Article 4

Article 5

Article 6

Article 7

Article 8

Reference

Bibliography

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Article 1

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Title: Choc horror: It might be Easter but the world is running out of chocolate because demand in China is outstripping cocoa bean production and forcing prices up.

Summary:

The demand for cocoa are increasing tremendously in Asia especially in China warn experts. They also predict that demand for cocoa will be unsustainable by 2020 unless more is done to help cocoa growing communities. Besides, Easter is coming soon, many of them in Britain are preparing to treat themselves with Easter eggs and chocolate according to news. Currently the price of chocolate is soaring due to the high demand for it yet the demand for chocolate is keeps rising. Steps to improve the productivity and life of cocoa farmers will be taken over the next 10 years in a few countries. In The Times, Chris McGrath, head of the Cocoa Life programme at Mondelez realised that there was a long-term shortage in supply. According to the International Cocoa Organization, there are plans to cultivate cocoa in Indonesia. The government is also considering to cancel the tax imposed on importation of cocoa beans.

Discussion:

i) Introduction:

Shift In demand curve

The demand curve shows how the quantity of a good demanded depends on the price itself or other determinants such as consumer’s income, prices of related goods, tastes, expectations and number of buyers. If any of these factors changes, the demand curve will shift. The demand curve shifts right when there are increase in consumer’s income - as income increase, the demand for a normal good will increase and demand for inferior good will decrease. Besides, if the price of substitute goods decreases, the demand for the other good will increase and if price of complement good decrease the demand for a good will increase. The increase in number of buyers will increase the demand. The other 2 factors that will increase demand are expectation and taste. The demand curve shifts left when there are decrease in consumer’s income - as income decrease, the demand for a normal good will decrease and demand for inferior good will increase. Besides, if the price of substitute goods increase, the demand for the other good will decrease and if price of complement good increase the demand for a good will decrease. The decrease in number of buyers will decrease the demand. The other 2 factors that will decrease demand are expectation and taste.

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Supply (shortage)

Quantity supplied is the amount of a good that sellers are willing and able to sell. There are many determinants of quantity supplied, but once again, price plays a special role in our analysis. When the price of good is high, selling that particular good is profitable, and so the quantity supplied is large. By contrast, when the price of good is low, the business is less profitable and so the sellers produce of the product. At a low price , some sellers may even choose to shut down and their quantity supplied falls to zero. Because the quantity supplied rises as the price rises, and falls when the price falls, we say that the quantity supplied is positively related to the price of good. The relationship between the quantity supplied and price is called law of supply. Shortage is a situation in which the price of a product is lesser than the equilibrium price, then therefore the quantity demanded is more than quantity supplied.

Monopolistic Competition

Monopolistic Competition is a market structure in which they practice product differentiation because each firm produces a product that is at least slightly different from those of other firms. Monopolistic competitors, like monopolists, maximize profit by producing the quantity at which marginal revenue equals marginal cost. The firm makes profit because at this quantity, price is above average total cost. While, the firm makes loses because at this quantity, price is below average total cost. In long run equilibrium, price equals to average total cost and the firm earns zero profit.

Elasticity of demand

Elasticity is a measure of the responsiveness of quantity demanded or quantity supplied to one of its determinants. The price elasticity of demand is a measure of how much the quantity demanded of a good responds to a change in price of the good, computed as the percentage change in quantity demanded divided by the percentage change in price. Demand for a good is said to be elastic if the quantity demanded responds substantially to changes in the price. Demand is elastic when the elasticity is greater than 1, so that quantity moves proportionately more than the price. Demand is to be said inelastic if the quantity demanded responds only slightly to changes in the price. Demand is inelastic when the elasticity is less than 1, so that quantity moves the same amount proportionately. There are few determinants that determines the price elasticity of demand such as availability of close substitutes, necessities versus luxuries, definition of the market and time horizon.

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ii) Analysis

Diagram 1 shows the demand for chocolate. The demand curve shifts right from D to D1. Therefore, the equilibrium price now moves from P to P1. And the equilibrium quantity moves from Q to Q1. Demand for chocolate increase because of the number of buyers increase especially in China. Besides, since Easter is coming, demand for chocolate is increasing too.

Diagram 2 shows the shortage of chocolate supply. The equilibrium price is P2 and the market price of chocolate is P3. The price is lesser than the equilibrium price. The equilibrium quantity for chocolate is Q2. The actual quantity supplied is Q1 and the actual quantity demanded is Q3. Quantity demanded of chocolate is more than the quantity supplied.Therefore shortage occurs that is also known as excess demand. To solve the shortage problem, the price has to be increased to P2 to achieve equilibrium.

Diagram 3.1 shows that chocolate industries earn profit in short run. This is because the shortage of cocoa being produced has made its demand among buyers to increase. When the demand increases, a higher price will be charged to reduce the problem in production. When a product of shortage problem is charged at a higher price, suppliers will make profit eventually. Thus,short-run economic profits encourage new firms to enter the market. This increases the number of products offered to reduce demand faced by firms already in the market(existing firms).Slowly,incumbent firms’(existing firms’) demand curves will shift to the left. Demand for the incumbent firms’ products fall, and their profits will decline.Marginal revenue equal to marginal cost, quantity equilibrium at Q. The profit is made because at this quantity, price is higher than average total cost.

Diagram 3.2 shows that chocolate industries earn zero economic profit in long run. Chocolate firms will enter and exit until the firms are making exactly zero economic profits (P=ATC). Marginal revenue equal to marginal cost, when quantity equilibrium at Q. The price will be equal to the average total cost. Therefore, zero economic profit are made.

Diagram 4.1 shows the inelastic demand curve for the COCOA. Cocoa is considered inelastic demand because there are no any close substitutes and it is a widely defined market. The price for cocoa decrease from P1 to P2 whereas the quantity for cocoa increase from Q1 to Q2. The change in price is higher than the change in quantity for cocoa bean.

Diagram 4.2 shows the elastic demand curve for CHOCOLATE. Chocolate is considered as elastic demand because there are some close substitutes such as nuts, candies and sweets and also it is defined narrowly that is the chocolate market. The price for chocolate decrease from P1 to P2 whereas the quantity demanded for chocolate increase

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from Q1 to Q2 . The change in price of chocolate is lesser than the change in quantity for chocolate.

Diagram 1: Shift in demand curve due to increase in number of buyers.

Diagram 2 : Shortage (excess demand) for cocoa.

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Diagram 3.1 : Producer of chocolate makes profit in short run.

Diagram 3.2 : Producer of chocolate makes zero economic profit in long run.

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Diagram 4.1 : Inelastic demand for cocoa.

Diagram 4.2 : Elastic demand for chocolate.

Conclusion:

We can conclude that since there are more number of buyers (determinant), the quantity demanded for chocolate will increase. Besides, the quantity demanded exceeds the quantity supply therefore it results in shortage (excess demand). The price elasticity of cocoa is considered inelastic demand because there are no close substitutes and the market for cocoa is widely defined. But for chocolate it is considered as elastic demand since there are availability of close substitutes and the market for chocolate is narrowly defined.

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Article 2

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Title : Crazy rush for pails and storage containers

Summary :

This article is mainly about issue of people rushing for pails and storage containers. This situation happened because of water cuts in certain areas such as Klang Valley, Petaling and some other places. (The Star : June 18,2014 ). This water rationing situation lead to many problems. One of the main problem faced by the residents are the price of plastic containers that had increased from the normal prices. Therefore, people are rushing for shops that are offering more cheaper and reasonable price of water containers. One of the example is people mainly go to the shops in Kuala Lumpur because most of the shops there had not increased the prices of water container yet. The reason is they do not want to take any advantages on people who affected by water cuts. Moreover, they are long-established in the business.

Discussion :

I. IntoductionThe consumer rushing for pails and storage although the prices of plastic containers had increased from the normal price. Some consumer will get the opportunity to buy the plastic containers in cheaper price but how many of them can get the opportunity? Most of the consumer will prefer to buy the plastic containers without thinking about anything. The reason is they worried about the plastics containers will sold out and out of stock. Hence, plastic containers are perfectly inelastic demand. The price of plastic containers increase, the quantity demanded remains the same as consumer will still buy plastic containers because it has already become the necessity goods in the crisis of water rationing. Plastic containers market structure is monopolistic competition because there are many traders selling plastic containers in Malaysia.

II. Analysis

Market Structure

Plastic containers is in monopolistic competition market. This is because monopolistic competition is a market structure in which many firms sell products that are similar but not identical. In this case, the seller is price maker and they have slight market power which means to free entry and exit of firms. In contrast, firms can enter or exit the market without restriction. Thus, the number of firms in the market adjusts until economic profits are driven to zero. In short run, the traders may earn normal profit as shown in Diagram 1. In long run traders earn zero economic profit as shown in Diagram 2.

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One of the characteristic of plastic containers market is there are many seller and the size of seller of plastic containers is bigger but not as many sellers as perfect competition market. Other than that, the plastic containers firms are easy to entry and exit the market. Hence, consumer have more choices and will change their mind to another seller’s product when the prices of the plastic containers increase of a particular seller.

Diagram 1 Monopolistic competition in short-run, the plastic containers firm makes normal profit

Diagram 2 Monopolistic competition in long-run, the plastic containers firm makes zero profit

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Shifting in demand curve

The law of demand means other things equal, when the price of a good rises, the quantity demanded of the good falls, and when the price falls, the quantity demanded rises. Meanwhile, the demand curve shows how the quantity of good demanded depends on the price of the product itself. The determinants that contributes shifting in demand curve is the price of related goods, the tastes of consumers, change in expectations and number of buyers. If any of these factors changes, it will lead to shifting in demand curve.

The factor that affecting shifting in demand curve of plastic containers according to the article is the number of buyers. Number of buyers of plastic containers increases because crisis of water rationing. Therefore, the current demand of plastic containers will increase which shifts demand curve from D0 to D1 as shown in Diagram 3. Hence, the quantity of plastic containers purchased will increases from Q0 to Q1. Thus, the price will increases from P0 to P1.Demand curve shifts to the right.

Diagram 3 shows increase in demand of plastic containers due to number of buyers

Shifting in supply curve

Law of supply states that other factors remaining constant, price and quantity supplied of a good are directly related to each other. In other words, when the price paid by buyers for a good rises, then suppliers increase the supply of that good in the market. Moreover, quantity supplied is the amount of goods that the sellers are willing and able to sell. There are few determinants cause changes in supply curve such as input prices, changes in technologies, changes in expectation and also number of sellers. The determinants that will contribute in shifting supply curve according to the article is expectation of sellers.

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This is because sellers expect more consumers to demand or buy plastic containers when a serious water rationing happened in the city. Moreover, in future since the same crisis of water rationing problem happens, the demand of plastic containers will remain the same. This is because buyers who already bought the plastic containers in the past time. Therefore, the current supply of plastic containers will increase as shown in Diagram 4. The crisis of water rationing will increase the supply of plastic containers which from S0 to S1. Hence, the quantity supply by the firms also will increase from Q0 to Q1. Thus, the price will decrease from P0 to P1.The supply curve will shifts to the right.

Diagram 4 shows increase in supply of plastic containers due to expectation of sellers

ElasticityElasticity is a measure of the responsiveness of quantity demanded or quantity supplied to one of its determinants. Price elasticity of demand is a measure of how much the quantity demanded of plastic containers responds to a change in the price of plastic containers.

The increase in price of plastic containers will not have a big effect on its sales, consumer will still buy plastic containers.Therefore, Diagram 5 shows the demand curve of plastic containers. During the crisis of water rationing, the maximum price of plastic containers had increased between RM10 to RM55 but the quantity demanded will remain the same, which is Q0. Therefore, the demand curve of plastic containers is perfectly inelastic (price elasticity equal to Ed = 0). (wrong theory)This is because the plastic containers is already become necessity goods in crisis of water rationing. No matter what is the price change to, consumer will still buy

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Ed =∆ %Q ∆%P

plastic containers, the quantity demanded will remain the same. Thus, the demanded curve is a vertical straight line.

Diagram 5 Perfectly inelastic demand curve of plastic containers

III. ConclusionIn conclusion, during crisis of water rationing, the price of plastic containers will increase .Even it is,the demand of plastic container will not decrease. Therefore, the demand curve of plastic containers is perfectly inelastic (price elasticity equal to Ed = 0). This is because the plastic containers is already become necessity goods in crisis of water rationing. Moreover, market structure of plastic containers is monopolistic competition. In that case, the seller is price maker, they have slight market power because there are many traders selling plastic containers in Malaysia. Other than that, the demand and supply curve will move outwards. This shows that the supply quantities will increase upon the demanded quantities increase by the buyers.

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Article 3

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Title: Flying in style (Those wanting a piece of glamour can hop on a private jet for as low as €550.

Summary

A flight on a private jet is now available for as little as € 550 (RM 2,414) per hour. A growing number of firms (private jets) with the help of online market, has led us to this situation. Adam Twidell, Chief Executive and Founder of PrivateFly said that there are more than 500 operators and over 2,500 individual aircraft in European charter market alone are flying empty. This is why new attractive offers were being provided to the public. For example, “empty legs”. In this offer, a trip from a certain destination and at a fixed date, can cost as 75% lower than regular rates. PrivateFly has proved that online market and booking for private jets are good marketing technique as technology plays an important role in everyone’s daily life. Other than that, WiJet is, meanwhile positioning itself as a ‘taxijet airline’. For example, the four-seater Citation Mustang are flying at € 2,200 (RM 9,689) per hour or €550 (RM 2,356) per person. Now, it is also offering partial ownership on private jets to its customers. Oliver Villa said that the partial ownership allows “new clients to access business aviation before moving towards acquisition of full ownership”.

Discussion

1)Market Structure:

The market structure of the private jets can be categorized as the oligopolistic competition market. This is because this market has only few but large sellers. For example, PrivateFly, WiJet, NetJets, and VistaJet are the few firms which conquer and lead the private jets’ business in European countries. Besides, in this oligopoly market, firms and companies will sell goods or services which are similar and from identical category. PrivateFly, WiJet and the other firms are providing private jets for rental and also for partial ownership to their customers. Next, there is a barrier for a new firm to enter the market and there is also a barrier for a current firm to exit the market. It is difficult for firms to enter and exit this oligopoly market.

2) Law of Demand:

Law of demand states that when the other things are constant, the quantity demanded of a good falls when the price of the particular rises. In the case of private jet, the quantity demanded (service of private jet) will tend to increase when the price of these services itself reduces to a lower and more affordable price for consumers. Before this, traveling in a private jet is

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considered luxury and only done by the high-income people. Now, with the presence of technology (online market), it is also available for middle-class family and individuals. This is because, a flight on a private jet is now only € 550 (RM 2,414) per hour. Besides, with the “empty leg” flights, consumer can now travel in private jets to certain location with a price of 75% lower than the original rate, therefore the quantity demanded for private jet will also increase. This situation will lead to the movement along the curve of demand graph. When price, Pa decreases to Pb, quantity demanded for service of private jets will increases from Qa to Qb. Refer to Diagram 1.1.

3) Law of Supply:

Law of supply states that when the other things are constant, the quantity supplied of a good rises as the price of the particular good rises. There are some determinants to identify whether the supply curve will shift to the right when supply increases or shift to the left when the supply of a particular product decreases. In this case, the supply curve of services rendered by private jet companies will shift to the right. This is because the number of supplier (private jet companies0 is increasing. For example, there are companies such as PrivateFly, WiJet, NetJets, Dassault Aviation, Bombardier, and VistaJet in this private jet industry. According to the article, there is an obvious growing number of firms offering flights in recent years. This indicates that the supply of flight is increasing. At a fixed price, Pa, quantity supplied by private jet companies increases from Qa to Qb as the supply of flight is increasing. Refer to Diagram 1.2.

4) Equilibrium Market:

Equilibrium point in a market is achieved when at price,Pa the quantity demanded is equals to the quantity supplied of a particular good. Initially, the private jet industry is at an equilibrium point of E1 which is the intersection point of demand curve,D1 and supply curve,S1. When the number of supplier increases, the supply curve shifts to the right. Supply curve,S1 shifts to S2. Thus, the new equilibrium point changes and move to E2. Now, the new equilibrium price decreases from Pa to Pb and the new equilibrium quantity decreases from Qa to Qb. Refer to Diagram 1.3.

5) Elasticity of Demand:

Elasticity is a measure of how much buyers and sellers respond to changes in market conditions. Price elasticity of demand is a measure of how much the quantity demanded of a good responds to a change in the price of that good. Private jets are considered luxury items that is assumed can

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be bought or traveled by the high-income families and individuals. It is expensive and not affordable by most of the ordinary middle class purchasers. It is considered a luxury product. Thus, when an offer or waiver is being provided or a cheaper price of a flight is being provided, it will definitely boost middle class consumers’ interest to grab the opportunity. A small change in the price offered will lead to a big change in the quantity demanded by the consumers. Therefore, this market of private jets is considered as an elastic market (PED>1). Refer to Diagram 1.4.

Conclusion:

In conclusion, flights of private jets is considered identical service of an oligopoly market. Increasing number of supplier (firms and companies), also makes the supply of the flight to increase. The quantity demanded by consumers will increase as the price of the flights get cheaper and more affordable. As a luxury product, it has an elastic price elasticity of demand. A small decrease in price will led to a big increase in quantity demanded. Thus, to maximize the total revenue, the supplier have to lower down the price of the flights.

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graph

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Article 4

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Title: Petrol subsidy(Improved system to be unveiled before year-end.

Summary:

This article on ‘Petrol Subsidy Review’ was reported and delivered in The Sun’s newspaper on Monday (22 June 2014). This article explains that a new subsidy system will be imposed soon in Malaysia for the petrol. According to Cooperatives and Consumerism Ministry, Datuk Seri Alias Ahmad, government will be able to save up to RM9.8 billion in total through this new system. Currently, RON 95 retails at RM2.10 and RON 97 retails at RM2.80, with 63 cents of subsidy for each type of petrol. He said that, now, the subsidy is not only benefits the poor but also the higher income individuals. Thus, a more efficient subsidy will be imposed on 1st September 2014 for commercial vehicles, and for private vehicles it would be on 1 st October or 1st November. To reduce and avoid smuggling of diesel and petrol to Thailand, the ministry has taken steps to limit petrol sales to only 39 stations in Kelantan. 1st June 2014 onwards, petrol stations can only sell 600,000 litres of petrol and diesel per month, said Alias. He has set intelligence team to monitor petrol and diesel smuggling activities near Kelantan until December to keep the situation under control.

Discussion:

1)Market structure:

This petrol and diesel business can be categorized as oligopolistic competition. This is because it has few but large sellers. For example, in Malaysia, we have only few suppliers of petrol and diesels such as Shell, Petronas, Mobil, BHP and others. Besides that, there are barriers for new comers to enter the industry and current sellers will also face difficulties to exit this industry. Next, all the sellers are selling the similar kind of products. They are providing identical goods which is petrol and diesel for sale to the consumers.

2)Law of Demand:

Law of demand states that when the other things are constant, the quantity demanded of a good falls when the price of the particular rises. The slope of demand curve shows a negative relationship because of income and substitution factors. Furthermore, there are some determinants of demand to identify the direction of shift of the demand curve of a particular product. In this case, it is about expectation when this article was delivered. People assumes that in future, government will limit the petrol subsidies. People will come to a conclusion that government is trying to improve country’s financial state and to save money. Therefore,

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according to people (consumers), they will expect the price of petrol to rise in future. The will try to utilize the subsidies fully now. Thus, the demand for petrol and diesel will increase now in current situation. Demand curve will shift to right from D0 to D1. At price,Pa the quantity demanded will increase from Qa to Qb. Refer to Diagram 2.1.

3) Law of Supply:

Law of supply states that when the other things are constant, the quantity supplied of a good rises as the price of the particular good rises. There are some determinants to identify whether the supply curve will shift to the right when supply increases or shift to the left when the supply of a particular product decreases. In this case, it is on government’s rules and regulations. The ministry has set a limit to the amount of litres of petrol and diesel per station. A petrol station can only sell 600,000 litres of petrol and diesel in a month. This will affect supplier’s business such as the Shell, Petronas, Mobil and others. The supply of petrol and diesel will decrease. Supply curve shifts to the left from S0 to S1. Thus,at price, Pa the quantity demanded of petrol and diesel decreases from Qa to Qb. Refer to Diagram 2.2.

4) Equilibrium Market:

Equilibrium point in a market is achieved when at particular price,Pa the quantity demanded is equals to the quantity supplied of a particular good. For the expected subsidy reduction in future, the demand for petrol and diesel will increase now. Demand curve shifts to right from Do to D1. Besides, because of government rules restriction, the supply will eventually decrease. Supply curve shifts to left from S0 to S1. Thus, equilibrium price and equilibrium quantity also changes. The new equilibrium price increases from Pa to Pb. The new equilibrium quantity also increases from Qa to Qb. Refer to Diagram 2.3.

5) Elasticity of Demand:

Elasticity is a measure of how much buyers and sellers respond to changes in market conditions. Price elasticity of demand is a measure of how much the quantity demanded of a good responds to a change in the price of that good. Petrol and diesel, nowadays are considered as necessary products to continue our daily life smoothly. It is essential for most of the people to do their daily tasks.For example, transportation. Even if hybrid cars and gasoline supported cars are increasing, but still the usage of petrol and diesel supported vehicles are dominant. Therefore, even the price of both petrol and diesel is increased, people still have to buy it to run their motor vehicles. It can be considered as, the increase in the price of these products will not affect the quantity demanded by consumers. It is a perfectly inelastic market (PED=0). At price, Pa the quantity demanded will be Qa. Besides, at higher price, Pb the quantity demanded still will be Qa. Refer to Diagram 2.4.

Conclusion:

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In a nutshell, petrol and diesel are identical products among sellers of an oligopoly market. This new subsidy system that will be imposed soon will increases the demand and decreases the supply of these products. It has a perfectly inelastic market since the change of price has no effect on the quantity demanded by the consumers. The response of consumers is not that obvious. Thus, to increase the total revenue, sellers must increase the price the goods to cover the cost of production and to gain profit.

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Article 5

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Title: Fruits Price Increases Due to the Drought

SUMMARY

Article shows the consumer will have to dig deeper into their pockets for local fruits because prices have risen due to the drought that hit fruit production. Its shows that 60% drop in local fruits production sees prices go up. Besides, the are quietly high according December 2013 to April 2014. Consumer, Association of Penang ( CAP) urged the Government to temporarily cut down on its exports of local fruits to keep prices from shooting up because consumer do not consume the fruits due to higher price. One of the seller said the prices of these fruits had risen by about 15% or an average of 50 cents to 60 cents per kilo depending on the type of fruits. Besides, guava from RM3 per kilo to RM3.50, mangoes from RM2.50 to RM3, bananas from RM4 to RM4.50. Thus, the export of local fruits had dropped by 40% because of the dry spell said by Ricky Yong, Malaysia Fruit Exporters Association president. Few price of local fruits in Peninsular Malaysia (per kilo) star fruit from RM3.95 to RM4.60, guava from RM 3.40 to RM3.90, Guava seedless from RM5.10 to Rm5.75, pineapple from RM2.75 to RM2.90, pisang berangan from RM3.60 to RM 3.90, pisang rastali from RM3.20 to RM 3.50. According to data Fama, the price of star fruit increased by 16.5% while the price of guava had gone up by 15%.The papaya priced at RM3 per kilo but still sellers selling at RM2.50 to keep their regular customer. One of the wholesalers usually used to get about 7000 to 8000 mangoes and jackfruits a week but the number has dropped to 1000 fruits. This causes due to the rise of drought.

Discussion:

i. IntroductionPrice of local fruits has been set higher due to drought. This may because the customers prefer to consume juice as substitute product rather than purchase expensive local fruits. But how many consumers will do it? Most of consumer will choose fruits because its intake of fruits could not substitute with juice and vegetables as it contained different nutritional value. The law of demand states that, other things equal, the quantity demanded of good falls when the price of good rises. Same goes to this case, fruits price increases as the quantity demand of fruits will decrease. When, the price of fruits decrease, the quantity demand of fruits will increase. The relationship between price of fruits and quantity demanded of fruits is inversely related.

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Diagram 1 shows about movement along the demand curve Price increase from (P 0

→ P1) will make the quantity to decrease from (Q0 → Q1). Diagram 2 shows price increase from (P0 →P1), and quantity decrease from (Q0 → Q1) when, demand decrease and demand curve shifts to the left from (D0 → D1).

The law of supply states that, when other things equal, the quantity supplied of a good rises when the price of the good rises. Means that, when market price of fruits increases, quantity supplied of fruits will increase. When the price of fruits decrease, quantity supplied will decrease. This shows a positive relationship between the price of the good and the quantity supplied as shown in Diagram 3. Secondly, shifts in the supply curve caused by a change in a determinant other than price. The determinants that change this supply curve are weather. One of the seller said that he used to get about 7000 to 8000 mangoes and jackfruit a week but the number has dropped to 1000 fruit per week when the weather of our country changes unpredictably. Supply decrease because of the drought in Malaysia as shown in Diagram 4.

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Diagram 3 shows the movement along supply curve. When price increases from (P0 →P1), quantity of fruits also increases (Q0 →Q1). In diagram 4 supply curve shifts to the left as weather affects the production of fruit (S1→ S2). Thus, quantity supplied decrease (Q0→ Q1) and price increases (P0 → P1).

The type of demand curve of fruits is inelastic. When 1% change in the price of a good or service leads to less than a 1% change in the quantity demanded. Price of elasticity demand is less than 1 (E<1) For example, if the price of a fruit increase and demand will eventually decrease, demand is said to be inelastic. A big changes in price, will only lead to small changes in quantity demanded.

Diagram 5 shows that demand in price increases (P0 → P1) and quantity decreases from (Q0 → Q1). Even the change in price is big, but quantity demanded only decrease slightly.

On the other hand, fruits in perfect competition market. There are few characteristics of perfect competition which is a large number of buyers and sellers, price takers (price and quantity are determined by demand and supply), selling homogeneous product, free market entry which that anyone can sell the product and lastly no advertising. Besides of fruits there are other examples of perfect competition which is gold, eggs, nasi lemak and others. Moreover, prices increases also lead to price ceiling implementation by government. The star fruit in December 2013 was RM3.95 to RM4.60, guava RM3.40 to RM3.90, pisang tanduk RM3.70 to RM4.20. It shows that the differences of few prices in fruits.

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This graph shows that suppliers will raise the price due to too many buyers chasing too few goods, thereby moving towards equilibrium.

CONCLUSION

In conclusion, fruits are normal goods for the consumer and also it is considered as a perfect competition market. The quantity demanded by consumer will increase as the price of fruits become cheaper and reasonable. As normal goods it has an inelastic market. Thus to maximize the total revenue, the supplier have to rise up the price of fruits.

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Article 6

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Title: Food item Price to be monitored

Summary:

The article is mainly about the price ceiling that the set up maximum price by the Ministry of Domestic Trade, Cooperatives and Consumerism for 18 controlled items, from July 20 to August 5, in conjunction with Hari Raya Aidilfitri. The 18 control items that listed by government of Malaysia are live chicken, standard chicken, super chicken, local beef, imported beef (maximum price in Sarawak only), imported buffalo meat, chicken eggs grades A, B, C, red chilies, tomatoes whole coconuts, desiccated coconut, shallots (India), imported onions, garlic (China), imported potatoes (China) and mackerel including the mabung (seven to 10 pieces per kilogram). The scheme would be implemented in accordance with the Price Control and Anti-Profiteering Act 2011 throughout the country during the festive season.

Discussion:

i. Introduction

The government imposed price ceiling for selected 18 necessity items that will be used in conjunction with coming Hari Raya Aidilfitri which expected will fall on 28 July. This scheme is created in order to protect the consumers from high price charged by the sellers. Since the listed 18 items are necessity items that used to enliven, therefore these 18 items are perfectly inelastic demand. The price of 18 items will increases, the quantity of demand remain same as consumer will still buy because it is become necessity for HariRaya . The 18 listed items is perfect competition market because many buyer and sellers and also easy entry and exist.

ii) Analysis

Shift of Demand Curve

The demand curve shows how the quantity of good demanded depends on the price of the product itself and the determinants states the changes in quantity of customer purchasing amount. The determinants that plays role in shifting the demand curve is consumers income price of related goods, the tastes of consumers, changes in expectations and number of buyers. If any of these factors changes, it will lead to shifting in demand curve.

The factor that affecting shifting in demand curve of 18 items of live chicken, standard chicken, super chicken, local beef, imported beef , imported buffalo meat, chicken eggs grades A, B, C,

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red chilies, tomatoes whole coconuts, desiccated coconut, shallots (India), imported onions, garlic, imported potatoes and mackerel including the mabung is number of buyers according to the article. This is due to festive season which most of celebrators will ensure they purchase all of the necessity items especially the listed 18 items. Hence, the number of buyers will be increase. Therefore, the current demand of 18items will increase which shift from D to D1 as shown in Diagram 1.1. Hence, the equilibrium quantity of 18 items purchases will increases from Q to Q1. Thus, the equilibrium price will rise from P to P1.

Elasticity

Elasticity is measure of the responsiveness of buyers and sellers to changes in market conditions. Price of elasticity of demand is a measure of how much the quantity demanded of 18 listed items responds to the changes in the price of 18 listed items. The increase in 18 listed items will not have a big effect on its sales because consumer will still buy chicken. Hence, the demand curve of 18 listed items is perfectly inelastic. This is because the 18 listed items is already become necessity items during festive season. Therefore, no matter how the price is, the customer will still purchase those items. Hence, the quantity demand will remains unchanged. Thus, the demand curve is vertically straight line. Therefore, the curve of elasticity demand will be as shown in Diagram 1.2.

Market structure

Perfect competition is a market in which no participant can influence prices. It is characterized by a free flow of information, no barriers to entry and exit, and a large number of buyers and sellers. All these 18 items: live chicken, standard chicken, super chicken, local beef, imported beef (maximum price in Sarawak only), imported buffalo meat, chicken eggs grades A, B, C, red chilies, tomatoes whole coconuts, desiccated coconut, shallots (India), imported onions, garlic (China), imported potatoes (China) and mackerel including the mabung (seven to 10 pieces per kilogram) are categorized under perfect competition market. This is because almost all citizens in Malaysia purchase these items during festive time. Besides, there is free entry and exit in this market because anyone who is interested to open a business to sell these goods they can do it at anytime and anywhere. For those who feel that this business is not giving profit they could close it at anytime.

The demand for the 18 listed items is perfectly elastic since the firm of producing these (perfect competition market) items is act as price takers. Hence, the profit maximization rule for perfect competition market is marginal revenue equals to marginal cost ( MR=MC). Usually refer as normal profit. This is due to profit that earned by the seller is enough to cover all the total cost. However, in short run production, there are 3 possibilities for perfect competition which to attain profit, normal profit or loss. If the price of 18 listed items is more than average total cost , then

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the seller experience profit (P>ATC). Consequently, perfect competitor are capable to gain normal profit but not profit result in long run because free entry and exit which effects the individual business. Therefore, in long run production of perfect competition market only gains normal profit as shown in diagram 1.3.

Price ceiling

Price ceiling is a legal maximum on the price at which a good can be sold. The government had set price ceiling for 18 items which includes live chicken, standard chicken, super chicken, local beef, imported beef (maximum price in Sarawak only), imported buffalo meat, chicken eggs grades A, B, C, red chilies, tomatoes whole coconuts, desiccated coconut, shallots (India), imported onions, garlic (China), imported potatoes (China) and mackerel including the mabung (seven to 10 pieces per kilogram). This is to prevent sellers from increasing the price of these 18 items to a higher price. But price ceiling also might lead to illegal market and shortage of supply. Thus in Diagram1.4, the equilibrium price is P* and the equilibrium quantity is Q* explains the shortage of supply. However, according to the diagram 1.3, when price ceiling is set, the price decrease to Pceiling and the quantity demanded increase from Q* to Qd , the quantity supplied decrease from Q* to Qs. This situation is leads to excess demand which is commonly known as shortage.

Diagrams

Diagram 1.1: Shift in demand curve due to increase in number of buyers.

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Diagram 1.2: Perfectly Inelastic demand curve.

Diagram 1.3: Normal economic profit earned in Perfect competition Market

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Diagram 1.4: Shortage in supply.

Conclusion

In a nutshell, determinant that contributes to shift in demand curve according to the article is number of buyer. The numbers of buyer will increases in conjunction with festive season since the 18 listed items become necessity items in order to prepare for Hari Raya Aidilfitri. Besides, the elasticity for 18 listed item is perfectly inelastic demand (E=0) because the quantity demand for the l8 listed items is remain unchanged because these goods are necessities product used during festive seasons. Furthermore, the market structure for these 18 listed goods is perfect competition market because of easy entry and exists in the market and many buyers and sellers in the market as well. Therefore, perfect competition market has high competition and should maintain the market at profit maximization level which at marginal revenue equals to marginal cost (MR=MC). However, these 18 listed items is control by the government by setting up the price ceiling in order to protect the buyers from sellers from increasing the price high.

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Article 7

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SummaryAccording to the article, the Bureau of Labor Statistics, food prices in the US increases to 0.4% in February, it is the highest since February 2011. From January, beef and veal shoppers get a hard blow when the prices jumped 4%. Unexpected weather and diseases is one of the reasons that causes food inflation, also on 2014 grocery store

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prices are expected to increase 3.5% by the Agriculture Department. One of the foods that affected is the beef. Beef prices increase from $5.04 to $5.28 a pound in January after Midwest ranchers reduces their cattle after droughts in 2011 and 2012 causes the reduction of the grass which is the main food for the cattle . Small ranchers also shut down after the 2007 to 2009 recession. Pork prices jumped 6.8% because of the beef prices increased and the shoppers turned to the cheaper option. Poultry prices also hiked 4.7% as the pork and beef shoppers turned to chicken and turkey instead because of the differences of the price increasing. The average price of milk increase by 10 cents as exports to China and other Asian nations surged. Whereby, the retailer where socked by the increasing of 36% of the wholesale price. Moreover, an unusually cold weather in California and a disease in Florida damaged citrus crops, causing the fruits and vegetables prices increase rapidly this year. Discussion Introduction

The weather changes and existence of citrus greening disease which had affected citrus crops also a virus outbreak which had killed almost 6 million of pigs causes most of the food prices increases rapidly than usual. This can also help the supplier to cover the cost of production and also to maintain their profit. The increasing food price of 0.4% which is the highest since February 2011 causes burden and shocked for the shoppers also retailers. Moreover consumers are still struggling with modest wage of gains. How does the consumer or retailers cope with this kind of situation? According to the Agriculture Department, grocery store prices will increase up to 3.5% in this year. This has a lot of different from the increases of price in last year. Foods that are most affected are beef, pork, milk also fruit and vegetables. As the beef and pork price increases, shoppers choose to buy poultry which is the substitute goods for beef and pork. However, the demand for pork and poultry increases because it is the substitute product for beef. Analysis

Diagram 1 show the supply curve for beef. The determinant of supply is the

number of sellers. The droughts caused farmers to face difficulties to feed their cows and its cattle. Thus, farmers have to spend more to maintain and take care of their cows. As the costs increased, supply decreased. Many sellers are not willing to bare higher maintenance cost and shut downs the business. The supply of beef decreases from S0 to S1. The price of supply increases from P0 to P1 and the quantity of beef decrease from Q0 to Q1. As a result, the supply curve

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will moves to the left. When the number of sellers decreases, the supply of beef will also decreases.

Diagram 2 shows the demand curve for pork. The determinant of demand is

the price of related goods (substitutes). As beef prices increase, shoppers turned to the cheaper option which is pork. Thus, demand for pork increase from D0 to D1. The price and quantity of demand increase from P0 to P1 and Q0 to Q1. The demand curve for pork shifts to the right.

Diagram 3 shows the demand curve for poultry (chicken/ turkey). The determinant of demand is the price of related goods (substitutes). As beef and pork prices increased, shoppers turned to the cheaper option in poultry. Therefore, the demand for poultry increases from D0 to D1. The price and quantity of demand increase from P0 to P1 and Q0 to Q1. Demand curve for poultry shifts to the right.

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Diagram 4 show the supply curve for milk was number of sellers. As most sellers resorted to exporting milk to other countries, the number of sellers in California fell and the supply was limited. The supply of milk decreases from S0 to S1. The price of supply increases from P0 to P1 and the quantity of milk decrease from Q0 to Q1. As a result, the supply curve will moves to the right. The price increase and the quantity decreases.

Diagram 5 shows the supply curve for fruits and vegetable. The determinant

of supply is the number of sellers. The changes of weather (unusual cold weather) and existence of disease (citrus greening) caused the sellers or farmers to cope up with difficulties to maintain the supply of the fruits and vegetables. It costs them more than the usual cost of production. Sellers have to bare losses if the retail price of the fruits and vegetables is not. As the costs increased, the number of sellers decreased, supply decreased from S0 to S1. The price of supply increases from P0 to P1 and the quantity of fruit and vegetable decrease from Q0 to Q1 Supply curve shifts to the left.

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Diagram 6 shows the shortage of water on agricultural land of California causes food prices in grocery stores increase and might causes the irrigation water expensive. The demand of pork and poultry are higher since it is a substitute product. The food for pork and poultry are hardly to grow because of the weather. Therefore, the quantity demanded of the poultry and pork will be greater than the quantity supplied eventually in future as the raising of price. This will cause shortage of pork and poultry to occur.

Diagram 7 shows the price elasticity of supply curve measure how much the quantity supplied responds to changes in the price. As for the determinant of the price elasticity of supply is the changes in number of goods produced. This occurs in the supply of milk, beef and fruit and vegetables. Since the supplied responds substantially to changes in the price, the supply of good is elastic.

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Diagram 8 shows the long run supply curve of increasing cost which the

demand of the pork and poultry increases. The increasing of price; it is long run of supply in order to produce more. As the price increase from P0 to P1 and the increasing of quantity from Q0 to Q1, the long-run supply slope is upward.

ConclusionFor conclusion, the supply of beef decreases as the number of suppliers decrease, the demand of pork and poultry increases as they are the close substitutes of beef, the supply of fruits and vegetables will also decreases as the unusual weather of California. As the elasticity of supply curve is elastic because of the quantity supplied responds to changes in the price. The long-run supply curve upward because of the increasing in prices and quantity.

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Article 8

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Title: No smoking soon at R & R’s on highways

Summary: The article is mainly about issue of reducing amount of smoking rate among society in public places such as in R & R’s and World Heritage site(The sun :June 19,2014 , page 08) . Our Health Minister is taking further action in reducing the smoking rate by launching “Non Tobacco Day “by the end of the year. Besides, the government of Malaysia aimed to reduce the number of smokers in the country to 16% by the year 2025 included both teenagers and adult smokers .Ministry department also implements government policies in controlling the smoking rate among society under Tobacco Product Control Regulation 2004 which enforced by Malaysian Law and sets theme of the year 2014 where “Save Money, Stop Smoking, Save Lives”.Discussion:

i. Introduction

The government is currently moving active in reducing the number smokers in the country in order to achieve their goal that has been set. However, according to the Global Adult Tobacco Survey in 2011, 4.7 million of Malaysians are smokers and teenagers are excluded. May be some of moderate smokers will stop smoking or reduce it due health issues and income issues but how many smokers will do it especially heavy smokers whom are addicted to it?. Hence, we can said that cigarette is perfectly inelastic demand because weather the price of the cigarette or other determinants affects smokers still will purchase it since it becomes necessity item to them. Besides, firm that producing cigarettes market structure is oligopoly market because there are just few traders selling cigarettes in the market.

ii. Analysis

Shifting in demand curveThe demand curve shows how the quantity of good demanded depends on the price of the product itself and the determinants states the changes in quantity of customer purchasing amount. The determinants that contributes shifting in demand curve is consumers income price of related goods, the tastes of consumers, changes in expectations and number of buyers. If any of these factors changes, it will lead to shifting in demand curve.

The factor that affecting shifting in demand curve of cigarette according to the article is the expectation of the buyers which the government might raise the price of the cigarettes or tightens the rules in future to achieve the goal. Therefore, the current

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demand of cigarettes will increase which shift from D0 to D1 as shown in Diagram 1.1. Hence, the quantity of cigarettes purchases will increases from Q0 to Q1. Thus, the equilibrium price will rise from P0 to P1.

Diagram 1.1 shows increase in demand of cigarette due to changes in expectation.

Other than that, the number of cigarette buyer rises as many outlets are not bothered and selling it to under aged youth. The Health Ministry reported that 23% of youths between 15 and 18 years smoked, with the number of teenage girls increasing at an alarming rate. Therefore, it is undeniable that number of cigarette buyers increasing which will increase the demand of cigarettes which shift from D0 to D1 as shown in Diagram 1.2. Hence, the quantity of cigarettes purchase will rise from Q0 to Q1. Thus, the equilibrium price will rise from P0 to P1.

Diagram 1.2 indicates increase in demand of cigarette due to increase in number of buyers.

Shifting in Supply curveQuantity supplied is the amount of goods that the sellers are willing and able to sell. There are few determinants cause changes in supply curve such as input prices, changes in technologies, changes in expectation and also number of sellers. The determinants

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that will contribute in shifting supply curve according to the article are expectation of sellers because the government might increase the price of the cigarettes or tightens the rules and regulation in the future as the smoking rate at an alarming rate. Therefore, change in government rules in the future will cause the current supply of cigarettes will decrease as shown in Diagram 1.3. If the sellers expect that in the future the price will rise, the current supply of cigarettes will decrease which from S0 to S1. Hence, the quantity supply by the firms will decrease from S0 to S1. Thus, the equilibrium price will decrease from P0 to P1.

Diagram 1.3 shows that supply curve shift left due to the changes in expectation.

ElasticityElasticity is measure of the responsiveness of buyers and sellers to changes in market conditions. Price of elasticity of demand is a measure of how much the quantity demanded of cigarettes responds to the changes in the price of cigarettes. The increase in the price of the cigarettes will only have little effects to its sale because the consumer still will purchase it. Therefore, the demand curve of the cigarettes is inelastic demand which the price elasticity is less than 1. This is because there will some of consumers stop or reduces smoking rate if the government raises the price in the future but those heavy smokers still will continue purchase since they are addicted to it. Thus, the curve of elasticity demand will be as shown in Diagram 1.4.

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Market structure Cigarette firms are oligopoly market since it is a market situation where few firms dominate the market by producing cigarettes. More specifically it is referred as a market structure where there is a limited dominance as the government control certain productivity according to law enforced. Besides, cigarette firms are a small group but with high competition in the market. For an instance, market competition between Dunhill and Marlboro. They often up to date the information competitors such as their pricing strategy because any action by one firm will directly affect others. In oligopoly market environment there are always substantial barriers to entry and under strict government regulation such as Cigarette firms should follow the rules under Tobacco Product Control Regulation 2004.

The price increment of cigarette will increase the cigarette firm’s total revenue since the cigarette is inelastic product. The cigarette firm should compare with their total cost in order to determine their profit during their short run progress. The price of cigarette should more than average total cost to achieve profit (p > ATC). However, during long run progress, the firm should compare with average variable cost. Since, cigarette firm is oligopoly market, there is only two possibilities in long run which either profit or zero economic profit. Refer to the diagram 1.5 and diagram 1.6. Therefore, the price of cigarette should more than average variable cost to achieve profit result (P> AVC). If the price of cigarette is equals to average variable cost (P=AVC) , then the firm is said to be in zero economic profit.

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Diagram 1.5 shows that if a cigarette firm earns economic profit.

Diagram 1.6 shows if a Cigarette firm earns zero economic profit.

Conclusion We can conclude that the changes in expectation of buyers and the changes in expectation of sellers will affect the current demand and the current supply. There is not much difference between the prices of different brands of cigarettes since the input resources are almost the same. Consequently, we also can assume that the loyal customers will still stick to the brand that they usually used and there will not be a huge effects in the total revenue of cigarette firm. Hence, the demand of elasticity for cigarettes is inelastic. Besides, cigarette firms should ensure the average total cost should be less than or equals to the price of cigarette, so that the firm able to maintain the operation of the firm by recover the cost of production with the income earned.

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REFERENCE

Aruna.P. (2014, May 6). Dry Spell, Poor Harvest. The Sun, p.4.

Chan .T.K, (2014, March 1). Crazy rush for pails and storage containers. The Star Online. Retrieved from http://www.thestar.com.my/News/Nation/2014/03/01/Crazy-rush-for-pails-and-storage-containers/.

Chandra, S. P. (2014, June 18). No Smoking Soon at R&Rs on Highways. The Sun, p.9.

Davidson.P, (2014, March 19). Rising Food Prices bite into Household Budgets. USA Today. Retrieved from http://www.usatoday.com/story/money/business/2014/03/18/food-prices-rising/6557417/.

Emma.G. (2014, April 19). Choc horror: It might be Easter but the world is running out of chocolate because demand in China is outstripping cocoa bean production and forcing prices up. The mail online. Retrieved from http://www.dailymail.co.uk/news/article-2608359/Choc-horror-It-Easter-world-running-chocolate-demand-China-outstripping-cocoa-bean-production-forcing-prices-up.html .

Haikal.J (2014, June 26). 18 items under price control scheme for Hari Raya Puasa. The Sundaily. Retrieved from http://www.thesundaily.my/news/1094979

Fadzell, A. (2014, June 2). Petrol Subsidy Review. The Sun, p.1.

Unknown Author. (2014, June 19). No Smoking at World Heritage Site. The Sun, p.8.

Unknown Author. (2014, June 15). Flying in Style. The Sun, p.23.

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