Substitute good causes domestic pepper prices drop?

By: Lim Yun Han

Based on the article from The Star online, http://biz.thestar.com.my/news/story.asp?file=%2F2012%2F7%2F28%2Fbusiness%2F11747417&sec=business, on 28th of July in 2012, the price of pepper in Malaysia dropped to the lowest level in 2012. This is mainly because of the selling pressure from the farmers in Indonesia. Besides, the price level of black pepper is RM 14,570 per tonne and the price for white pepper is RM 23,600 per tonne. Due to the low price of the pepper, the profits gained before the year is all wiping out. The price of pepper is even much lower than the closing price in 2011. 

First of all, pepper is one of the important crops in Malaysia because Malaysia is one of the countries that producing pepper. Based on the article, the price of peppers in Malaysia decreased due to the selling pressure from the Indonesian farmers. In my opinion, because of Indonesia's pepper is substitute of Malaysia's pepper, when the price of Indonesia's peppers is low, this forced the price of the Malaysia's peppers had to decrease. I believed this is because buyers will always go for the pepper that is cheaper.

According to the article, the price of peppers is dropped. So, I think this may cause the quantity demanded increasing simultaneously due to the law of demand. In my perspective, although decrease the price of pepper is a bad news for the suppliers, the consumers are happy with this news. So that, the consumers will seize the chances to buy peppers as much as they can especially for Indian and Chinese in Malaysia. This is due to black pepper played a main role for Indian because the most important spice to them is black pepper whereas I believed white pepper is also one of the important ingredients in Chinese cooking. Moreover, these two races are two of the three main ethnic groups in Malaysia. In my own view, pepper is different with other goods such as food and beverages because peppers do not have an expiration date. Thus, the consumers can buy much as possible when the price is low and keep the peppers at home. 

When the price of peppers decrease, there is a movement along the curve. The quantity demanded of peppers is raised from Q1 to Q2 when the price of peppers is dropped from P1 to P2. In this situation, it means the consumers are willing to purchase more peppers. 

Other than that, I think there are two effects that can explain to us why the quantity demanded of peppers increased when the price of pepper decreased. The two effects that can explain this situation are substitution effect and income effect. Based on the concept of substitution effect, we understand that, when the price of Malaysia's peppers dropped, the quantity demanded for substitute good of Malaysia's peppers which is Indonesia's peppers may decreased. This is due to consumers are prefer to buy a cheaper good if the two goods are substitute, so that, they will prefer to buy Malaysia's peppers. Yet, they can also save the cost. Furthermore, when the consumers are prefer to buy Malaysia' peppers, the quantity demanded for Indonesia's pepper will decrease. For instance, when the price of the energy bars decrease, the consumers will purchase energy bars rather than its substitute good which is energy drinks to boost the energy. On the other hand, according to the concept of income effect, it seems to me that the purchasing power of the buyers will increased when the price of the Malaysia's peppers reduced. This is due to the budget of the consumers is some slack because of the price of peppers decrease. So, the buyers will buy more peppers. Therefore, these are the two reasons that can cause the quantity of peppers demanded increased.

Moreover, I would argue that when the consumers are happy with the price of peppers decreased, at the same time, there is something happened in quantity supplied. In my opinion, when the price is decreased, the suppliers are not willing to supply more quantity of peppers. The supply curve for peppers is slope upward which means the higher the price for peppers, the suppliers are willing to sell more peppers. 

On top of that, a decrease in the price of peppers from P1 to P2 caused the movement along the supply curve of peppers, and then the quantity supplied of peppers decreased from Q1 to Q2. In my opinion, most of the pepper farmers in Malaysia are planted new crop and not willing to continue to produce peppers because of the price of peppers decreased. 

In addition, when all the consumers are prefer to buy Malaysia's peppers and the pepper's farmers in Malaysia are rejected to produce peppers, there will be a shortage occurs. This is due to the market price of Malaysia's peppers is below the equilibrium point. When shortage is happened, some of the buyers are not able to purchase peppers at the current price due to the lack of quantity supplied. For example, the price for Malaysia's white peppers is RM 23,600 per tonne, the quantity of Malaysia's white peppers supplied is 1 hundred thousand and the quantity demanded would be 3 hundred thousand, then there would be a shortage of 2 hundred thousand for peppers. 

In my opinion, when there is a shortage occurred, this may cause some effects. For instance, I think maybe there will be a black market happened and sells the Malaysia's peppers to the consumers with a higher price because of shortage worsens.

In this situation, some of the suppliers noticed that they can increase their output for Malaysia's peppers and then push up the price for Malaysia's peppers. Then, it moves toward to the equilibrium price and the price stop at its equilibrium. Thus, after the price increase, there will be no shortage occurs anymore. Furthermore, I would argue that when the price for Malaysia's peppers increase, some of the consumers will go for the substitute goods of Malaysia's peppers and the quantity demanded for Malaysia's peppers will slightly decrease.

Do new prices for cigarettes deter smoking?

By: Lim Yun Han

According to the article from The Star online, http://thestar.com.my/news/story.asp?file=%2F2012%2F9%2F3%2Fnation%2F11959171&sec=nation, on 3rd of September in the year of 2012, the government announced the price floor for all of the cigarette brand is RM7 and only 20 sticks per pack can be sold in the market. In addition, Dr. Molly Cheah who is the chairman of Malaysian Council for Tobacco Control stated that the price control is not the best way to deter smoking. This is because the price of cigarette is expensive to the poor people but rich people are still able to buy it. Furthermore, the number of smokers in Malaysia had increased recently and it is also affects the teenagers.

In my opinion, I think the price floor of cigarette which is a minimum of RM7.00 per pack will not reduce the number of smokers. This is because since the year of 2010, the price floor for cigarettes is already RM 7.00 per pack. However, the number of smokers is still keep on increasing. It seems to me that, the purpose for the government to impose the price floor for cigarettes is to reduce the number of buyers in cigarettes. Moreover, when the government imposed the price floor for cigarettes, it benefits the suppliers of cigarettes because although the price floor for cigarettes is quite high for some of the buyers, the consumers will not stop to smoke because they still can afford the price floor for cigarettes. Therefore, when the level of consumption is still maintained and the price floor for cigarettes is high, the sellers are still making profit. In this situation, I would argue that not only the number of buyers will not decrease; the number of sellers for cigarettes will keep on increasing. Other than that, based on the article that I had read from Gruber and Zinman, in the smoking decision, teenagers are more focusing on the price of cigarettes. On top of that, they predict that every 10% decrease in the price will caused teenagers smoking increase by 7%. In generally, the easiest way to decrease the percentage of smokers is increase the tax of cigarettes extremely.

On top of that, I think that the government should increase the price floor more in Malaysia by increasing the tax because of the current price floor doesn't work well. Furthermore, more tax charge on cigarettes maybe is a way for the government to change the markets. I believed when the government raise the tax, the cost of smoking will increase also. When the cost of smoking increase, there will be a reduced in the supply. We can draw out the demand and supply graph to demonstrate the point.

From the graph above, we can clearly see that in point A, 'Pa' is the previous equilibrium price and 'Qa' is the previous equilibrium number of cigarettes sold in a year. After the government imposed the tax to the cigarettes, the price of cigarettes will increase which is from Pa to Pb by the tax charged and caused the cigarettes supply curve shift up which is from S1 to S2 by the tax charged. Although the sellers will received a higher price for cigarettes per pack, after the sellers pays the tax for cigarettes, the price that will received by the sellers is at point 'Pc'. Yet, after the government imposed the tax, the quantity demanded for cigarettes decrease. Thus, the new equilibrium point after a tax imposed is point 'B'. 

Moreover, I would argue that after the government in Malaysia charges a tax to the cigarettes suppliers, the suppliers will pass the added cost as much as possible to the consumers. This is due to the sellers are not willing to let their profits decrease. So, they have to rise up the price of cigarettes to make their profit margin same. In addition, the supply curve on the graph above is shift by the exact tax charge by the government. Therefore, no matter the government imposed the tax on sellers or buyers, buyers will always pay for the tax because of the sellers is not willing to lose their profits. On the other hand, I think this will be a win-win situation for the government in Malaysia. By this I mean when the price of cigarette increase extremely, some of the poor people would not afford the cost and they are forced to quit from smoking whereas the sellers of cigarettes will decrease when there is a tax imposed because the price of cigarettes will received by them decrease.

In my opinion, increase the price of cigarette maybe is not a very effective way. This is because the cigarette product is perfectly inelastic demand. So, when the price increases 20%, the quantity demanded for cigarette is only decrease by 1%. Besides, when the government increase the price for cigarette extremely, although some of the poor people couldn't afford it and forced to quit from smoking, there are still a lot of buyers are able to buy the cigarettes.  I think the reason why people are keep on smoking although it is bad for our health is they already addicted to cigarettes and cannot control themselves from cigarettes. 

Other than that, I realised that although increase the price of cigarette is not the best way to decrease the number of smokers in Malaysia, at least it makes some people who are not able to afford to quit. On top of that, it seems to me that the government's 'Tak Nak' campaign is much more effective because it affects all the people in Malaysia but not only the poor people. In my perspective, the government should create more advertisement or organise activities to let the citizens in Malaysia understand the drawbacks of smoking rather than only focusing on the price of cigarettes. 

Property Prices Heading North in Ipoh

By: Lim Ben-Jie

Based on an article in StarBiz dated 24^th September 2012 with headlines ‘Ipoh Property Boom by Manjit Kaur, Ipoh’s housing market is usually geared towards locals and outsiders from across thirteen other states in Malaysia who have plans to retire or live in a tranquil and slow paced city. Ipoh has excellent infrastructure and amenities similar to that of bigger cities like Kuala Lumpur and Penang. In the article, Manjit Kaur backed her article with strong facts that the prices of landed and high-rise properties surrounding the city of Ipoh are increasing steadily over the past three years and is showing no signs of declining. Ipoh was a booming mining town back in the late 19^th and early 20^th century. Kinta Valley was where the world’s largest deposit of tin ore was found. The city was also known to have the largest concentration of luxury Mercedes Benz vehicles found anywhere in the world outside of Europe due to the large numbers of high net worth individuals who profited from the massive mining activities within Kinta Valley which spans 248 square miles. Demand for housing was great and property prices were relatively high compared to the rest of the country back then. However, a worldwide recession hit Malaysia back in the late 1970s and wiped out a large portion of Ipoh’s economy as a result of falling tin prices in the commodities market. Tin mining activity seized and the city became a sleepy town that has retained its charm till today with moderate to low levels of economic growth.  

Recently however, the market trend seems to contradict the perception that Ipoh has lost any possibility of a major appreciation of its property market value. In fact, Oriental Realty agent Gladwin Agilan described a particular single-story semi-detached house in Ipoh being transacted at RM144 per sq ft which is relatively high in the state. Based on this news, demand and supply of housing in Ipoh can be used as a topic of discussion.  Demand is very strong for properties in Ipoh as seen from the rising prices of homes which showed appreciation values of up to 30% in the last three years. This illustrates an average appreciation of 10% a year which is higher than any fixed deposit account whose returns are based on minimal interest of around 3%. One reason why demand for housing is rising which translates into higher property prices is the improved accessibility and connectivity from Malaysia’s federal capital and from the city-state of Singapore. KTM Intercity train services recently introduced their fast electric train service from Kuala Lumpur to Ipoh which hastened the journey between both cities to around two and a half hours. Also, Ipoh is receiving direct flights from Singapore’s Changi Airport through daily flights on Firefly Airline. Improved accessibility and connectivity results in more investors or homebuyers who intend to stay in Ipoh, now giving the well-known ‘bougainvillea city’ a second look as it has become more ‘reachable’ in their opinions.  

We can also examine the apparent boom of Ipoh’s housing market through the economic theory of price elasticity of demand which illustrate the responsiveness of the quantity demanded of a good to a change in its price. Housing is relatively price inelastic as housing is required by man to obtain shelter from the elements and also to act as a safe haven to rest and recuperate. Therefore, should there be any increase in prices of homes in Ipoh or anywhere else, the quantity demanded might drop very slightly but not drastically. Quantity demanded will definitely remain strong. In addition, houses in general do not have equal substitutes. Houses are built for people to live in and there are no other similar places built for this specific purpose of allowing people to live in a familiar habitat on a permanent basis. Thus, houses are deemed relatively price inelastic if we do not differentiate properties into many types or categories. Occasionally, a perfectly inelastic demand for housing might occur as people might buy houses from the open market at any price due to a property being located in a more prestigious area within Ipoh.  The utility that the buyer experiences is greater than the cost of buying the home therefore they are more than willing to buy properties in Ipoh that are priced way above or below the equilibrium demand and supply price if they find the location right.

In terms of income elasticity of demand, housing is considered as a normal good as the general population will purchase more properties when their income rises and purchase fewer when their income levels drop. Over the past few years, the Mr Galdwin mentions of Ipoh born locals who migrated to other growing cities like Kuala Lumpur in search of better jobs elsewhere when they were in their early 20s now returning to the Ipoh in large numbers to purchase properties as they have found better employment opportunities in Ipoh and other surrounding areas due to the growth of new industries in the state that require highly skilled employees. These locals are now in their 30s and 40s. This resulted in many Ipoh born citizens who now possess higher disposable incomes due to better employment opportunities, returning to Ipoh and purchasing properties in the city to live in. Wealth of the locals in Ipoh is growing at a steady rate.

To sum up, Ipoh has seen and gone through its worst period since the fall of tin mining which stripped the city’s title of being the world’s largest extractor of tin ore. Ipoh-lites are seeing a more positive picture of their city now more than ever as the state government is striving hard to rejuvenate the state and its capital from its weak and gloom period not too long ago. Climbing property prices is a good indication that the city is heading to the right direction once again when seen from an economic point of view as locals are bound to benefit from its 10% average appreciation rate that is three times more than our nations inflation rate of 3.2% in 2011.

Disappearing Nation?

By: Lim Ben Jie

Based on an article in Forbes Asia, May 2012 edition where Lee Kuan Yew, the former prime minister of Singapore wrote ‘Warning Bell for Developed Countries: Declining Birth Rates’, he has stated his strong concerns regarding Singapore’s replacement rate that ensures the reproduction rate which keeps a population stable. Right now, many men and women are still single way beyond the ages of 30. Singaporean woman especially are no longer dependant on their male counterparts economically and socially as well. For a country to have a stable replacement rate, 2.1 is the number which all developed nations should strive to achieve. However, this is not the case in Singapore where the replacement rate is only 1.08 for its Chinese citizens, 1.09 for its Indian citizens and 1.64 for its Malay citizens. As a result, the majority race in Singapore will see its numbers half for every successive generation within the next 18 to 20 years ahead.

This is a grave concern especially for the government. The consequences are seen in other developed countries for example Japan where they are now known as an aging nation. The combination of a population who has higher life expectancy and also a declining fertility rate has hastened the process of population aging in many countries around the world including Singapore. In these countries, the younger generation will have to work harder to sustain its older generation. Based on a report by the Singaporean government in 2011, seven working adults supported one retiree. By 2030, 2.3 working adults will have to support one retiree in the republic and as of now, Singapore has 340,000 people over the age of 65 while its working population number around 2.36 million people between the ages of 15 and 64 years. A different picture is painted in the year 2030 when senior citizens over the age of 65 will number 900,000 and only 2.04 million people will be in the Singaporean workforce who happens to be between the ages of 15 and 64.

In terms of supply and demand, we could look at the declining replacement rate from many different angles. For one, the supply of male who are single is relatively higher as compared to women. Single men between the ages of 30 and 34 make up 44.2% as compared to women at a relatively lower percentage of 31.0% who are still single at the ages of 30 to 34. As a result, many men are ‘chasing’ after fewer women in Singapore. The trend in Singapore seems to dictate that many men are now forced to wed non-locals from neighbouring countries like Malaysia, Indonesia and sometimes beyond Asia. Quoting a fact from Malaysiakini writer Leong Sze Hian who wrote ‘Things you need to know before marrying a S'porean’ dated August 14, 2010, she states that 4 out of 10 marriages are between Singaporean and non-Singaporeans which is at an all-time high in the republic that is home to 5.18 million people.

Following that, in terms of labour supply and demand of the Singaporean workforce, based on Mr. Lee Kuan Yew’s article, the number of individuals who are born locally as Singaporeans will decline over the next few years. This will result in the demand for locally born labourers increasing more than the supply of locally born labourers and as a result, wages paid by employers to employees will increase over time as the labour market will need to readjust to its new equilibrium supply and demand position. Employers in the republic will have to fork out higher salaries to attract Singaporeans to take up high skilled jobs which are abundant in the city-state that is well known as a financial hub within the South-East Asian region. Employees will benefit initially when their salary goes up but cost of living may rise in tandem over the long run therefore, a lower replacement rate of Singaporean born citizens is in fact detrimental to the nation.

The supply and demand of goods and services will see lower equilibrium level as well. Consumption will fall drastically due to lower workforce numbers which constitutes as a shrinking labour market. The greatest effects are placed upon businesses in Singapore where the demand for both normal and inferior goods will decline. Fewer young people will mean fewer laptops, cars, iPhones, iPads and clothes that will be sold. Domestic consumption plays a crucial role in economic growth of many nations however, the Singapore that we know of today is barely able to drive economic growth solely on domestic consumption.  Therefore, in future when domestic consumption drops as a result of declining numbers of young people and the higher numbers of senior citizens with low spending power, it will result in a weaker Singaporean economy that can be stagnant in nature.

In short, the government realises the dilemma that Singapore is facing and has initiated actions to encourage locals to reproduce. The main concern of parents when deciding to have children in Singapore is the high cost of raising them in the city state. Therefore, nuclear families are the norm in Singapore these days. Parents want only the best for their children and will direct most of their resources to either one or two children in their family. The competitive culture in Singapore also adds to the burden of parents who have to compete to enrol their children in good schools and universities. The government understands this and  have introduced improvements in quality child care, leave entitlements and financial incentives to help lower the cost of raising children. In doing so, one would expect that the nation will be seeing an increase in replacement rates of its citizens; on the contrary, the numbers are going down instead. Unless and until the government provides more benefits like income tax reduction or heavy subsidy for the cost of raising a child in Singapore, the republic is destined to see declining numbers of state born Singaporeans over the next few decades.

What is externality of pollution and how do we solve it?

By: Lim Chun Hong

The articles ‘ Cars, Cows and Carbon sinks ‘ in 2011 stated the consequences of excessive carbon emission is one of the most serious issue that have been arising for past few years.

 
A chemical plant may dump waste into a river in order to minimize its cost. Further down the river, a water company has to treat the water to remove dangerous chemicals before supplying drinking water to its customers, which in other words, also rise in cost of production. Its customers have to pay higher prices because of the pollution. This is one classic example of externalities, which arise when private costs and benefits are different from social costs and benefits. However, externalities could be in positive or negative forms, but as time passes by, we are all warned to be more concern in reducing pollution to environment due to the rapid rise of global warming issues all these times. According to the article ‘Cars, Cows and Carbon Sinks’, it stated that carbon is the very main issue that affecting human activity at any level, which also affecting the economy.

There are negative production externality and negative consumption externality. First and foremost, according to the article ‘a clear rising curve in residual atmospheric carbon dioxide’, it means that the emission level of carbon dioxide is increasing significantly. It could be a sign of a rise in quantity demanded for machines that produces carbon dioxide, probably there are more factories operate without air filter that contribute to the rise of emission of carbon dioxide directly. In this case, as production and consumption both takes places at cost equals to benefits, there is a welfare loss to society, as at every level of output, marginal social cost of production is higher than the marginal private cost, which means, society as a whole, has to pay a higher price to use the machines. The loss is the difference between the marginal social cost and marginal private benefit. This loss also named as the welfare loss, as the society pay the price of polluting the environment when consuming the services, which is the higher emission of carbon dioxide. This also known as negative production externality. Simultaneously, the rise in emission level of carbon dioxide could also be a rise in sales of vehicles. As more people able to own a car, it also in a sense that causes a rise in emission of carbon dioxide because of the gas that came out from the vehicles. This is called the negative externality in consumption, when marginal private benefit is higher than marginal social benefit. As consumer himself needs the car to travel or for job purposes , especially logistics companies , damaging the environment directly too throughout the gas being processed during the transportation journey. The welfare is loss due to the excessive emission of carbon dioxide.

This definitely brings impact to the economy, as ‘production of lamb from New Zealand for UK consumption break down as roughly 80 per cent’. It could probably mean that due to air pollution, there is a fall in the number of lamb for UK consumers. With lower supply lamb, the supply curve will shift leftwards. Hence, the higher price of lamb will affect many fields such as the producers of lamb, they might face a fall in total revenue , or disposable income of consumers would decreased too, as they have to switch their choice to consumer other goods , which might originally charging at a higher price than lamb. Also, in addition to this point, export of lamb for the countries like New Zealand would be decreased, which will also experience a fall in government’s revenue. 

 However, actions such as policies, campaigns, and regulations, either from government or society to create awareness for everyone where the externalities exist. For example, quotas could be used to limit externalities. Government could narrow down the pollution levels or might even ban any activities that could lead to rise in pollution.

Besides that, issuing permit is also another way of attacking negative externalities such as emission carbon dioxide. Government or authorities could issue permits to pollute; the total of maximum amount of carbon dioxide to be emitted over a period of time like a year, then allocates permits to individual firms. This would be best to focus on the basis of current levels of emissions by firms contributed to the rise of carbon dioxide emissions. Then, the permits are tradable for money. Also, firms which managed to reduce their carbon dioxide emission levels below target can also sell the permits to other producers who are participated in such act.

Lastly, which much favored by economists and , is the use of taxes. For example, tax on petrol for cars could be charged at a higher rate by the government due to the reason of emissions of carbon dioxide and carbon monoxide directly contribute to global warming and air pollution. It should be charged where the tax revenues equal to the cost to society of emissions, making the polluters pay the cost of pollution.

The precise fact that global warming or pollutions issues are rising up brings nothing more but only harm to our future generations. It is going to be a tough battle to convince the public to make huge sacrifices, but we should get on with the job of managing it, even though the volume is huge, and only a small fraction of it can be manageably handled; at least, this is all we can do now.  Pollution of environment is still a difficult task for us to handle, before it becomes an existential crisis, conservatives actions should be proposed and suggested such as appropriately optimistic, science-based, and cost savings policies that able to minimize the emission of carbon, whether or not it is effective or efficient, at least, our mother earth knows that there are still some respect from humans that attempt to deal with the problems.

What are the elasticites of demand for iPhone?

By: Lim Chun Hong

The article ‘iPhone makes Chinese eyes light up', http://www.economist.com/node/21559624, in 28^th July 2012 stated that the sales of apple’s product are booming and how responsive is China’s citizen react to it.

As no one has the perfect window for the future, certain trends such as rise in price of goods and services such as cars, food, or houses definitely exist along the time. Often the decisions that consumers made whether to consume such goods or services are depend on the change in price of goods and services. Based on the article  ‘Apple in China, iPhones make Chinese eyes light up’,  it could further strengthen the point of saying that it is important for everyone to understand the market situation and deal with the economics problems wisely in order to maximize consumers’ benefit. In addition, this article has covered the elasticities of demand such as price elasticity of demand, income elasticity of demand and also cross elasticity of demand in microeconomics, by providing data, results and graphs, giving a clearer view for readers to understand how do markets actually work with the influence of available factors and variables.

First and foremost, it is true to say that Apple brings huge impact to the economy by providing its services such as the introducing of smart phones. According to the article, Apple achieved excellent results, earning high revenues due to the impressive sales. This can be explained that there is high quantity demand from consumers. It seems that consumers in China have high willingness and ability to pay for Apple’s product, even though the gadgets’ price is relatively high for a phone. However, Apple’s products such as iPhone, indeed making consumers’ lives way easier. For example, consumers still able to update themselves with the access to internet through the smart phone. It can be deduced that Apple’s product is high price elastic in demand. This is because a smallest possible fall in price of iPhone would lead to an infinity large rise in quantity demanded. Also, while others remaining the same, the proportion of income spend on iPhone is high, which also proved that there is high elastic for the demand of it. This can be proven by high sales of iPhone even though selling at the price of $800 compared to other smart phones, which costs less than $300.

Next, income elasticity of demand. A normal handphone is already a basic necessity good in our everyday life. Moreover, a smart phone such as an iphone is more advance and provides more benefits and advantageous such as access to the internet. According to the article, as 20% of Apple’s revenue is from China, it shows that China’s economy is expanding and people are enjoying the rise in purchasing power when income rises. Hence, it can be said that Iphone is income elastic, because of having a value of greater than 1. It is a normal good because the percentage increase in the quantity demanded is greater than percentage increase in income. A rise in income would definitely lead to a rise in demand for such good.

 Lastly, the cross elasticity of demand also mentioned in this article. With the presence of substitutes in this market, Iphone is said to be having a positive value. When the price of iPhone increases, it will become less affordable, hence, the substitutes for iPhone will experience a rise in quantity demand too. For example, if the price of iPhone increases magnificently, no one would be able to afford to buy it, even they do, Apple would still experience a fall in sales because the price is too high, consumers would probably switch their choice, try to get other smart phone which provides the similar service , as for now, Samsung in Korea, that manage to compete with Apple’s product in this market for so long because of the lower price rate and services such as front camera, or free applications. Also, according to the Law of Demand , while others remaining the same, the higher the price of a good, the smaller is the quantity demanded. Hence, it is true to say that Apple’s product such as iPhone do have close substitutes. Also, by doing so, consumers have higher consumer surplus, and also higher disposable income to consumer other goods and service.

 However, it can be still criticized that iPhone is income inelastic in demand.  Consumers would probably choose not to buy iPhone. As this is a competitive market, there are more and more phones have the similar services with iPhone too, such as access to the internet. If phone’s screen quality is not really a matter for one consumer, he would probably choose other phone, such as Nokia. Also, it would still depend on the magnitude of the rise in income. Even though iPhone is a normal good, if there is only a small rise in income, the sales of iPhone would still increase, but not significantly.

Besides that, there could be the presence of market failure. As consumers do not have perfect information about the price of the products. This is also known as asymmetric information in the market. Even though consumers have high willingness and ability to pay, but they maybe do not know what the real and exact price to pay are. In addition to this point, the exist of asymmetric information is because the lack of information for Apple company. As there is over production of iPhone 4s, even though the demand from China is flying sky high, but the sales of iPhone still fell, which is mentioned in the article.

As a conclusion, Apple has brought huge impact to the economy is definitely a positive statement. It is still depending on one himself whether to consume such goods and services or not. After reading this article, I could now have a better point of view on both consumers’ and producers’ behavior in the market, how does it work to form the market equilibrium price with the available determinant of factors, and also the elasticity of demand. Besides that, this article could also helps to provide a better understanding towards the scope of microeconomics for the readers.

        

           

Minimum monthly wage gazettes in year 2012

By: Loh Li Min

Based on the article from The Star Online, http://thestar.com.my/news/story.asp?file=/2012/4/30/nation/20120430211402&sec=nation, on 30^th of April 2012 the Malaysia’s Prime Minister Datuk Seri Najib Tun Razak had announced the adjustment of the minimum wage in the Peninsular and also the east Malaysia.

The minimum wage for the private sector workers was fixed at RM 900 per month while for those in Sabah, Sarawak and Labuan is at least RM 800 per month. The employees will be paid RM 4.33 per hour in the Peninsular and in Sabah, Sarawak and Federal Territory of Labuan have a minimum of RM 3.85 per hour. The different minimum wage in Peninsular and east Malaysia is based on wage structures and different living cost in different place. However, it does not affect the income for gardeners and maid. There are employees that demanded the minimum wage to set between RM 1200 and RM 1500 but the government could not implement their wish as it may affect the economy, labor market and also the foreign workers if the minimum wage is set too high.

          This is the first time that Malaysia introduces the minimum wage to support low income of the households and also helping those who are facing extreme poverty. The minimum wage is likely to be welcomed by the employees and also the low income families but eventually there are employers that owned a smaller business claimed that they could not afford it as RM 900 was set too high for them. The rise in minimum wage will affect the profit margins of small business company. Hence, the small businesses will be given one year grace period to adjust to the new system and make the preparation. From my point of view, a minimum wage will also stop a company from exploiting those who have little employment options and it is also fair and dedicates the employees.

       The minimum wage will affect the labor market. The effect of minimum wage can be determined by considering the labor market. According to the panel (A), it shows the labor market which is subject to the forces of demand of labor and supply of labor. The employees determine the supply of labor while the firms determine the demand of labor. If the government does not set the minimum wage, the wage will normally adjust to balance supply of labor and demand of labor. Thus, the labor supply curve will intersect with the labor demand curve to reach the equilibrium.

 

Panel (A)

          On the other hand, panel (B) shows the labor market with a minimum wage. If the minimum wage is above the equilibrium level, the quantity supplied of labor will exceeds the quantity demanded of labor which occur the labor surplus. The minimum wage will increase the incomes of those who have jobs while it lower down the income of those who do not have a job. The circumstances of minimum wage depends on the skill and experience of the worker which means the workers with high skills and experiences will not be affected because their income is well above the minimum wage. For these high skills workers, the minimum wage is not binding.

Panel (B)

          In the labor market, the supply curve determined the marginal social cost while the demand curve determined the marginal social profit from labor. The cost is the leisure forgone and profit is the goods and services produced by the workers. Panel (C) shows the inefficiency of a minimum wage. The minimum wage is above the equilibrium wage and the quantity of labor demanded is less than the efficient quantity of labor. There is a deadweight loss which is shown in a grey triangle due to the quantity of labor demanded is less than the efficient quantity (equilibrium labor). The firm surplus is shown in a green triangle while the employee surplus is shown in a blue triangle. The pink color rectangle shows the potential loss from job research. The total loss from minimum wage is the sum of deadweight loss and the increased in potential loss from job search.

Panel (C)

          In addition, the minimum wage had also affected the teenage labor market. For instance, the increment of 10 percent in the minimum wage will depress the teenage employment between 1 and 3 percent.  However, the increment of 10 percent in the minimum wage does not raise the average wage of teenage by 10 percent. This means a change in minimum wage law does not directly affect those teenagers who are already paid well above the minimum. Thus, a drop in unemployment of 1 to 3 percent is important. The minimum wage increases the wage that teenagers can earn and it has also increased the number of teenagers who choose to look for jobs. When the minimum wage raises, there are some teenagers who are still attending school will choose to drop out and they choose to start working. The teenagers who choose to drop out will displace those teenagers who had already dropped out from the school and now becoming unemployed. 

          Furthermore, there are opponents claimed that the high minimum wage is not the best way to combat poverty. This is because a high minimum wage will encourage the teenagers to drop out their studies from school and it has also prevented the unskilled workers to gain experience and training from work. Moreover, the opponents of minimum wage also point out that not all the minimum wage workers are the head of the household that trying to help their families to escape from poverty. In fact, there are many teenagers from the middle class homes work as a part timer that just to earn extra spending money.

          Finally, the minimum wage is one of the ways to increase the income of the working poor. The government believes that the workers who earn the minimum wage can afford to pay the cost of living as the standard of living is getting higher. Although there are some adverse effects for the minimum wage which including the unemployment, but these effects are small and it actually makes the poor have a better life with a higher income.