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.
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