Alijah Janudin

FOOD PRICES

This news article is reported by Condyles for the New York Times, regarding the crisis in the food market after a bad weather hits the country during summer affecting the farms and it will also affect the export industry since America is a major exporter of varieties of agricultural and livestock product to the neighbouring countries. Therefore, the price on groceries (dairy products, beef, chicken and processed foods) is rising because of the devastating drought damaging the production of corps and others as well as the cattle farm. In the meantime, it will also affect the US export industry. But how do changes in supply affect prices and the export industry? Figure 1 and 2 are the model of demand and supply to explain the changes and predictions of market economy specifically on the food prices and export market in the United States.

The impact of the drought and the dry weather has wiped out the production of corn, soybeans and other crops and even damaged the poultry and livestock. Therefore, this major incident has leaved the consumers full of worries due to rising food prices. The burning heat and the worst drought put the price of the foods up.

Figure 1 indicates that when the supply curve shift to the left, which the author has mentioned that the government stated the price of U.S. staple foods, will raise 4-5% by 2013, it decreases the supply of U.S. staple foods as well as the quantity falls due to the loss of productions.

On the other hand, Figure 2 shows that both demand and supply curve changes. Where the supply curve shift to the left and demand curve shift to the right. The graph models the consequences of these demand and supply shifts. The increased demand agricultural products shift the demand curve to the right, increasing the price of the products. The regulation shifts the supply curve up and to the left, causing a further increase in price. The exact price and quantity changes will depend on the size of the demand and supply shifts and the elasticities of the demand and supply curves. As the author has mentioned in the article, economist predicted a far greater impact outside of the United States for the export of the agricultural and cattle products. Consumers outside of United States are still willing to buy since it is also their staple food. As a result, it is expected that the price goes higher in he future and also fall in the export supply due to the loss of agricultural and livestock production. Furthermore, the author also reported that agricultural experts urged international action to prevent global spike in food prices to avoid global hunger therefore, if the price remains the same, the demand still rises.

In conclusion, although the drought is affecting the agricultural and livestock productions, as well as the prices rises, U.S. residents have no choice. But in the future, accessibility to food is also determined by the long term trend in food prices. The rising trend in global food prices is likely to persist in the next decade. In the long run, however prices will fall. Consequently, agricultural prices are forecast to decline over the next few years in the United States after the occurrence of the drought recently. A strong combination of supply response and continued growth in demand is expected to keep prices above historical levels, but well below from the experience recently.

Samantha Joanne Boudville

Article 1

As it has been done for decades, the government pledges that the national economy is no longer capable of subsidizing the imported goods. Consequently, this is one of the factors that inflate retail prices.(Ravsberg, F 2012)

A 240 percent sales tax was imposed on products sold in hard-currency stores since 1990 when Cubans were empowered to use dollar. The poorest members of the population are subsidized using the money from tax and this was the way to reallocate incomes.(Ravsberg, F 2012)

The cost of a small amount of soybean cooking oil is currently equivalent to the salary of several days of work. It is due to the reduction and elimination of subsidies by government. Citizens of Cuba need to spend on goods with 240 percent taxes imposed. (Ravsberg, F 2012)

       In economic view, this can bring changes in demand. Without subsidies, the price of goods changes and literally increases. In this situation, consumers’ income influences the demand. When income decreases, consumers buy less of most goods; and when income increases, consumers buy more of most goods (Parkin, M 2012). Hence, if there is no change in the income, consumers’ purchasing power will also reduce when the price of good rises. The 240 percent of taxes imposed on goods can worst off the consumers as it burden their expenses without government’s subsidies on taxes of products.

The shopkeepers also added “fines” to goods. There are imported goods that cost up to five times more as compare to the cost in their countries of origin.(Ravsberg, F 2012)

In economic view, the shopkeepers charged additional to maximize its profile from the sales. It is also to boost up the business revenue. However, a low-income consumer could not afford to purchase expensive goods which known as the luxury goods (Parkin, M 2012). The poor Cubans could not afford to purchase goods that cost 500 percent more than in their origin countries without the government subsidies. The rich Cubans may spend for any goods without tax subsidies by government, but not the poor.

The government promulgated about price leveling on 100 indispensable items lately to refrain and prevent theft against consumers. It means all hard-currency stores have to sell those goods at exactly same prices. (Ravsberg, F 2012)

In economic view, this will better off the consumers because consumers can now enjoy purchasing good without the additional “fines” by shopkeepers. The poor Cubans do not need to be burden by overpriced goods. On the other hand, this condition will worst off the shopkeepers. The shopkeepers will have to sell at lower price as compared to the price they are selling previous including the “fines”. Therefore, the shopkeeper’s profit will decrease.

To make the reallocation of wealth successful, taxes should be applied on good that are not a necessity for living which is the luxury goods. Imposing taxes on milk, cooking oil, meat and soap can be considered as a punishment against the poverty-stricken community and the poor. (Ravsberg, F 2012)

In economic view, this is benefiting the whole society and citizens in Cuba. If the staples are tax free, the poor Cubans can afford it and it will ease their living. Hence, the demand for staples will increase as everyone can own the goods in low price. As for luxury goods, even though with taxes imposed, the rich and fortunate people in Cuba will also demand for it as they have strong income. The amount of tax applied on luxury goods does not affect the purchasing power of the wealthy group.(Parkin, M 2012).

There was also one complain regarding the scare of detergent in the hard-currency stores. Only large packages were being sold was the problem, as the fact is that small packets detergents are what many Cubans could barely manage to owned. (Ravsberg, F 2012)

In economic view, the producer should supply different sizes of detergent to achieve consumer’s demand. The sales of small packets will also generate profit to the shopkeepers and producer as there is a market for the poor Cubans. Detergent is to be as one of the necessity; therefore, there is always a demand by all citizens regardless the rich or the poor.

As to ameliorate the circumstances in Cuba, the Council of Ministers should decide to raise taxes only on luxury goods as well as assuring the lowest probable prices for staples. (Ravsberg, F 2012)

In economic view, it will be a wise choice for the Council of Ministers to only raise the tax of luxury goods. It is because a low price staples can ensure a stable living for the poor Cubans and they will not be discriminate. Inflated retails price is always a burden for the poor Cubans.

References

Parkin, M 2012, Economics, 10^rdedn, Pearson Education, p.8, 60, 67

Ravsberg, F 2012, Prices and Taxes in Cuba, [Online], available:

http://www.havanatimes.org/?p=79688

Article 2

The price of gasoline strikes an unheard-of average high in California of $4.61 a gallon fueled by a reduced supply and a volatile market. Some station owners even shut down pumps. According to the AAA report, the average price for a gallon of regular unleaded across California had an increase of 47 cents as compare a week ago. This happen in the state with most expensive fuel which is The Golden State leapfrogged Hawaii. (Associated Press, 2012)

Nancy Garcia, a Honda Accord’s owner said that she could afford to fill her tank as the price of $4.65 a gallon for a regular grade is a high price for her. (Associated Press, 2012)

In economic view, the purchasing power of Garcia will decrease when the price of goods increases. Garcia as a consumer will worst off due to the increased price of gasoline as the new price can burden her expenses. As relate to income effect, when one faced with higher price and with an unchanged income, one cannot afford to spend on or buy things they previously spend on or bought. (Parkin, M 2012). In this situation, the demand for big cars and expensive cars that require more fuel will decrease while the demand for economical cars will increase. Consumers can choose to give up luxury cars and go for economical cars to reduce their spending on gasoline.

In addition, economist views the choices that consumers make as rational. A rational choice is one that compares cost and benefits as well as a logical decision that provide them with greatest benefits. (Parkin, M 2012). Rational choice theory is also a logical decision that provides one with the greatest benefit. (Investopedia, 2012). It is rational for consumers can look for substitute good. A substitute is a good that can be used to replace another good. (Parkin, M 2012). For instance, the substitute for cars can be public transport, bike or walking with foot to destination. Other than that, it is also rational for the consumers to sell away expensive car and consume less fuel because if consume fuel less, the consumer still have the purchasing power to buy other necessity things. Similarly, if they continue spending on high price fuel, their purchasing power for necessity or other goods will decrease.

The wholesale price increases when the supplies drop. In order for station’s owner and distributor to fill up their station’s tank, they would have to pay more. Hence, the prices are increased based on how much they paid for their existing inventory, amount they deem they might have to pay for their coming shipment, and the prices their competitors are charging.  

In this case, we can see that the supply decreases when the price of a factor of production rises. The demand for gasoline will decrease when the price increase. Consumer will rather spend less than to spend for the same goods with expensive price. Nevertheless, if the supply decreases to a point where demand exceeded supply, shortage can occur. A shortage forces the price to increase. Simultaneously, if the supply is more than demand, the surplus occurs and it can force the price to go down. (Parkin, M 2012).

The national average was about $3.81 a gallon, the highest for this time of the year. However, in other states, the gas prices have started to decrease for October. The power outage at Southern California causes this dramatic surge of gas prices. A senior petroleum analyst, Patrick Dehaan, predicted that the price can peak as high as $4.85. (Associated Press, 2012)

According to AAA, the price of diesel fuel also had also increased. A spokesman for the California Trucking Association, Michael Shaw claimed that it is not easy to operate in this environment. It is because the quick raise of prices makes it hard to take on new contracts and plan ahead. The increased in the price of diesel had added significant costs for truckers who regularly pump hundreds of dollars of fuel to their tanks. The analysts said that a web of refinery and transmission problems is to blame. (Associated Press, 2012)

       It can be analyzed that the increase of diesel price affects the co-workers that uses diesel vehicles. With the new price, the truckers may face circumstances where he could not support themselves and their family members anymore. As relate to income effect, when one faced with higher price and with an unchanged income, one cannot afford to spend on or buy things they previously spend on or bought. (Parkin, M 2012). Consequently, consumers will take steps to reduce their gas expense. Consumer might have to put in less, as in a quarter-tank and neither a half tank nor full tank.

However, there was also good news. Exxon Mobil Corp said that the refinery in Torrance get back to normal operation. The state officials remark the prices will start falling as soon as the refinery coming back online. (Associated Press, 2012)

When the price is at the point which there is no longer a shortage or surplus, the price comes to rest at its equilibrium. (Parkin, M 2012). Consumers will better off when they do not need to spend at higher price for the goods. At the same time, producers are also better off as they can produce and supply as usual without anxious about the cost.

The co-owner of the Coast Oil Fuel distributorship, Mark Mitchell, stressed that none of his gas station shut down even though several station owners had talk over it. The station has to charge approximately $4.89 to break even when spot prices hit the summit. Mitchell also appealed that he is not going to sell excessive when the price increases 40 cents in a day. (Associated Press, 2012)

In short, the co-owner is willing to sell to break even, which earns no profit and make no losses. Hence, if the price rises continuously, the demand for it will decrease. This literally leads to pull down gas station’s business and the business makes no profit.

References

Associated Press 2012, Gas Prices Hit All-Time High, [Online], available:

http://www.washingtonpost.com/business/refinery-problems-keep-gas-prices-surging-in-california-while-rest-of-us-gets-some-relief/2012/10/05/74e18626-0f50-11e2-ba6c-07bd866eb71a_story_1.html

Investopedia 2012, Rational Choice Theory, [Online], available:

http://www.investopedia.com/terms/r/rational-choice-theory.asp#axzz28XzRI3yG

Parkin, M 2012, Economics, 10^rd edn, Pearson Education, p.8,57,67

Kanchana Shanmuganathan

ARTICLE 1

The much awaited 2013 budget was out at last, with the increasing of living cost, many was hoping to see a financial aid within the budget and I was glad to know that the younger generation was definitely taken into consideration for the budget for the year 2013. The article is the elaboration on the benefits that the younger generation would gain through the budget planner regarding the property sector. The changes and plans regarding taxes and others would have great effects on various businesses and the domestic business of Malaysia especially in the property sector. I agree on the article regarding the prediction on increase of buying property of Malaysians in Malaysia and my opinions are based on microeconomics theories.

 

Firstly, the government has allocated RM1.9 billion to build 123,000 affordable housing unit nationwide ( iProperty 2012) , with this taking place, the increase of housing development also indicates the increase of competition within the property field. As the competition increases, the prices of the houses would experience a decrease as theoretically when the competition increase, it creates an atmosphere where in order to increase sales, competitors would try to attract customer by promoting discount and giving a cheaper price to cope with the competition. And according to the law of demand, as the price decrease, the quantity demanded would increase, thus pushing the sale of property higher.

Secondly, the other reason I agreed that the sales of property would increase is due to the fact in this research, it shows that the opportunity cost is to rent a property instead of buying. If people spend more on rental, they would have less money to purchase a property ( Chan 2009). In this case, the prices of the rental remain constant while the prices of the property might go down, thus, the opportunity cost decreases and pushes the quantity demanded higher along the curve of a production possibilities frontier graph.

 

Thirdly, the government has taken measures by giving up to 50% of stamp duty exemption for first home owners, this action has reduced the overall cost of purchasing a property for younger generations whom are yet to purchase their first home. People who have been on the fence on buying a property might get affected by this budget planning as it would only last till 14 of December 2014 ( Malaysia Property Review 2012 ). Not to mention that the prices of property have been constantly increasing every single year , thus with the expected future price to be higher, people would be more keen to purchase property now and thus shifting the demand curve to the right as quantity demanded increased. Since the income as well is expected to remain constant while pricing of goods would increase, people are facing an opportunity cost of savings and purchasing property, but as mentioned earlier, the income is constant but the cost of property would increase thus it drives people to purchase property currently.

According to Malaysia Property Review ( 2012 ), the real property gain tax will rise to 15% from the original 10% but only effective to property purchases within 2 years, while property that are purchased for 2 to 5 years would remain at 10% and lastly property that have exited 5 years after purchase will be exempted from real property gain tax. In my opinion, this actually discourages the sales of second hand properties but in return encourage the sales of new properties. Although it would affect the reselling of properties but in this article, they are stating the prediction of increasing of buying properties in year 2013 not selling. Thus to avoid the real property gain tax, people would hold on to their property till later where no tax will be imposed after 5 years, this decreases the number of second hand properties and in turn pushes people to purchase newly develop property.

 

In addition to that, the government too imposed a new tax under My First Home Scheme where the income limit for personal loan was raised to RM 5000 compared to the previously RM 3000 while joint loans under the scheme could apply for RM 10,000 limit. The increase of loan given also meant that more people have the ability to purchase property than before, this encouragse the sales of property as people now have the capability to do so, which supports the theory of prediction of increase sales in property.

Lastly, one of the major factor that brings changes in demand  is the population in Malaysia. According to the official Department of Statics, Malaysia (2012), the population in Malaysia has increased constantly causing the quantity demanded for properties to increase every year. In other words, the demand curve would shift to the right as the quantity demanded for properties have increased. The incentive for joint loans mentioned above  encourages couples to get settle down and purchase their own property to form a family. More youngsters nowadays too have gain independence in an earlier age adding to the number of people needed property.

Nevertheless, the research shows that the prediction of increase in sales of property in Malaysia is supported by facts and theories of the microeconomics of Malaysia. The major factor is the role of government regarding taxes imposed, financial loans and development plans. The second factor is the population and competition increases while other influence such as income and expected future prices of property have encourage people to further invest in property. As conclusion, the research shows that the increase of people buying property would be majority by younger generation as the benefits are mainly more focus on them.

 

 

ARTICLE 2

 

With the new release of the budget 2013, effects can be seen in various sectors such as property, auto-mobile even cell phones now. In the food sector, one of the ingredients that are affected is the price of sugar, according to the article, the government has decided to reduce subsidy of sugar by 20 sen per kg. In the article, the government claimed that the action was taken to further discourage people from consuming too much sugar in order to decrease the number cases of obesity and diabetics among Malaysians. Penang Consumers Protection Association president Korisatan Karuppiah states it is necessary for the government to do so as it could educate the public regarding over-consumption of sweet and oily food.( Star 2012) But the major question is will the action of reducing subsidy for sugar by 20sen per kg bring effects to the public ?

In my opinion, it would only bring minor effects to the demand for sugar. Firstly, unlike other products, sugar is not the final product that would reach consumers, other than packet sugar used by most common household, the people whom are affected most in the reduce of subsidy are the food traders and retailers. Immediately when the announcement of the reduction of subsidy was released, the retail price of sugar goes up from RM 2.30 to RM 2.50. Looking at the general household, the average consumption of sugar is only 51 grams daily for an individual ( Bernama 2011 ) , with this number, the mere increase of 20 sen to the sugar would not causes the quantity demanded for sugar to increase or decrease, in other words, the percentage change in the quantity demanded is less than the percentage change in the price thus, sugar has an inelastic demand.  As general households do not buy sugar in large quantity, most people would not mind to spend an extra 20 sen every month for sugar. Many people aren’t affected.

But on the other hand, there are the food traders and retailers that purchase sugar in large quantities; they are the major sector who will get affected by the increase of price. Large quantities of sugar would be needed in the confectionery sector, beverage, sweets production and many more. Although there might be slight increase in the price of these product it would only be a minor increase as Deputy Domestic Trade, Cooperatives and Consumerism Minister Datuk Tan Lian Hoe steped up and warned that those who took advantage of the increase of sugar price to highly increase the price of related product will be penalized under the Price Control and Anti Profiteering Act 2010 ( Laeng & Matthew 2012 ). Moreover, the demand for the sugar related product have remained constant, as the demand remain constant the supply too remains constant, thus, explaining the reason why no sudden drop of demand for sugar will occur in this country. For example, Sabah Confectionary and Bakery Association president Ng Seng Chek has mentioned that the slight increase in sugar price would not affect the price of the bread as sugar is not the primary ingredient in the production (Laeng & Matthew 2012). This proved that the slight increase of price in sugar would not bring major effect to sugar related products as well.

When the price of a product increases, it benefits its substitute products as well, one of the most common substitution product for sugar in the food industry is corn syrup. But in Malaysia, most people are unfamiliar with this product, although corn syrup is slightly cheaper than sugar; not to mention that corn syrup is harder to obtain that sugar, people would still continue to use sugar as long as the price remained at a considerable price. Looking back at the record of sugar price, the sugar price have remained relatively low until recent years, the health department wish to promote healthy living and have increased the price of sugar, but the decrease or increase of price would not cause people to eat more or less sugar due to the fact that sugar is a product that has no expiry date. Not to forget sugar is also a controlled product, which in return limits the action of people as people can’t purchase large quantity of sugar when the price is low to store.

As sugar is a controlled item, the competition sugar retailer could not exist as the price are already set by the government , with the lack of competition; people have no other price to compare to and thus limited options as well. The only competition that could take place, is the final product related to sugar such as confectionery and sweets, but even so the decrease of increase of demand in those product would not directly affect the quantity demanded for sugar.

In conclusion, based on the article that I have researched, I strongly disagree that the reduction of subsidy towards sugar would cause people to consume less sugar and overall decrease the percentage of obesity and diabetics. It is because sugar is a staple product and the increase of price is relatively small which would not major effect on the average income of Malaysians. Thus, the government action regarding reducing subsidy for health purpose is invalid as it does not bring major effects on the consumption of sugar in Malaysia unless the price was increase drastically or others substitute that are much cheaper and easily obtained introduced to the market, until then, the consumption and demand of sugar would remain constant. Reduction of consumption of sugar should be through education and health awareness and the general awareness of maintaining a good eating habits and healthy lifestyle. Lastly, the savings on sugar subsidy could be utilized to improved home ownership via Government subsidies for the deserving.

 

 

 

 

 

 

 

 

 

 

Celine Ban

Article 1

Based on an article in New Straits Times which entitle ’13 items come under price control for Chinese New Year’, Cooperatives and Consumerism Minister Datuk Seri Ismail Sabri Yaakob, said that ‘the price control would be enforced from Jan 19 to 30 to curb unscrupulous traders from manipulating prices.’ Due to the unscrupulous traders, price ceiling was set to the selling price of a chicken, cabbage, garlic and so on to prevent an increase further on the selling price. These few items will be set as 10 percent higher in Sabah and Sarawak than the peninsular. Pink price tag on separating different controlled goods is compulsory for traders. According to the article, it is fundamental for people to buy enormous of goods in Chinese New Year, therefore, the traders will use this opportunity to maximize their price of goods. This will cause a very big responsiveness towards the poor, they will not able to afford these goods, overall outcome will lead to an increase in rate of crimes. Therefore, the government must set price ceiling towards the goods. When the ceiling is binding, the price will be set under the market equilibrium. In a result, shortage will occur, which the quantity demanded will be accreted and one way to give out the inadequacy goods is on the basis of first-come, first served. Besides that, it will affect the long run and short run firms. In long run, all outputs can be varied and the firms can either go in or go out from the market. It can change anything and able to get benefit of economic. However, in long run, the producer may lose. Unlike short run which have a very short period of time to get involve in economic and it have at least one fixed input.

Besides that, New Straits Times also say that there will also be thousands of enforcement and monitoring officer be deployed around the states in order to ensure everyone are following the price ceiling. In addition, the relevance department would also increase the quota of cooking oil by 10% as repackaging factory and physical distribution operator will stop their operation due to the coming Chinese New Year. The ministry also allows distributors to stock up cooking oil in order to ensure that the market will not face any shortage in supply during festive seasons whereas the increase in quote for stock up is majorly due to the local population. Price cap was set in order to protect consumer from getting overpriced item. They would get most of their needs for festival at a very reasonable and affordable price. For instance, the shortage was reported in Temerloh, this is because of the price cap rules, when shortage occurred, there will not be any unbalanced price setting by the retailer or wholesaler anymore. In this scenario, government will allow the offices to stock up cooking oil to prevent transportation operators stop sending their consignments and of course increasing the quota will be based on the population of the areas. From the Taylor book it states that when price ceiling is being created, at this price level, deadweight loss will occur which the marginal benefit exceeded the marginal cost or opposite.

Price ceiling is the maximum price that a buyer is voluntary to buy. It will occur when the price of a product was being limited by the government. However, it must be set under the market equilibrium in order to have effective price ceiling. Consequently, when the price ceiling was set, it leads to shortage and an increase in demand, thus inefficiency will guide to deadweight loss. When people could not attain the goods that they need due to reducing in quantity supply, it will create a black market. For instance, if the price ceiling is not set for the rental, the landlord will have high esteem on selling their house by a higher price. They will neglect the tenant as there will be high demand for houses. Therefore, an imposed price ceiling on goods, rent control may cause housing to be more affordable. However, disadvantages will take place, one of it is black market will happened, which is illegal market. In this scenario, good is sold in this black market instead of the legal market. According to Taylor book, the black market is major for the one who could not buy the goods they need due to the increased in quantity demanded and decreased in quantity supply. Although price ceiling might have a lot of benefit in order to provide more houses for the poorer, but it seems to be a bad news to landlord which owns a lot of houses.

All in all, we can see that how effective it is when price ceiling is being set. It is extremely useful especially for the government and governing bodies. With the help of price cap, the market become natural equilibrium, at this state, it will be the most efficient state for the market. If the producer is setting a not reasonable price, in this case we can use price ceiling, in order to force the producer to decrease their profit. However, price cap is not suitable for all cases, sometimes it will worsening the situation. Therefore, by examining cases which need to be control and which need not to be control need to be rational and considerate. However, it is definitely suitable for this article, as price ceiling control the price to prevent unscrupulous traders from manipulating prices.

Article 2 

          Based on the article above, ‘Housing supply and demand-are we nearing equilibrium?’ can be explained as below. As law of demand stated, the lower the price of a good, the larger the quantity demanded. There are two reasons that affect the law of demand, one of it is substitution effect, and the other one is income effect. Substitution effect is when the price of goods rises, the quantity demanded of the goods will decreases. For instance, if the price of Pepsi increases, people will substitute the goods with Coke. Whereas income effect is the phenomenon that is commonly observed through the consumer purchasing power. For example, when people have the same income, they can purchase 10 breads with the price of RM1.00 each. But when the price of bread rises to RM2.00 each, they can only purchase 5 breads. They could feel that they have less purchasing power although they have the same income. Based on the article above, ‘Housing supply and demand-are we nearing equilibrium?’ , we can see that there are many reasons that will affect the demand for housing which included the family size, age composition formation, death rates or maybe divorce rates and many others demographic variables are one of the factors. The other factors may include investor or consumer preference, stated by Trading Charts’s website.

            The major reason that affects the demand for housing is income, conducted by De Leeuw 1971. The demand in North America ranging from 0.5 to 0.9, as income effect states that when income increases, the demand will increase. In this scenario, we know that income shows a great effect towards housing market. The relationship between the purchasing volume and income is greatly positive. Whereas the price of the houses will have a negative relationship towards the purchasing volume. This is very logic as normal human beings will not buy something at the maximum price, they will only purchase it when the things are cheap. The supply for houses would be greatly influenced by the price of the houses as stated by the law of supply. When the prices of the houses are very high, the developer will try to increase the total of development project so that they could earn more. On the other side, the demand will dropped and thus a surplus is formed. Rahim Rahman stated that when there is a surplus, the price will drop, quantity demanded will increase, and quantity supplied will decrease until the price reached its equilibrium point.

 

       As for supply part, the main factors that affect the supply of houses would be the cost of building materials and also the land value. When the land value or cost of building material increases, the developer will reduce the supply due to the increase in cost of production. Therefore, an increase in cost of production would shift the whole supply curve to the left. Besides that, when the rental rate of Selangor increase, there will be fewer people purchase houses because rent house will be a substitution to purchase a house. Furthermore, if the price of a commercial building increases, the supply for houses would be decrease as commercial building is a substitute in production for houses. If the expected future price of the house value will increase, the supply of houses today will decrease and it will shift the supply curve to the left. This is because every businessman wants to maximize their profit. They will try to decrease their supply because the price is lower compare to the future price. Rahman also stated that when the price rises, the will increase the supply and therefore the profit will increases. When there are more developers in the market, it will bring positive effect to the supply curve and make the supply curve shift rightwards.

            Supplies in houses will also increases when there is advancement in technology, for instance inventing a new product or technology which will help to reduce the cost of producing houses. It will help to increase the supply and therefore the whole supply curve would shift to rightwards. The state of nature will also influence the supply of houses. One of the best examples is when there is a natural disaster, the supply of houses would decrease. This is because there are no lands for the developer to build houses. When the opposing forces are balancing each other, which means equilibrium are achieved. The equilibrium means that when the quantities supplied are equal to the quantity demanded. Price will help to adjust the buying and selling plans and the price will also adjust when the plans are not matched. Price will adjust until it reaches the equilibrium point. Price is always a regulator to ensure that the markets are always equilibrium. When the house prices are way over equilibrium price, the surplus forces would always force the price to go down until it reaches the equilibrium point. On the other side, when the house prices are below the equilibrium price, the shortage forces would always force and make the price higher in order to achieve equilibrium.

All in all, as quantity demanded increases, quantity supplied will decreases and the main regulator would be the price. Both of the supply and demand are always related as that is why the producer produce. Producer would not want their product to have more than demand as it will create and negative effect on the selling price. On the other way, the buyer would not hope that any products are in shortage as it might affect them if they wish to buy it and it could be selling at a very high price if the products are in shortage. That is why this market always achieve equilibrium due to both supply and demand are always interrelated.

 

References

New Straits Times (2012) 13 items come under price control for CNY - Top News - New Straits Times. [online] Available at: http://www.nst.com.my/top-news/13-items-come-under-price-control-for-cny-1.30913# [Accessed: 8 Oct 2012].

Rahim Rahman, D. (2011) Housing supply and demand – are we nearing equilibrium?. [online] Available at: http://biz.thestar.com.my/news/story.asp?file=%2F2011%2F11%2F26%2Fbusiness%2F9974676&sec=business [Accessed: 7 Oct 2012].

Taylor, B. (2006) Price Ceilings - Economics. [online] Available at: http://economics.fundamentalfinance.com/price-ceiling.php [Accessed: 8 Oct 2012].

Tradingcharts.com (2011) Law of Demand and Fundamental Analysis of Commodity Markets. [online] Available at: http://futures.tradingcharts.com/learning/law_of_demand.html [Accessed: 8 Oct 2012].