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].