Economics is separated into two
different types. It is divided into microeconomics and macroeconomics.
Microeconomic is the studies individuals and decisions of businesses. Which
means that it focus on internal of an organization. Examples are, the
employees, managers and other factors. On the other hand, macroeconomic focus
on the external forces that affect a business. Examples are account taxes,
regulations created by government, and international trading status. Increase or decrease in government subsidies
will cause a big impact on a country’s economy. Therefore, external force for a
business is very important. Sugar is important in our daily life. It is almost
consumed on a daily basis. Therefore, we can say that sugar is a necessity good.
Sugar can be found in a lot of products that are available in the market.
Examples of products that use sugar to produce are soft drinks, candies, food
flavoring and many more.
Stated September 2012, Malaysia
government has announced that the subsidy for sugar prices would be decreased
in the start of year 2013. Although subsidies have been reduced, traders are
not allowed to increase the price of the sugar at their own will. Malaysia
government has set the price ceiling of fine granulated white sugar to RM 2.50
per kg and coarse granulated white sugar to RM2.60 per kg. Price ceiling is the
maximum legal price a trader may charge for the product or service they
provide. Any amount of money a trader charged above the price ceiling is
illegal. On the other hand, a price floor is the minimum price fixed by the
government. Price above the price floor is legal while price below the price
floor is illegal. In this case, many changes are to be made mostly based on the
price of supplies on sugar. According to
Tan mentioned in New Straits Times, she said errant traders could face legal
action under the Price Control and Anti-Profiteering Act 2010 for
indiscriminately raising prices, therefore this would lead to a increase in
cost of production thus cause a major decrease of production in sugar, leading
suppliers to supply less sugar. Therefore it leads to shortage of sugar. When
the demand for sugar is higher than the supplies of sugar available in the
market, they’ll come to a point where demand of sugar is increasing
simultaneously, hence leading to a shortage of sugar. Although sugar price will
not increase even though the subsidy of the sugar have been decrease, trader
such as coffee shop owner will charge their customer more to maximize their
profit. This is because sugar is a complement good to a cup of coffee. As
mentioned earlier, any price that is set above the price ceiling set by the
government is considered illegal. Illegal trading is a black market. In this
case, demand of sugar would be out of hand, leading this to a born of black
market where other suppliers would supply sugar in a higher price due to the
high demand of sugar, regardless of the price for sugar, sugar will then become
a highly necessities good. This would cause a large impact on the country’s
economy. This is because black market trade will not contribute to the
country’s economy. People are willing to pay more than the ceiling price set by
the government in black market due to the lack of sugar in the market.
Based on the theory of elastic and
inelastic demand, elastic demand is when the price of a product increases, the
demand of the product will fall. On the other hand, if a product is inelastic,
when the price of that product increases, the demand of the product will not be
affected. This is because there is no substitute for the product. Examples of
inelastic products are water and electricity. A relationship is described as
perfectly elastic when its magnitude is infinity, while when the magnitude is
more than 1 it is described as an elastic relationship. On the other hand, when
the magnitude is less than 1 but greater than zero, it is an inelastic
relationship. Lets say that the demand for sugar is elastic. As the price of
the sugar increases, the demand of sugar will be affected. But, sugar can be
elastic or inelastic good depending on the person using it. For some people
with higher income, if the price of the sugar increases, it will not affect
their life, so it doesn’t concern them. But on the other hand, some people make
a living by selling sugar-made products. As mention earlier, nobody are allowed
to sell sugar higher than the ceiling price even though that the subsidy of
sugar have been reduced. Therefore, people who are selling sugar-made product
will suffer a loss because they will be buying sugar at a high price.
The Federation of Malaysian Consumer
Association (Fomca) gave their opinion on the 20 cents reduction in sugar
subsidy in the 2013 budget is a good move. Ms. Siti Rahayu Zakaria said that it
would encourage people to lead a healthy lifestyle by reducing their sugar
intake. Excess intake of sugar will cause high sugar content in our blood
system thus lead to disease like diabetes and high blood pressure. If people
took excess intake of sugar, health problem will occur. Therefore, health care
product will be needed. Based on what I have studied in foundation on the topic
Health Care in economics, it states that health care is one of the largest
industries in the United States. In Malaysia, Ram Anand said that Malaysia is
the third lowest spender among Asian countries who spend money on healthcare
expenditure.
As a conclusion, although sugar
subsidy have been reduce from 54 cents to 34 cents, everyone will still
continuing buying sugar because there is no substitute goods for sugar. Sugar
price is constantly increasing from the past 5 years due to the high demand for
it. But as the price increase, the quantity demanded will decrease. This
situation respects the law of demand.
Khai
Phing
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