Why Buy? Why Not Produce?

According to the article written in thejakartapost.com dated September 17^th, 2012, there explained that Indonesian salt will reach a shortage. Because the prices keep crashing farmers didn’t want to continue their occupation and trying to shift to another field. Profit from the production was only spent on worker’s wages. Even though there is profit, the profit is too low. Even worker’s feel that their wages couldn’t even fulfill their family needs.

Why is it a problem for Indonesia if the farmers find another job? Madura is a place in Indonesia which produce 60% of salt needs for the country. If they shift to another job, salt supply would meet shortage. The government then feels that they have to take actions by importing salt from other countries such as India and Australia which could kill this salt farmer’s business because people would buy salts that the governments imported.

graph 1.1

As illustrated in graph 1.1, theirs is vertical line which represents price and there is a horizontal line which represents the quantity of salt. The D line is demand line. This is the line which represents the amount of goods costumer are willing to buy at any particular price. The D line is drawn based on the demand law which is when other things remaining the same, the higher the price of a good, the smaller is the quantity demanded; and the lower the price of a good, the greater is the quantity demanded. The S line is the supply line that represent the amount seller would willing to sell in a particular price. This is drawn based on the supply law which is when other things remaining the same, the higher the price of a good, the higher is the quantity supplied; and the lower the price of a good, the weaker is the quantity supplied. Equilibrium is a point which is beneficial for both seller, and buyer because they didn’t received any lost. Indonesia production of salt right now is below the equilibrium which means Indonesia’s salt market is in a shortage. At shortage buyers are willing to buy but the problem is the sellers are unwilling to sell because the price is too low. This is why the farmers have a thought of changing jobs.

So what is the impact if the government imported salt? Salt is a necessity. Amost everyone needs salt. Salt don’t have a substitute. It is a necessity that’s why even though government imported salt and the price goes high, people still consume it. That’s mean the response from the buyers to this price is extremely very responsive (perfectly inelastic demand). What are the effects of residents of Indonesia? Well for the middle to high income people, they will not get to many damaged but for middle to low income people they will receive a major effect which is insufficient income. Their income would not meets the daily needs.

The next question is what should the government do? There are two kinds of problem which the governments have to manage. The first is a short-term problem which is to fulfill the demands of salt the residents of Indonesia need. The second problem is the long-term problem. Governments couldn’t rely on import to often. Indonesia is a rich country. Even if you throw a watermelon bean it could grow into a watermelon tree, that’s what the elder said. Indonesia could produce it’s own salt. Governments just have to pay attention to this field. Farmers didn’t have the passion to do their job because of the crashing price. They need subsides. They need the government to help them doing their job. Also the industries are using a traditional way to produce salt. Governments could take action by giving trainings in how to use machines. They also could subsidize machines for them. The most important thing is that the governments could light up their passion in doing their job by controlling the price. How to do it?

graph 1.2

Well based on graph 1.2, after the government gives help and subsidy to residents they could manage their production and amount of supplied increase. This brings the price to get lower while the quantity supplied increases. The production keeps going until it reaches its equilibrium price where both buyers and seller would get benefit.

What happened if the production positively keeps going and the producer reach the surplus? The seller will gain an excess amount from the sell of the good over the cost of producing. Then the price increases as the quantity demanded increases. This is though a problem for consumer therefore the governments need to take an action.

graph 1.3

What action could the government provide? The government has to put a maximum price of salt to sell for the seller. As illustrated at graph 1.3 the governments take action by setting a minimum price which is above the equilibrium. That means seller couldn’t get more than the maximum price. The bargaining for the price keeps continue until it reaches the equilibrium which means both buyer and seller gets benefits from it.

The conclusion is that the government needs to take action for two problem which is the short term and long term problem. Governments need also to pay attention on the local industry because by producing it ourselves, we could gain more benefit. First, seller could increase their income. That means it will give an impact in macroeconomics point which is increasing Growth Domestic Product because Indonesia people have a better income now. Also the price would not be high for people in Indonesia because there’s lesser tax and lesser marginal cost to produce the goods. If the sales and producing in the country is good, Indonesia could help their local industry expanding their sales to other country by doing exports.

Tiffani Yulita

0311332

Sec 9

Source: http://www.thejakartapost.com/news/2012/09/22/dying-breed-salt-farmers.html

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HOUSING SUPPLY AND DEMAND, ARE WE NEARING EQUILIBRIUM?

House is a necessity good for human, necessity good in economic means that everyone needs it, without it everyone will hard to survive. For example, house is the one of the necessity good for human, without a house it is extremely hard to survive nowadays. Therefore, the demand of the house and the supply of the house should merge to form the market equilibrium, at the market equilibrium the supplier are able to sell more house and able to get profit and the consumer are affordable to buy the house as well. But nowadays it is very hard to form the equilibrium in the market. There got one of the main factor might affect the demand and supplies for housing are demographic. For example, non family household formation, the number of children, net migration, the age composition of the family and the family size. Other than that, there got a couple of factor that affect the demand of the house, which are household income, price of the housing, availability and the price of substitutes and the factor that affect the supply of house are cost of the house, available of credit, which type or which area of house the consumer preference to buy at and which type or area of the house the investor prefer to invest the house at.

From my opinion, I think that the income, confident of the consumer and availability credit is the important factors that affect the demand of the house. This is because, when the income increase it shows that  during the period the economic growing so more people are affordable to spend more on buying house, so that during the period the demands of house tend to be a luxury good as well, so those cause a huge percentage increase in demand due to the increase in income. For example, it shows a study that conducted by De Leeuw in 1971 showed that the demand of the house elasticity by the income in North America ranging from 0.5 to 0.9, meaning that the income rose drive the demand of the house grew as well.  However, confident of consumer also stand a very important role that affect the demand of house, the demand of house can shows that how confident the people toward the house in the future economic and housing market. If the majority of people expect the price of specific area of the house will rise so the demand for the house will be increase, therefore people can get the wealth from house. Hence, the availability credit is extremely important factor that affect the demand of the house. Availability credit means that how many percent of the loan you able borrow from the bank to buy the house, it is very important normally the buyer will be able to borrow ninety percent of the loan from the bank to buy the house, so it is affordable for the buyer to make a ten percent down payment to buy the house, they just need to pay for the periodic payment every month, therefore the demand of the house will be increase. If the government change the loan from ninety percent to seventy percent, so it is very hard for a person to pay the thirty percent of down payment to buy the house, even thought for the person who are able to pay such big amount of down payment they will not willing to pay also, it is because if they buy something with a large amount of cash they will be suspect by the income tax, so they will try to avoid it.

In addition, from my opinion typically the cost will influence the upcoming supply of the house due to the fluctuated price of the raw material. For example, company A is a construction company, they got a project but it needs one year to complete it. Before they start the construction they will buy the raw material with the present market price, but after one year the market price of raw material might be different, if the price of the raw material drop so they would not get the maximum profit and the price of the house will be very elastic, so the supply of the house will be lower because of increase in cost of the construction. Therefore, nowadays a lot of company prefer supple in short run, because if the supply increase the cost of the construction, the price of the house will be very inelastic and does not has effect on supply.

From another perspective, the number of the construction companies in the market also the one of the factor that affects the house supply in the market. As we know construction business is a kind of business that very profitable, that caused the number of the construction companies in the market increase, but the more companies come in the more house will be build and also increase the house supply as well. Therefore, the competitors in the construction companies market increase, it is very hard for a company to sell off their house if the competitors in the market increase and when the competitors increase the consumer has a lot of alternative to choose the house, they will compare the house price with different company. Hence, the construction company will create a lot of promotion to lower the price of the house to benefit the consumer, so the price of the house in the market will drop eventually. In conclusion, it is very hard to reach an market equilibrium price of the house, it is because human has a unlimited desire they will tend to the way which can help them to earn big amount of money

Khew Sze Wei

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DEMAND FOR ELECTRICITY HAS EXCEED SUPPLY

In a developing country generator electric supply is very important for the country. In order to achieve the country’s goal, the government must enhance every sector of the country to be stronger and sustainable. For example, in term of economic sector, technology sector and etc….. to drive the country to become a developed country. There had been occurred the shortage of electricity supply due to some industries not getting the electricity supply they need, which shows that the quantity of the electricity user has been increased and the quantity electricity supply still remain the same, that is why the electricity shortage problem occurred. The reason of the quantity electricity user increase is because of the government had been committed to maintain and provide a business environment that provide companies with opportunities for growth and profit. So that, the government hope provide this business environment could able to attract the industries from others country to come in our country to set up their business in our country, therefore it will be able to help our country to build up a stronger economic.

From another perspective, when the shortage of electricity occurs, that brings a lot of effect to the country. Impact of the business community is one of the impact of electricity shortage, there would have increase negative impact on production and business strategy of business community. This is because, many of the industries do not get the electricity supply that they need, therefore they will transfer part of their product from here to another branch industries which at another country. For example, At Japan, Toshiba has been confirmed and is transferring the production of system LSI and micro computer from Lwate  toKyusha. Other than that, shift date centre operation from easten to westen Japan has been planned by the company. So, the supply of the system LSI and micro computer at easten Japan is decreasing and demand still remain the same. In this situation, supply is less than demand which means that the shortage of production of system LSI and micro computer is occurred. When the demand more than supplies, the price of the product will increase, the large amount of people want to buy a small amount of product, so the seller sell the product to the buyer who willing to pay a higher price to buy the product, so it will drive the price to be higher.

Other than that, due to the electricity shortage in our country the amount of food production industries from others countries invest in our country is declining. This is because the food production industries will face the electricity shortage problem and they need to store their food into the refrigerator with a large capacity of electricity to use, but refrigerator will not function without electricity or for some of the industries that already build in our country. They will reduce the quantity of food that they produce to prevent loses due to the not enough electric for food reservation. In case the industries reduce the food production, the supply of the food will be not enough because there is a reduction in food production but food demand still remains the same as previous, so the shortage of food will occur. In addition, food is a necessity goods that everyone need it and cannot survive without food, so when the price of the necessity good increase but the income still remain the sameit will bring a huge burden and effect toward consumer. Other than that, some of the industries might consider to move out to another country due to the electricity problem. In case they move to another country, the industries will bring the talent go along. The industries will provide all the necessity to the talent, so the talent will try to immigrate and work with the industries, therefore the shortage of the talent in our country might be occured. For example, PuaKheinSeng is Malaysian and also pen drive inventor, but he has a very successful business at Taiwan.

However, the shortage of electricity also will bring an impact toward the citizen in the country. Due to the over demanded of the electricity in the industries, there has been concern by many people. The country’s electricity per capital would increase as a country positioned itself as a developed nation. Which means that, the price of the electricity must goes up, if the price of the electricity goes up it will add more burden to the citizen. To be a developed country, the price of the electricity goes up but it is unchangeable with the monthly income, so the amount of the electricity fees that need to pay is increase. For the family who have a low income, increase the price of electricity will cause them hard to survive.

Electricity shortage bring a lot of inconvenience to us, thus we need to find another technology to generate electric to solve the shortage of electricity as fast as possible. From my opinion, the wind power is the power generator that most suitable for us to use, wind power provide a lot of advantage than others electric generator. The first advantages are the wind that uses to turn the wind turbine is free and it is also with the modern technology it can be captured efficiently. Second, when the wind turbine is built the energy it produced does not cause green house gases or others pollutants and although the wind turbines is very tall but it only take up a small pot of land, so the land that below still can be use especially in agriculture area as farming can still continue. Hence, many people find wind farm an interesting feature of the landscape. Third, the people who live at the remote area that are not connected to the electricity power grid can use wind turbine to produce their own supply, so the wind turbines have a role to play in both the developed and third world. Last, the wind turbine is available for big range of people and the business to use. For single households to small town it can make a good use of wind turbine. In conclusion, no matter what kind of electric generator we use our objective is only to solve the problem. To overcome the impact that the affect the country.

Khew Sze Wei

Green technology: Accelerating a sustainable transportation system

Based on the New Strait times  newspaper article title Green technology: Accelerating a sustainable transportation system  ,17 July 2012  . Civilization in this world develops step by step to make a better living in this world.  The introduce and the evidence of wheeled vehicles appears from the mid-4th millennium BC, in Mesopotamia , brought a lot of impact to this 21^st century era. Manufacturer creates transportation such as cars , bus , or motorcycle that helps us to travel more easier and convenient to place or destination we need to go. Without gas or petroleum , the transportation can’t be operate or we can call the backbone of the transportation. This is because petroleum or gasoline generates energy for the car to move since nowadays majority of it uses the energy source of fossil fuel that is non renewable rather than renewable energies such as solar or wind.  In the article I refer to, there’s factor that  I can apply in the microeconomics term .

      The price of the of the petroleum or gasoline is mainly due to the demand and supply factor.When the supply is low, the demand will be high. Mostly all average adult population in the world use car to travel.  Furthermore population growth rate increase every month in each continent in the world thus effects the demand factor and contribute to the lower supply of petroleum.  The graph rate of the petroleum price increase upwardly time by time. Consumer can find other alternatives substitute such as using natural gas (NGV) or more lower quality petroleum such as Ron95 that is Ringgit Malaysia 1.90  rather than Ron 97 that is cost Ringgit Malaysia 3 per litre .We can also call this as opportunity cost. The cost of an alternative that must be forgone in order to pursue a certain action. Put another way, the benefits you could have received by taking an alternative action. Scarcity occurs when demand needed is more than the supply provided. This happen when the petroleum supply in the world market is low while the demand is extremely high. In other hand this will also cause price inelastic demand .Eventhough the  price is high but still the consumer buy it because it’s a requirement or necessities not luxury. “One of the most important factors that will enable smooth implementation is putting in place proper infrastructure, especially for charging electric vehicles’ this statement is one way of example of substitute of the petroleum running cars.The introduce of charging electric cars or the rise number of public transportation will have substitution effect  .Substitution effect when the relative price(opportunity cost) of a good or service rises people seek substitutes for it , so the quantity demanded of the good or service decreases. Due to the increase of price of petroleum, consumer who have lower income will occur income effect. They will turn to public transport perhaps. Income effect when the price of a good or service rises relative to income, people cannot afford all the things  they previously bought, so the quantity demanded of the good or service decreases. We can also relate to the demand of preferences’. People with the same income have different demands if they have different preferences. In example, people with higher income will use more expensive price of petroleum like Ron 97 while the lower income consumer will use Ron 95 as their daily preferences.  ‘There is no doubt that green transportation can reduce the overall consumption of petroleum and diesel in the country’. This statement clearly shows the factors of a change in demand because substitute is introduced .The populations demand depends on the size and the age structure of the populations. The larger populations the larger is the demand for all gasoline whereas the smaller the populations that are requiring for the use of gasoline, the lesser demand is required. In city center such Kuala Lumpur which is more population,the demand is higher compare to in suburban such as Kelantan that has lower population rate.

      ‘The transportation sector is also closely linked to the fuel subsidy. Improvements in fuel efficiency will lead to reducing the economic burden of the fuel subsidy.”   We can apply this in lecture 4 production subsidies. Government introduce this to ease the burden to the public by reducing the actual price of ,the petroleum. Subsidies means a grant or contribution of money. Government of Malaysia subsidies totalling Rm17bil on petroleum-related products have been allocated for next year 2013 to help reduce the rising cost of living . With no subsidy the price is higher than RM 1.90 for Ron 95. Subsidies also been implement in daily necessities such as sugar, chicken and many more. With subsidy the marginal cost of supply will falls.Externalities is an effect of a purchase or use decision by one set of parties on others who did not have a choice and whose interests were not taken into account. ‘A sustainable solution: While the government has a constant finger on improving the public transportation system, carbon emissions and climate change are issues too big to be ignored even for a moment’  . The relation is negative externalities and positive externalities. The cons externalities is when the usage of petroleum increases world wide , therefore creates bad effect to the environment such as global warming and carbon emission. ‘There is constant talk about the increasing numbers of vehicles on the road, and the subsequent pollution they create.’ Global warming can rises the earth temperature and cause negative to the health and environment. ‘Creating a well-connected capital city and improving connections across the country is one solution to this problem. Another is green transportation.’Positive externalities is when the government introduce the electric charging cars and improving the public transportation system, which improve the situation.

      In conclusion , the law of demand , the law supply, the law of demand and supply  is playing a major part in contributing to the world economy situation in petroleum . The petroleum situation will never reach equilibrium point between the demand and supply curve if there’s no step taken by the government and the oil company , this will cause a big economic problem among the world nation to solve this inefficient problem.
   

Affan

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