Price is rising! What should government do?

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       According to the news above, consumers are soaring that chicken’s price is getting higher although the fasting month has not started. This condition is getting worse since some of the consumers start to change their choice from chicken to beef or lamb because they cannot afford the high price of the chicken.

If this condition continues, a surplus condition will happen since that the purchasing power is falling. Consumers are forced to switch their choices to beef or lamb. Since lesser people buy chicken, the demand of chicken is falling while the supply of chicken remains the same.

         In my opinion, to solve this condition, the government should impose price ceiling to prevent the price of chicken from getting higher and higher. By imposing price ceiling, consumers are allowed to purchase the chickens that were previously in a higher price. The purpose of price ceiling is to protect consumers from exploitation by suppliers.

           However, when there is a price ceiling, shortage of supply will occur. This is because when the price of the chicken is forced to fall, the demand for the chicken rises as the graph shown. If the price ceiling has been carried out for a long period, the black market will exists.

By Liew Hui Min 0315658

Think of earning money, think of Forex

       In this modernization era, peoples make their own investment instead of just saving money in the financial institution. Currently, the most popular investment is FOREX. Forex is the foreign exchange market or currency market. It is one of the largest markets in the world. 

Wonder that you have ever traveled to another country, you usually had to exchange your money into the currency of the country you are visiting. When you do this, you have essentially participated in the Forex market. However, a large part of the market is made up of currency traders, who speculate on movements in exchange rates. They earn the money through the fluctuations in exchange rates. 

      There is no “inside information” in the foreign exchange market. Significant news is released publicly so everyone in the world receives the same news at the same time.

    The foreign exchange market operates 24 hours per day throughout the week between individuals with Forex brokers, brokers with banks, and banks with banks. According to research, the average daily international foreign exchange trading volume is $5.0 trillion.

      The graph below shows the average daily trading volume in the Forex market, New York Stock Exchange, Tokyo Stock Exchange and London Stock Exchange. 

   

       The currency market is over 200 times bigger! This shows that Forex is becoming more and more popular among us. Now, not only banks are investing in Forex; households with high income also invest their money in Forex because they believe that it is profitable sometimes. This act of investment is called a leakage from the circular flow model. This is because the money is not spent on goods and services produced by firms. In this way, they will tend to consume more and the money flows back to the circular flow. This proves that the total income (Y) of our country is equal to the total consumption (C) we made.

Reference:

1. http://www.earnforex.com/what-is-forex

2. http://www.babypips.com/school/what-is-forex.html?ctt_id=9139701&ctt_adnw=Google&ctt_ch=ps&ctt_entity=tc&ctt_cli=8x13534x163182x1404039&ctt_kw=what%20is%20forex&ctt_adid=6626371111&ctt_nwtype=search&gclid=CLeyt6Opm7gCFQYF4god5hQAGA

                                                                                  

     

By Lee Jie Shi 0315696

American International Assurance Bhd (AIA) plans to come up with single licence in Malaysia by June?

            American International Assurance Bhd (AIA) plans to operate under a single licence in Malaysia by June after acquiring ING Group's local insurance operations.

AIA CEO, Bill Lisle.

                                                                        

        AIA chief executive officer, Bill Lisle stated that the company would be returning its ING insurance licence to Bank Negara, and looking at completing the integration of both entities in the next 18 to 24 months. The company plans to have a bigger scale to benefit the customers from the bigger financial entity. Soon, it comes up with an enhanced range of product suite under a single licence.

On the other hand, AIA Group Ltd had completed the US$1.7bil (RM5.13bil) deal for ING's Malaysian insurance business, valuing it at 2.2 times book value in December. In this case, the enlarged group is ranked the first in terms of total premium revenue and the third in terms of new business value. 

                                          

        In addition, the company intends to be the undisputed number one. To reach this goal, their current focus would be on their new partnership with Public Bank.

           AIA is an oligopoly company, which means that it contains a market structure of having few large sellers which are mutually interdependent selling differentiated or undifferentiated goods in the consideration of pricing policy formulation.

AIA has high entry barriers such as economics of scale and copyrights in order to prevent new firms from entering the market.

AIA Berhad acts as a dominant firm oligopoly as it is the largest independent listed pan-Asia life insurance group in the world. The price it sets is usually acts as a model of other smaller competing firms to maximize its profit which is known as traditional oligopoly model.

In this case, it has a characteristic of non-price competition in brand loyalty, advertisement and marketing. AIA plans its strategy in order to get more market shares.

            To sum up, AIA had succeeded by merging with ING insurance Berhad and soon it will create a new partnership with Public Bank. This makes it a bigger firm and reduces the number of firms under oligopoly. Gradually, they will reach their goals on being the top one in future.

Reference:

1.      http://www.thestar.com.my/Business/Business-News/2013/03/15/AIA-set-to-operate- under-single-licence-by-June.aspx

2.       http://www.preservearticles.com/201106178093/6-essential-characteristic-features-of-oligopolistic-market.html

3.       http://www.econ.ohio-state.edu/jpeck/H200/EconH200L13.pdf

4.       http://top10malaysia.com/home/index.php/news-and-events/top-10-s-insurance-companies-in-malaysia/

By Low Chia Yin 0315659

Elasticity

        When I was a child, I always follow my parent go hypermarket buy daily necessities, and I always heard them complaining saying that “the item there are getting more expensive such as the apple a day cost rm1.50 and the following it has increased to rm2.00 .”

     

           From the diagram above, is proven that the owner offers variety of discount has successfully attracts people tend to buy it. For example, there is this shirt sold as rm260 last week but now it is has discounted to rm150, therefore this shows that if the price of the shirt decrease, the demand of people buying will increase.

      Income elasticity is based on how consumer's demand for different goods increases or decreases in response to a change in the consumer's income. For example, new handbag such as Louis Vuitton, Hermes, Burberry and etc. 

    

           Bag industries retailers may be interested in how the quantity demanded for new bags in a specific area is changing. In a case like this, we can look at consumer's income. If the area is growing, and incomes are increasing, we can assume that more new cars will be demanded. On the other hand, if incomes are decreasing, we can anticipate that more people would buy secondhand.

Reference:

1. http://www.econport.org/content/handbook/Elasticity/Income-Elasticity.html

     

2. http://www.tutor2u.net/blog/index.php/business-studies/comments/a-good-example-of-price-elasticity-of-demand

By Liew Pau Yee 0314681

Market structure of skin care product?

Do you hope you have a fair skin?

When you are choosing the skin care product, will you always get a look on skin-whitening product first?

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          According to the article, "Get white" messages are inescapable in this part of the world nowadays. Most of the Chinese consumers obsessed with the white skin product. This trend is good for the cosmetics companies, such as L'Oreal.

         Euro monitor International, another independent strategy research company, says China's market for whitening products is expected to grow. In its report released this year, L'Oreal was the clear leader in skin care in China in 2010, accounting for 16% overall market share.

                                    

         L’Oreal has become an influence brand in the monopolistic competitive market structure. The model of monopolistic competition describes a market structure occurs when the firm have a lot of competitor, but each one produces a similar but different product. L’Oreal has 13 skin-whitening products in the Chinese market, ranging from facial cleansers to facial masks compare to others competitor such as Estee Lauder or SK-2.

           As a monopolistic competitive firm, L’Oreal produces differentiated product in their market. They are successful in produces a range of differentiated product by differences in functional features or design such as Age Prefect for the older customer while Youth Code for the younger customer.

The Age Prefect product of L'Oreal for older women.     

                                                                                                 

The Youth Code product of the L'Oreal for young girls.

            Besides, as a monopolistic competitive firms have to engage in advertising. L’Oreal advertises its brand about its unique features in their product ingredient to let customer know what are the different and benefits of their product compare to others competitor.

          Furthermore, monopolistic competitive firms such as L’Oreal produced a negatively slope but relatively elastic demand curve, because their product is similar to others competitor. They can sell a wide range of output at a narrow range of prices. L’Oreal as a price maker, it has the ability to control price. It offer products priced from 100 yuan ($15.63) to 220 yuan to help them reach their goals.

                                      

           In order to satisfy customer demand, Famous foreign companies, such as L'Oreal, are still developing their male skin care business in China. Bao Yanyue, general manager of L'Oreal Paris in China, ensures the business of men's skin care products is booming.This shows that there is freedom to enter or leave the market, as there are no major barriers to entry or exit. Thus, the monopolistic competition firms,such as L'Oreal only can make normal profits in the long-run.

            

Reference: 

 1. http://www.economicsonline.co.uk/Business_economics/Monopolistic_competition.html

  

 2. http://www.lorealparis.ca/faq.aspx#tab:FAQ_Skincare

3.http://articles.economictimes.indiatimes.com/2011-11-20/news/30419789_1_skin-care-skin-colour-skin-whitening

                                  By Chin Kar Man 0314683

It's all about taxes!

         “WHAT?! Tax rises again?!” This is the line that we often hear nowadays. Taxes such as service tax, RPGT tax and tobacco tax are rising. Although these have increased the government’s income, people’s purchasing power will go down. Nowadays in Pakistan, not only adults, students need to pay taxes for their writing instrument too!

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         However, Malaysia government has lowered the income tax during these years. Although the income tax in Malaysia decreases, the goods and services tax (GST) are increased. People need to pay more when they buy goods and services. Since the income level of Malaysians is still low compared to other countries, their disposable tax is low and they don’t manage to pay such high GST tax.  As a result, the purchasing power will drop.

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          In my opinion, although the government has lowered the income tax, but the purchasing power of people does not raise much since other taxes are rising. Even though the government has given some aids such as BR1M aid, there are still many people in this country are poor and even bankrupt. Even for free gift and drink, Malaysians think that it is just a form of government return their money which they pay to government. Government should process the expansionary fiscal policy to boost the economy.  

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So, how you think about Malaysia tax? Is it reasonable for you? 

By Liew Hui Min 0315658

Lantern Festival

       Falling on the 15th day of the first lunar month, Lantern Festival is the first significant feast after Spring Festival, so called because the most important activity during the night of the event is watching various wonderful Chinese lanterns. For its rich and colourful activities, it is regarded as the most recreational among all the Chinese festivals and a day for appreciating the bright full moon, and family reunion.

      Today, when the festival comes, red lanterns can be seen in the street, in each house, and store. In the parks, lanterns of various shapes and types attract countless visitors. Visitors marvel that various lanterns so vividly demonstrate traditional Chinese folklore. Thus, the demand for lantern during the festival will increase drastically.

      In the term of economics, demand is the desire and ability to consume certain quantities of goods and services at certain prices at a particular point of time. We know that price of the good itself is the main factor affecting the quantity demanded. However, there is other factor such as festival that would affect the demand. All consumers are believed to be rational and they will respond to different circumstances by changing their behaviour.

      The factors other than price will cause the shift of the demand curve. As a result of the Lantern Festival, the quantity demanded for lantern and other decoration stuffs will increase and this causes the demand curve shift to the right. The graph below shows the shift of the demand curve. 

References:

1. http://www.theborneopost.com/2012/01/10/lanterns-decorative-items-in-demand-as-cny-approaches/

                                                                                                By Lee Jie Shi 0315696