Microeconomics is the study of how individuals, household, and firms make decision to produce efficiently with scarce resources. Microeconomics study the choices that people make, the factor that influence the choice and how their choices affect the goods market in the price, supply and demand.
i.Shift in supply and demand
In September 2017, the supply of butter was decrease and the price in market had increase 50% due to the shortage of New Zealand butter. The shortage of butter is due to the drop of milk production. The shortage of butter in market had shift the demand curve in graph shown at below.
According to the home baker Arvin Reuben, the butter that he used for his bakery was out of stock. He had buy it for more expensive than normal price as the price of butter was increase from RM8.90 to RM12.90. He also said that the order that he receive everyday can’t use the other ingredient to replace the butter.
As the conclusion, the quantity of supply had affect the demand and the market price. It will also affect the profit earned by the bakeries as they have to use the butter to make the butter cake and they are lack of this main ingredient. They will have to increase their cost and will decrease the profit earned compared to lower cost used.
ii. Price ceiling and price floor
Price ceiling of palm oil
Palm oil production is vital for the economy of Malaysia, which is the world’s second largest producer of the commodity after Indonesia. In the early 1960s, palm oil cultivation increased significantly under the government diversification program to reduce Malaysia’s dependency on rubber and tin. Palm oil trees were introduced to British Malaya by the British government in early 1870s as ornament planets from West Africa. Malaysia become the world’s largest palm oil exporter. Malaysia currently accounts for 39% of world palm oil production and 44% world exports. It taken into account of other oil and fats produced in the country, Malaysia accounts for 12% and 27% of the world’s total production and exports, oils and fats. Malaysia has an important role to play in fulfilling the growing global need for oils and fats. Palm oil are among the world’s most versatile raw material their functional product properties remain one the main drivers behind the rise in demand for palm oil since 1980s. Palm oil uses widely varied because they can processed and blended to produce a vast range of products with different characteristics .The below ingredient names are found on the packaging of 50% of products stocked on most supermarket shelves, being palm oil.
Price ceiling are maximum prices set by the government for particular goods and series that they believe are being sold at too high of a price and thus consumers need some help purchasing them. Price ceiling only become a problem when they are set above the market equilibrium price. When the price, there will be excess demand or supply shortage. Palm oil does not produce as much at the lower price, while customers will demand more because the goods are cheaper. The government is looking to sell with higher price, when palm oil producing costs are increasing. Government want to sell with higher prices, customers cannot buy with higher prises. So, Government regarded standard price. Highest standard price was up 1.5 percent at 2284 Ringgit ($570.86) per tonne. Palm oil track the performance of other edible oils, as they complete for a share of the global vegetable oil market.
Price ceiling occurs when the prices of Palm oil is natural too high. So, the government will take actions to protect the benefit of customers and trades. Price ceiling will set below equilibrium point. When the government imposed price ceiling will shortage. The quantity supply is low and quantity demand is high when price ceiling imposed.
Price Floor of Wine
According to The Straits Times ,it has wrote about Australia government is plan to increase the price of alcohol .The objective of this plan is to reduce the proportion of teenagers who are heavy drinking .This plan would prevent the cost of alcoholic drinks from dropping price .The most popular drinks in Australia will be wine , beer and sparkling wine . The price will be expect like a cask of wine will increase from $10 to $45, a slab of beer will increase from $47 to $50 and sparkling wine will be from $7 up to $10 .This plan also banning promotion of discount or low price alcohol example like buy two free one or one bucket will be more offer price. The report also said that, after increase the price of alcohol ,has reduce the quantity of teenager who are heavy drinking .
Price floor of wine
Australia government want to reduce the proportion of teenager who are heavy drinking ,so he decide to set price floor on alcoholic drinks .At equilibrium price $10 , the teenagers are effort to buy , to be reduce the underage government decide to increase the price of alcoholic drinks . Take wine as example ,government has increase the price of wine from about $10 to $45. As shown in the graph , in $45 ,surplus is released .Supply of wine is increase and the demand of wine is decrease .It is because the price of wine is too high for the teenagers and also the adult . It means the plan is successfully work . The demand of wine has decrease . The amount of heavy drinkers and teenagers are decrease .
As the conclusion , the price of one object rise or down can be affect the demand of the object .As you can see the example we have given , the price of wine has increase from $10 to $45 the demand of wine has been decrease . It will release surplus . The government also has achieve the objective of the plan to reduce the underage drinkers . In this plan ,only government has get benefit but the seller not . Although the price is high but earn less because they still need to pay the taxes . Besides that , the demand of alcoholic drinks has been decreased it will be more difficult for the sellers sold the alcoholic drinks . Another point is the stock of some alcoholic drinks cannot last longer ,this will made the sellers loss money . In my opinion , I think government has to lowest the taxes of alcoholic drinks and this will be more better .
iii. Price of elasticity of demand
Price elastic of McDonald’s in Malaysia
Price elastic is a change in the quantity demanded or purchased of a product in relation to its price change. It is sensitivity of one variable to changes in another variable. McDonald’s considered as elastic demand. The target customer of McDonald’s is working group and teenager. Teenager and working group most will buy their lunch as fast food like McDonald’s or KFC. For Example, McDonald’s will release their set lunch on 12pm to 3pm. When they release their set lunch they will lower their price so that their customer will feel have discount and want to eat their lunch there. But if the price of McDonald’s increases customer will take many time to think about how worth is the price and the level of satisfaction. When McDonald’s lower the price demand will increase more but opposite the demand will decrease when the price of McDonald’s increase.
When the demand is elastic, this type of discount and lower the price will not deficiency instead is earning money. The change in quantity demanded have a bigger effect on total consumer expense than the change in price. When the price of set lunch of the Mc Chicken burger decrease from RM9.35 to RM 5.95 at lunch time, the quantity demanded will increase from 20 to 80.
Income elasticity of demand mean the responsiveness of the quantity demand for a good service to a change in the income of the person. The higher income the person got the more normal good example they will buy luxury car. The food served in McDonald’s is inferior good so if the person got a higher income he will choose another health food to eat not a fast food. Next if the person got higher income he maybe buys the burger at Carl’s Junior, which sell at higher price. Therefore, McDonald’s has a negative income elasticity.
For the price of goods, if McDonald’s increase their price of product, the demand will also decrease because the customer will buy the thing cheaper alternative to replace it. If the price decrease, the demand of McDonald’s will become higher because all the customer is shrewd they will choose the thing that price low. Also the reason of income, the demand of the product is inelastic when the income increase. Because the ability and income of customer to purchase the product that same or even increases because of their income increase. When their income decrease, the demand of product will become elastic. McDonald’s fidelity customers might change to a cheaper alternative such as Burger King because they have lose their buying power at McDonald’s when their income fell.
At the conclusion, McDonald’s company is well to understanding their customer need and want so they lower the price at lunch time to attract their customer to buy their set lunch. McDonald’s company also well to understanding its position in the market. They will solve the problem nicely such as less people to buy their product so they lower the price. This is the reason why that McDonald’s company will stay strong and be the largest fast food restaurant chain, owns and franchises in the world.
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https://www.thestar.com.my/news/nation/2017/11/23/bakers-running-out-of-butter-weve-already-raised-prices-of-our-cakes/, The Star Online, (2017) Hemananthani Sivanandam
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