Sugar shortage faced by malaysian consumer and retailers

My first case study is about Malaysian consumers and retailers suffer sugar shortage. When a demand of products and services exceeds the supply, a shortage occurs. One of the possible causes where shortage occurs is miscalculation of demand by a company producing a good or service. A government-imposed price ceiling can create a shortage. an artificially high number of people may decide to purchase an item is the price is artificially low because when the government does not allow the free market to dictate the price of an item based on its supply/demand.

Based on the article “Malaysian Consumer and Retailers Suffer Sugar Shortage” in The Star newspaper, there was a severe sugar shortage in Malaysia. It said that a check at several grocery shops has revealed that no sugar had been on sale for over a week. In my opinion, when there is not enough supply for goods, the demand of goods increases. When a demand increases, it brought about by a dependent variable other than price, causing the demand curve to shift to the right. In this case, suppliers smuggled sugar to other countries as research has been made. There are plenty of reasons as to why economic problems occur. For instance, the price of good is cheap which causes the quantity of the good demanded increases. Therefore, suppliers do not want to continue to supply to retailers to prevent from profit loss. When the price of a certain good is cheap or very low, supliers do not receive any profit. Hence, they stop supplying. Other reasons, such as higher taxes would probably cause producers to reequire higher prices for their products and may even reduce their ability to produce as much. In general, anything that reduces the ability of producers to produce the product and/or increases their production costs will reduce the supply of the product, and shift the supply curve to the left and upwards. Example of the supply and deman curve:

Suppose the sellers lowered their prices below the equilibrium point. In this case, the quanitity demanded would increases beyond what was supplied, and there would be a shortage. If the price is held at RM2, the quantinty supplied then would be :

Quantity Supplied = 28 units
Quantity Demanded = 38 units

Therefore, there would be shortage of 38-28=10. The sellers then would then increase their prices to earn more money.

The factors that affect the supply may be price of resources. The price of resources can affect the cost of production. a higher resource price increases production cost, which in turn, reduces the profit of a product and vice versa. In other words, a higher resources price would reduces the firm’s incentive to produce more and vice versa. Another factor is expectation. Changes in the expectation abput the future price of a product will affect its supply. For example, if the supplier expects the future price increases, they will try to produce more now and sell on the future and it causes shortage. Or if the producers belive that price of sugar will decrease in the future, there will increase the production and attempt to sell more now to maximize their profits before the price falls.

In the case of government intervention in the market, there is always a trade-off, with positive and negative effects. For example, a price ceiling may cause a shortage, but it will also enable a certain portion of the population to purchase a product that they couldn't afford at market costs. Economic shortages are generally seen as higher transactions and opportunity costs also mean that the distribution process is wasteful. Both of these factors contribute to a decrease in aggregate wealth. The effects of a shortage could create the existence of the black market. Black markets is and illegal markets in which products that are unavailable in conventional markets are sold, or in which products with excess demand are sold at higher prices than in the conventional market. Other than that, it causes artificial controls on demand such as rationing. Price discrimination could also occur and the innability to purchase a product.

To overcome shortage, the government needs to set a price ceiling. A price ceiling sets the maximum legal price a seller may charge for a product or service. If left to its own, the market prices of goods will soar. To prevent the price of goods from skyrocketing, government impose a price ceiling on those items. Since the price ceiling is set below the market equlibrium price, a perpetual shortage of supply occurs. This shrtage will be corrected only when the price ceiling is removed. The consequences of this constant state of shortage would force the government to ration the procut. This means that the government must ensure that everybody is allocated the same amount of goods and services. However, some buyers need more of the goods than others and therefore is willing to pay a higher price to obtain those goods. Sellers, on the other hand, are also interested in selling the goods at a higher price. These buyers and sellers would meet anf the goods would be bought/sold at a price higer than the price ceiling. This is known as a black market. A black market would, in effect, overcome the governments efforts to push down the price of the goods and services in question.

Overall, the conclusion is, the market should meet the equilibrium point of demand and supplt to avoid shortage and surplus.
 
by :nazira