Lack Supply Of Apple iPhone 5

My second case study is about the Apple iPhone 5 Supply Comes Up Short. This means Apple faces shortage in supplying their items. According to the article. Over exessive demands of the iPhone 5, Apple faces shortage. The current statistics indicate that the company is already facing shortfalls for the new iPhone 5, as demand continues to garner momentum. We recently saw one of the measures that Apple Inc. took, following the skyrocketing demand for the new iPhone 5. The company sought to postpone some deliveries to various countries, in a bid to deal with short-term shortfalls. While this was the most viable option at the time, it cannot be applied for the future, larger demand. This is why the company must ensure that the two major semiconductor components are available adequately. Apple Inc. stands at the middle of two constraints, shortage in supply of key device components, and an overwhelming demand for the device.
The factors that affect the demand of the iPhone 5 may be because of the taste and preferences of consumers. This is a less tangible item that still can have a big impact on demand. There are all kinds of things that can change one's tastes or preferences that cause people to want to buy more or less of a product. For example, clearly the iPhone 5 is now a trend where almost everyone is using. It is the most used smartphone in the world. Therefore, people would want to buy the iPhone because of the trend that is going on. On the other hand, the interesting applications and amazing software that they offer in this iPhone attracts the people to buy it. Furthermore, the consumers income is a factor in the demand of this item. As we can see, even though the price of an iPhone is quite expensive compared to other smartphones, people would still want to buy it because of certain reasons such as the performnce of the phone. With the price of the phone quite high, consumers still buy it expecially when their income is higher. Mostly consumrs with higher incomes would buy the iPhone as they can afford it. Hence, the income of a consumer is important in the factors of demand. The next factor is consumer’s expectation. it doesn't just matter what is currently going on - one's expectations for the future can also affect how much of a product one is willing and able to buy. For example, if you hear that Apple will soon introduce a new iPhone 5 that has more memory and longer battery life, consumers may decide to wait to buy an iPhone 5 until the new product comes out. When people decide to wait, they are decreasing the current demand for iPhones because of what they expect to happen in the future.
The factors of supply of the iPhone 5 may be the price of inputs. In addition to the price of the product being the main factor as stated  in the Law of Supply, the price of production inputs also plays a part. The lowest price at which a firm can sell a good without losing money is the amount of money that it costs to produce it. Producing a good or service involves taking inputs and applying a process to them to produce an output. The output is the finished good or service, and inputs are raw materials, labor, utilities, liscensing fees, or even other goods. These inputs are also known as factors of production. If the price of inputs goes up, the cost of producing the good increases. And therefore at each price producers need to sell their good for more money. So an increase in the price of inputs leads to a decrease in supply. Simarly, a decrease in the price of inputs leads to an increase in supply. Other than that, the current state of a production technology. Production of a good involves taking inputs, applying a process to them, and producing an output. Well, production technology is involved in the process part. Increases in the level of production technology can make that process more efficient.
To study the interaction of buyers and sellers in a market, economists put the demand curve and supply curve onto the same graph.

People now craving for smartphones. Most of the people now own a smartphone. 

For example, the demand and supply of Iphones (per week) at different selling prices:

What would happen if suppliers decide to sell the Iphones at $2400?

At the price of $2400, suppliers have produced 12000 units of Iphone but buyers are only willing to buy 2000 units and the expensive price tag discourages them.
In this instance, there is an oversupply of Iphones by 10000 units (12000 – 2000). To get rid of the oversupply, suppliers have to reduce the price of Iphones to entice buyers. So if they were to reduce the price down to $2000, the number of Iphones demanded would increase to 4000.

The reduction of the price to $2000 would also reduce the incentives (profit) for the suppliers, thus reducing the total units supplied to 9000. However, there is still an oversupply of 5000 units at this price level (9000 – 4000).

The remaining oversupply would prompt suppliers to further cut down the price.
At $1600, demands become even stronger i.e. 6000 units. And conversely, it further reduces the incentives of suppliers and thus cut down their production to 6000 units as well.
At this point, the quantity supplied matches the quantity demanded.

This is known as market equilibrium. It is the state at which the market is operating efficiently i.e. no surplus nor shortages. The price of $1600 is known as equilibrium price and the quantity of 6000 is known as equilibrium quantity.

What would have happened if Iphones were sold at $800?
At the cheap price of $800, buyers are happy to buy as much as 10000 units but suppliers are only willing to make 1000 units (the low profit potential discourages them from making more).

In this case, since not all the demand has been satisfied yet, the buyers will continue to compete against each other and offer suppliers higher price for the Iphone, to $1600. This higher price again prompts supplier to produce more (to 6000 units) and discourage some buyers from buying, thus reducing demand (also to 6000 units).

This means that, once again, the market has reached equilibrium.

In my opinion, Apple Inc. should reduce the price of the iPhone 5 so that more consumers can afford to buy the iPhone 5 but it also needs to meet the equilibrium point of the market to avoid shortage or surplus.
by:nazira

Will the Rising of Property Price Benefit the Citizens?

Saturday, April 14 2012 stated in the star news online property prices are rising tremendously in the big cities throughout the world, especially in the developing countries. Malaysia is one of the developing countries and the property prices in the cities like Kuala Lumpur, Penang and Johor Bahru are seen to be rising rapidly recently. Properties are segregated into residential, commercial and industrial. 

The main reason for the rise of the residential property price is that the human population is increasing and the land size remains the same. Property is a basic human necessity when you call it shelter and every society aspires for a minimum standard of comfort. But it is more than shelter – it’s a lifestyle, it’s luxury, and it caters to the rich, the poor, the middle class and the working class. Therefore the demand is always increasing. When the demand is higher than the supply, the price will increase. The rise in the price for commercial and industrial building is due to more and more commercial and industrial building are in demand as the country moves towards the direction of a develop country. Allowing foreign buyers is also one of the factors to this issue because they speculate the market price and want to make profit by selling and purchasing properties. This will cause the property price to shoot up. 

The rise in property prices is a hot topic among the Malaysia’s citizen as it brings both advantages and disadvantages to the individual and business operated in Malaysia. For the individual that have already own a property or more, this rise in property prices will benefit the individual because he/she is making profit from the property investment. Individuals that are investing in properties will make a large profit out of this provided there is demand. Whereas, for an individual that have not own any property yet, it will increase the burden of the individual because the increase in salary will not be able to catch up with the rise of the living cost in the cities. Singapore is a good example in this scenario. Because there is such a lot of foreign demand for houses from foreigners, most Singaporeans are stuck to their Housing Development Board flats with no chance of moving higher up in more ways than one. Lastly, this will also caused individuals to declare bankruptcy when they fail to return the bank loan to purchase the property.

The rising property price will definitely benefit the developers. This is because the houses or building built can be sold at higher prices and the developers will make a larger profit out of it. The rising property price will also benefit the property agencies because it shows a higher demand in properties. In this case, the business in the construction line will also gain benefits out from it as more properties are being constructed. On the other hand, the rising properties will bring disadvantages to those business that rent a shop house / office building to operate. This is because the rise in property price will definitely increase the rental. Therefore, it is expensive to rent a shop house / office building in the city centre. The owner of the business will have to terminate the business if the revenue is not able to cover the cost. To sustain the business, the owner often increase the price of the service or goods provided and this is the reason why living cost in the city is much higher than in the outskirt area.

Property is a strange thing. As much as it can keep the economy going and get prosperity levels up and up, it can send them all crashing down at other times. As much as property developers and banks contribute to societal well-being, they can just as well destroy it. Thus, the price of the properties should be monitored as well as the demand. If the property market spectaculars outnumbered the people who actually want to stay there, the property market will crash. We definitely do not want this to happen. We should be looking forward for rising of property prices reflecting underlying economic trends. Property prices should increase along with the real demand for them, which means actual people staying in them and paying for them or the rental for the properties. The recent drop in property prices around the Petronas twin towers area should be an example and we should learn from it. When property prices rise because of hype and speculation without real people to occupy them; it’s a matter of time that the price will fall. As economic prosperity increases and everyone becomes richer, property prices will increase by themselves and keep in pace with the overall increase in incomes. In this case, even property prices increase, they will still remain affordable. This is the scenario that we should be looking forward for.

As years goes by, houses in the city area in Malaysia will be harder to afford. So what happens if more people are not capable of affording a house? The living standard of the people will drop if they cannot afford the cost of living. Therefore, our government should take necessary actions and precautions to deal with this issue. The government can make it harder for the property market spectaculars to boost the price by changing the requirement to apply for a housing / property loan. Lastly, we should not allow foreign buyers to buy the residential properties. Only commercial and industrial properties should be sold to foreigners as it benefit the countries growth. This is because Malaysia is our home and our land, and there will always be only this much of land. We, Malaysians are suppose to be the one staying in our land and not get our property prices manipulated by the foreigners. Actions should be taken now to make sure that our future generation will have a home to stay.

Posted by, Calista Yee Pui Ching

Sugar Price Increase, Good or Bad?

On September 29, 2012 stated in the star news online the government had decided to reduce the subsidiary on sugar by 20cents in Malaysia’s budget 2013 tabled by Prime Minister Datuk Seri Najib Tun Tazak. It is said that the increase was caused by factors such as, natural disasters in producing countries that cause the decreases in supply and also global market price.

Our prime minister is hoping that the business community will not take advantage of the increment and burden the people by increasing the price of sugar but reduce the content of sugar instead. It is said that this could be a positive change since lifestyle related disease are mostly caused by excessive sugar consumptions, such as diabetes and obesity. On the other hand, Wan Ahmad said they could now act if businesses trying to manipulate the prices in order to get more profit charging unreasonable price. With enough evidence, their enforcement officers will take necessary actions against those who try to hijack the price of sugar.

As it stated, there is a big amount of positive comments on this change by the governments and it is said that it benefit Malaysians lifestyle instead. Helping to decrease the ratio of diabetic people. But again, what if consumers are willing to spend more instead of cutting down? As said, the demand will change due to changes in the market, it is hard to cut down on basic food product but people may reduce on consumption of luxuries and branded ones. Besides, as a consumer myself, we know it well enough how this increment will be the domino effect of price increment in all kind of food and drinks. For example, mamak will increase their teh tarik price by at least 20cents and even if you requested for less sugar, kurang manis. Same goes to the price of bread, desserts and everything that contain sugar. In this economy, no one will be willing to do loss business; it is always to maximize profit for their own living. And what is there to blame when the government is the one who increased the price. Some say, this small change will not make a huge difference to our cost of living as it is estimated sugar price will only cost about rm80 per month in a household. But what happens to the poor where they have to budget for every thing they buy, they consume. More or less it will affect the lower class level and caused them on a tight budget buying less of sugar. Hereby, price elasticity appear as the demand is affected by the changes of the price. And at the end of the day, we still need to pay tax and pay more for what we eat and having less disposable income.

There are different types of example for the demand of sugar, in the case of people that are having low sugar level; they will value the product highly. These consumers will buy the quantity that they will need even if the price is increased. But since they already capable to have what they need and the correct amount they will not buy any much more even if the price is lowered. In contrast, people that are having high sugar level will buy the same amount of sugar that they usually consume no matter the price increase or decrease. But certain consumers are very price sensitive, they will tend to buy whatever is cheapest.

For businesses, there will be good and there will be bad. Of course the profit they will be making is a positive change, they can be having a pack of 1kg sugar price increase by 20cents and the amount of sugar in a cup of milo increased by 20cents as well. But is this even fair to the consumers? Government said it is not right if you increase the price of a milo ais from rm1 to rm1.30 and you could be fined, but again which means that a maximum of increment of 20cents is acceptable. Now that mentioned, the amount is not reasonable to be measured at all.  Moreover what happen to those that choose to stay with the price that have been set earlier and decided to reduce the content of sugar instead? Come to think of it, it is bad business. This will affect the quality of whatever they are serving due to the necessity of what the food may need. And this will lead to customers unsatisfactory causing a loss in business. People will stop going for the usual and they will have to search for a better option or perhaps to substitute sugar with other products. For example, even with no change in sugar price, if there will be an abundant growth of corn, the demand for sugar will decline. As corn syrup can be substitute for sugar as sweetener. And when the demand decreases, the demand curve will shift leftwards and it goes otherwise.

The changes in sugar affect in many ways, either good or bad is depending of how you see it. For some, the demand of sugar may decrease as it is good in a way to start looking up of one’s health, as there is already a lot of pollution in the consumption of food and beverages nowadays. But as for my own opinion, even with the change the demand for sugar will not decrease if the reason given is for their own good with less sugar consumptions as truth is Malaysians have been neglecting their health for quite a long time. Also, the demand will not increase further since the price has gone up now.

Posted by Calista Yee Pui Ching

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

Launching of iPhone 5

       Based on the article found in the internet with the title “iphone 5 UK price announced and big price cut for iPhone 4” written by Natasha Lomas on 13^th September 2012 at 8.23am, iPhone 5 is finally released and big price cut for iPhone 4. Apple company had modify the model of iPhone. Now, they  were launching the new model of iphone which is iphone 5 which the features in it had already improved. It has a better camera, with higher megapixels so that the photos capture by it is better and it has a better appearance.

iPhone 5 model starts with £529 in UK for 16 GB,32GB with £699. Apple company also cut down the price for iPhone 4, 4s and also 3Gs. Why is Apple company doing so? When iPhone 5 is released in the market, people will go for iPhone 5 and demand for older model for other iPhones will be decreasing. Although the demand for older model of iPhones are decreasing, still there’s plenty of supply of old models iPhone in the market. If the price is same as the iPhone 5 , then consumers would rather buy the iPhone 5 since there’s better functions in it. Therefore, Apple company to make sure the supply of the old model of iPhone would be sold off, they will be lowering the price.

 When iPhone 5 is released , the demand curve for older models iPhone will shift to the left , quantity of demand will be decreasing. So Apple company will lower the price to meet the new equilibrium of the price. If the firm doesn’t set a new equilibrium, there may be a oversupply of old models iPhone in the market. If there’s  a oversupply in the market, Apple company will face losses because the cost of producing iPhone is not earned back.

But, why the company lower down the price of older model of iPhones, the company will gain revenue and not facing losses? Based on law of demand, price increases, quantity demanded of the product will fall. When the price is lower down, the quantity demanded will increase. Total revenue is calculated with the formula price multiply with quantity. TR=PQ . When price is increasing , quantity demanded decrease, total revenue will also decrease whereas when price falls, quantity demanded increases more than the percentage of price falls , total revenue will increase. The area A represent the total revenue when the price is high, when the price is lower down , the revenue increases ( represent by the area  B) . When price is  £300 , TR is £6000 , when price is  £250, TR is £12500.

Demand elasticities is more elastic than iphone 5 since now everone is demanding for iphone 5. When the demand elasticity is higher, price is lowered down, total revenue will be a big increase.

Based on the given graph, elastic demand gained more revenue when we decrease the price. So, when Apple company decrease the price of older model iphones will definitely wont face any losses but they will be gaining more total revenue.

When  Apple company launched iPhone 5, the stock is finishing very fast. Why is this so? Supposingly , Apple company knew that their product is very demanding in the market. Macbook, iPod, iPad and also iphone is a new  trend in the market. Why not they just launched the number of iphone 5 which the market demanded? Firstly, the company doesn’t want to take risk what if people are changing their taste towards other products, demand for iphone 5 will then drop tremendously, iphone 5 will be oversupplied in the market. The company will then face big losses. Secondly, when the demand is increasing in the market and the supply for it is limited. Therefore, there’ll be a shortage in the market. Therefore, what the entire company will do is they will increase price of their iphone 5 to achieve  new equilibrium price to earn more total revenue.

Why is the firm was so confident to increase the price when the demand of the product is increasing as according to law of demand , price increase, quantity will decrease? Demand elasticity for iphone 5 is inelastic. Why do we say that it’s inelastic? Demand for iphone 5 is influenced by advertisement and friends beside us. A lot of us often wanted to have what our friend has or follow the style of the artist we admire. Iphone 5 is now a trend in the market. Everyone has iphone 5 since it’s so convenient. We can surf net everywhere we want , take pictures , listening to music. Therefore, in my opinion, owning an iphone is already considered as something like a necessities. Demand elasticities for it is more inelastic than a luxuries. Since it is inelastic good, even the company increase the price, the quantity demanded will only drop by a little, total revenue for the company will only be affected by a little. The risk for the company to face losses is very low.If the good itself is elastic, the company might not want to take the risk to increase the price.

When iphone 5 is launched, the demand is so high. The Apple company also produce a lot of iphone accessories for iphone 5. As we all know, iphone 5 size is bigger than iphone 4 and 4s. therefore, people who change from Iphone 4 to iphone 5 definitely need a phone cover. Cross elasticity of demand for iphone 5 and iphone cover is negative figure which they are complement to each other. When demand for iphone 5 increases, demand for iphone cover will also increase. Especially teenagers nowadays, they have a habit to change their iphone covers from time to time. A person may need plenty of ‘clothings’ for their iphones.

Since iphone 5 camera is almost the same function as a normal camera, consumers who is not professional for photography may as well just use the iphone camera. If a camera costs £500 wheareas an iphone 5 costs £600, non professional photographers would rather choose by buying an iphone 5 because it is much more convenient , it’s all in one: making phone calls, surf net, editing pics and also listening music. 8Megapixels camera is sufficient for them as they may just upload it on facebook and doesn’t want to print it out. Even they wanted to print it out the resolutions for the picture can also be good.  Therefore they gives off camera as an opportunity cost. Opportunity cost is second best choice consumers sacrifice in order to have the first choice. Since most consumer will choose iphone 5 rather than camera. The demand for camera will drop, demand curve will shift to the left, price for the camera will drop to have a new equilibrium price in the market. This is to ensure there isn’t oversupply of camera in the market.      

Figure 1.7: Demand for camera

Lastly, I would say that lauching of iphone 5 not only affects the demand for iphone 4 and 4s, cause the price for older models of iphone to decrease but also other products such as camera. Iphone accessories demand may increase in this case.Apple company may make discounts for old models of iphones to ensure the supply of it in the market not to be oversupply.

by:tee mei cheng

Budget plan

According to The Star newspaper, 29^th of September 2012 front page with the title “for our well-being” was discussing about the Budget 2013. Why do government come out with budget plan every year? Why did they set budget? In microeconomics, budget is actually a important component. It provides a forecast of revenues and expenditures. It also control the resourses we used. It involves trade offs between two or more goods. Budget 2013 is set by the government and being passed to the legislature department and finally getting the approval from the president. Budget 2013 proposes benefits for the well being of all strata of society, covering various sectors and pople of different age groups. The Government states that nobody is left out in Budget 2013. In my opinion, budget 2013 brings the economy of the country to a higher level. I am going to write some of my opinions in terms of microeconomics which is being affected by this budget 2013 programme.

Firstly, according to budget 2013, the government is raising the individual income limit for personal loan under My First Home scheme from RM3000 to RM5000 which means individuals whose income is RM5000 and below would be able to apply for the housing loan. As we all know, the price for houses is increasing year by year because the rich often buy houses for investment purpose. The demand for houses is increasing causing the demand curve to shift to the right. When demand curve shift to the right, new equilibrium price is set as shown as graph below:

Although the price of houses keep increasing but still income of the individual do not increase as fast as the housing price. Many of them cant afford to own a house ended up with renting houses for their accommodation. Before the government raise the income limit for applying loans, quantity demanded for the houses is very low for the low income group individuals as price is too high for them to buy. Therefore, government introduce this scheme and now increase the income limit for applying loans. This is to help the low income group people to own a house. The graph below is to show the demand of low income group from owning a house:

Figure 2.2: The demand curve is shifting to the right, demand for houses for the low income group increases.

Other than that , for those who is buying their first residential, they still able to have 50% stampduty exemption which  means cost of buying a residential is lower down. Quantity of housing demand will be increasing as the cost is lowered down based on law of demand. This scheme enables lots of graduates who just got their first job to get their own residential. In my opinion, government should also set a maximum price for the residential because no point giving these subsidies if the demand continue to increase the price will increase also. Maximum price will stabilized the market price of the houses so that everyone is affordable. Maximum price is the price fixed below the equilibrium price in attempts to stop price from rising to an unacceptable level.

Before that, government subsidizing sugar by a higher price. Subsidies is government’s financial grant to lower the cost of production. When the government  introduce subsidies for the sugar, cost of production of  sugar is low, the supply of sugar will increase, supply curve shift to the right.For example, initially cost of production of sugar is RM5. When government gives subsidy for RM1.20 the cost of production of sugar is reduced to RM3.80.When the cost is reduced, producers will produce more sugar, supply curve shift to the right , equilibrium price will be lower down as shown as graph below:   
         

 Unfortunately government reduced the subsidies by 20 cents. From the graph shown below, when the government reduce the subsidy, cost of production increase, supply curve shift slightly to the left as production of sugar will be costly. The producers will reduce the supply then. Consumers will have to pay more when the subsidies is removed 20 cents. When price increases, quantity demanded is decreasing.

Consumer surplus is calculated based on the area of the triangle below the demand curve. Consumer surplus means difference between the willingness consumer want to pay for a product and amount that the consumer actually pays. For example, consumers willing to pay RM8 for the sugar but the equilibrium price is ony RM3.80 after subsidies. The difference of RM 4.20 which the consumer did not pay is called as consumer surplus. From the graph, it is shown that when subsidies is removed by 20 cents, the consumer surplus is being reduced as shaded in the graph. 

 Figure 2.5

The government  also give RM200 one-off rebate for one 3G smartphone for those aged 21 to 30 with RM3000  and below monthly income. The price of the smartphone was initially RM1500 for example. Government gives RM200 off for smartphone which means price of a smartphone will be only RM1300 for those aged 21 to 30 . When price decrease, quantity demanded will be increasing according to law of demand.

     As the government giving discounts for smartphone, the demand for normal mobile phones will decrease, demand for normal mobile phones will shift to left. The company of normal mobile phone will lower down the price to create a new equilibrium price to prevent oversupply of mobile phones in the market. The demand curve of a mobile phone shift to the left is due to the substitution effect of the smartphone which have the better function than mobile phones and also consumers will be getting RM200 rebates from the government.    

 Figure 2.7

Individual income tax rate to be reduced by  1% for chargeable income for each group between RM2500 and Rm50000. When the income tax rate is reduced by 1%, savings from the income will be more. 1% may not be much but still will affects the demand of some of the goods and services. Demand for overall goods and services will be increasing, shifting the demand curve to the right, spending in the country increases.         

For those goods and services which is necessities, income elasticities for it will be equals to one. For necessities,income  tax is reduced by 1% means income increases by 1%. When income increases by 1%, unitary elasticities of income goods will be also increase by 1%. Other than that, people may also spend some of their income on luxuries  goods. Thus, demand curve for luxury goods will shift to the right.

Before the income tax is reduced, people may tend to have their meals at home because homecooked food is cheaper compared to dining in a restaurant. Some of the restaurant may also charge us tax so eating at home is definitely cheaper. When income tax i lowered by 1%, we may tend to go to dine in a restaurant. Demand for dining in a restaurant will be increasing shifting the demand curve to the right. Leisure activities may also increases as in watching movie in a cinema , karaoke with friends in the karaoke centre. Demand for leisure activities will be also shifting to right.

In a conclusion, government brings out the budget 2013 benefit more on the moderate or poor family. It doesn’t brings much effect for the rich ones.

by: tee mei cheng