Microeconomic Terms and Graph

Topics: Supply and demand, Economic surplus, Microeconomics Pages: 6 (1674 words) Published: May 3, 2013
Details| Page number|
1.0 Article Summary| 3|
2.0 Introduction| 3|
3.0 Analysis| |
3.1 Demand and Supply| 4-6|
3.2 Substitute| 6|
3.3 Shortage| 7|
3.4 Elasticity| 8-9|
3.5 Price ceiling| 10|
3.6 Consumer and producer surplus| 11-13|
3.7 Tax| 13-14|
4.0 Conclusion| 15|
References| 16-17|
| |

1.0 Article Summary
The article “Consumers complain cooking oil sold at higher than fixed price” which was published on November 27, 2012 talks about the consumers concerns on the market price of the cooking oil sold.

2.0 Introduction
Consumers noticed that a 5kg bottle of premium brand cooking oil priced at RM16.90 which was above the recommended ceiling price of RM16.15 for east Malaysia. This had prompted them to alert the Ministry of Domestic Trade, Cooperative (MDTCC).

This report will deeply observe, analyze and apply the models and theories into the case study, based on the following concepts, demand and supply, substitutes, shortage, elasticity, price ceiling, consumer and producer surplus and tax.

3.0 Analysis
3.1Demand and Supply

Demand refers to the quantity of a good or service that buyers are willing to buy, while supply refers to the total quantity of a good or service produced to be offered (Johnson, 2012).
Increase in the price of 5kg bottle of premium brand cooking oil which is priced at RM16.90 has raised the consumers concern, especially when the price has exceeded the recommended price ceiling of RM16.15, and meanwhile, 1kg bottled cooking oil was sold at RM4.20 instead of the usual price of RM4.00 (rounded to 2 decimal place), and thus alerted the Ministry of Domestic Trade, cooperatives and Consumerism (MDTCC) (Boon, 2012).

This has drawn to the perception that due to the increment price in the cooking oil, the quantity demanded has decreased. Thus, there will be changes in the movement along the curve.

The equilibrium market price is at RM4.00 while the equilibrium market quantity demanded is at 95. When the price increases to RM4.20, the quantity demanded will move from 95 to 90, where the quantity demanded has decreased.
“Malaysian Palm Oil Board (MPOB) has increased supply of cooking oil to suppliers and wholesalers nationwide by 20 per cent for the fasting month and coming Hari Raya Aidilfitri celebrations” (Bernama, 2011). Especially during the festive season, suppliers will supply more than ample cooking oil to the consumers to avoid shortages. Quoted by Ismail Sabri Yaakob, “We hope this 20 per cent increase in supply will ensure there are no problems in obtaining cooking oil during the festive season” (Bernama, 2011). Thus, suppliers will supply more during the festive season. Supply curve will shift to right.

When the price increases from RM4.00 to RM4.20, the quantity supplied will increase from 95 to 120 due to the expectation of the future price.

New equilibrium price of RM3.80 and equilibrium quantity of 105 is produced when both demand and supply models are combined.

3.2 Substitute
Unlike the broader specific brand like Neptune, Red Eagle and more, the cooking oil itself has no substitute, thus there would be no other alternatives recommended as other exceptions might be even more costly and consumers might somehow feel that it’s pointless to adapt them.

3.3 Shortage
Shortage is the situation at which the demand of the good or services has exceed the supply availability (Investopedia, 2013).
Consumers are well awared of cooking oil shortage especially during festive season. Quoted by Fomca CEO Datuk Paul Seva Raj, “The Government should come up with arrangements and careful planning to ensure so that there is enough supply to commensurate with the market demands”(Yuen, 2011).

The reason shortage occurs is due to the exceed of quantity demanded over the quantity supplied when price control (price ceiling) has imposed on the cooking oil.

When the price ceiling...

References: Bernama, 2011. Cooking oil supplied increased for festive season.
(Accessed 27 January, 2013)
Boon, Peter
(Accessed 20 January, 2013)
Investopedia. 2013. Shortage.
Johnson, Matt. 2013. Economic Basics: Supply and Demand.
Riley, George. 2012. Consumer and producer surplus.
(Accessed 26 January, 2013)
Yuen, MeiKeng. 2011. Tackle Oil Shortage, Govt Urg.
(Accessed 26 January, 2013)
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