Thursday, 22 November 2012

Limits, Alternatives, and Choices

Human beings are born with unlimited wants. It’s only natural. Say for instance, if someone were to give you everything that you want for free, would you stop at receiving only an ice-cream? Or a packet of rice? Obviously no. We would all happily accept bungalows, Ferraris, Lamborghinis, Mercedes, Gucci, Prada, Louis Vuitton, iPods, iPhones and whatever that is available, you name it. Come on, let’s get back to reality, nobody is going to offer you all those things for free. The unlimited wants that we have will be cut short by our limited income.

Our limited income is also known as scarcity, scarcity of resources and in this case, money. (McConnell et al., 2012) Scarcity makes it a must for us to make choices out of all wants. It narrows down options and forces us to make choices. In order for us to get something, we have to sacrifice another item. The next best thing that we forgo is called opportunity cost. For example, as a child, we are given RM 2.00 to buy any snacks. There is a packet of sweets and a packet of chewing gums which cost RM 2.00. If we were to choose the packet of sweets, the opportunity cost would be the packet of chewing gums, vice versa.

In economics, it is assumed that purposeful behavior is practiced. It reflects rational self-interest. Each and every one of us looks for good or services which can increase their utility. Utility is the pleasure, satisfaction or happiness acquired from using any goods or services. (McConnell et al., 2012) One’s behavior has no right or wrong. For instance, Ali can give RM 50 to a beggar by the street, while Abu would have use the RM 50 to spend on his child. Both of them are not wrong by the view of economics.

Bibliography

McConnell, C.R., Brue, S.L. & Flynn, S.M., 2012. Economics Principles, Problems, and Policies. Global ed. New York: McGraw-Hill Irwin.

By Gog Dick Chun

Tuesday, 20 November 2012

Price Elasticity-Tobacco :Lau Wei Liam

As we all know, tobacco carry serious health effects to us. According to a study presented at the 14th World Conference on Tobacco or Health, theres one billion men and about 250 million women use tobacco every day around the world.(Arthur,2012)

Price elasticity of demand is the responsiveness of consumer to the price change of the product. The demand of tobacco can be said that is inelastic. (Connell,2012) This is because when increasing the price of tobacco results in smaller percentage change in quantity demanded. When peoples get addicted with tobacco, the price wouldn’t be an influence and the amount of tobacco products will remaining smokers consume.(Cancer,2012) Only a very small population of peoples will try to stop smoking so the elasticity can definitely be said that is inelastic.

Price elasticity of supply defined as how easily, how quickly producers can shift resources between alternative uses.(Connell,2012) The price elasticity of supply of tobacco is supposed to be more elastic. The supply is more sensitive to change in the price of tobacco. Assuming the pattern of demand for tobacco remains unchanged, the more the price rise in the market the producer will be willing to supply more. As a consequence, the rate at which the price of tobacco rises, rate of increase in supply will be more than that. The short run in microeconomic is a period of time too short to change plant capacity but long enough to use the fixed-sized plant more or less intensively. While the long run is a time period long enough for firms to adjust their plant size and for new firms to enter the industry.(Connell,2012) According to the data, the results indicate a short-run elasticity of +0.34 and a long run elasticity of +0.81. This suggest that tobacco farmers are highly unresponsive to price changes and the price elasticity of supply is a long run elasticity.

Works Cited:
Arthur A. Hawkins II  (n.d.). International Smoking Facts. Retrieved 11 20, 2012, from http://www.inforesearchlab.com/internationalsmokingfacts.chtml
McConnell, B. (18th edition). Economics. New York: McGraw-Hill Irwin.

Monday, 19 November 2012

Oligopoly-Coca cola & Pepsi


Oligopoly is defined as an industry in which there are a few firms. By a few it is meant that the number of firms should be sufficiently small for there to be conscious interdependence, with each firm aware that its future prospects depend not only on its own policies, but also those of its rivals. Firms in oligopoly can use either high-price strategy or low-price strategy to maximize their profit.  An industry is defined as a group of firms where the firms products are close substitutes for one another, that is have a high and positive cross elasticity of demand.


Coca cola and Pepsi are in an oligopoly market. They are selling the homogeneous product so they can control over price but they will consider their action when they would like to change the price of their goods. They usually change the price of their goods according to kinked demand curve. They are using cut-throat competition to attract more potential customer.

Normally, both of the firms will use low-price strategy at the same time to maximize the market profits. Especially when summer holidays arrive, both of the firms will use cut-throat price competition to increase their sales so as to increase their profit. Game theory is applied to be a market share. A game theory is a pricing policy and it helps a firm to enhance profit. There are high barriers to enter this market. Coca cola and Pepsi have signed a cartel contract. The two firms will become a cartel to avoid other firm to enter this market because it will decrease their economic profit. Cartel is a small number of firms acting together to limit cost, raise price and increase profit. Neither coca cola nor Pepsi exit from this market, another firm will become a monopoly. The soft drink price will become higher.

Nataraj Pangal., 2010. Price War Analysis – Coke Pepsi [online] available at: http://www.slideshare.net/natarajpangal/price-war-analysis-coke-pepsi
Cola Wars:Coca cola vs Pepsi [online] available at: http://cokevspepsi.net/

By Goh Chau Wei

Wednesday, 14 November 2012

Astro, a Monopoly- Jack Chan

Astro, a Monopoly
What is a Monopoly? Monopoly is a market structure of which a single firm producing a particular good and service. Just like Astro. Almost all Malaysian knows Astro. Astro provide direct broadcast satellite Pay TV service. (Anon., 2012)The service that Astro provide has no close substitutes. Monopoly always have the market power to control the price. As we can see, Astro keeps raising their price since then. (Sidhu, 2011)

Since Astro always increase their subscription price, why isn't there any new firm enter this industry? It is because Astro has the exclusive license from the government for 20 years which is until 2017. (Tan, 2012) Which is also means Astro hold the rights to offer satellite television broadcasting services in the country. This prevent any firm to provide similar service that Astro provide. Even more, Astro controls the market for pay TV equipment and accessories. (Anon., 2011) The other factor that prevent new firms to enter the industry is that large initial investment. New firms have to purchase satellite, broadcasting rights, marketing expenses and many more. For example, recently Astro has won the bid for broadcasting rights from English Premier League which is a famous football league in England. The bid is near RM1billion for three seasons of broadcasting rights. (Yeap, 2012) New firms will have to collect up to RM1billion just for broadcasting rights for English Premier League, what about other channels?  

Astro is also a natural monopoly.  A natural monopoly is an industry that single-firm production of that good or service is most efficient. It is more cost effective to have only one firm than having more than one firm to compete with one another. The disadvantages of Monopoly is high prices. Malaysian had been paying high price for TV subscriptions compared to other country. In India, there are firms that offer up to 155 channels for only RM9.17. In contrast, the cheapest package that Astro offered is only 50 channels but priced at RM64.61. (Anon., 2011)Besides that, monopoly is lack of incentive to innovate. Malaysians viewer knew that rain fade has been a problem for subscribers. In 2008, Astro was assuring their subscribers that the problem would be reduced by 30% after their migration of satellite from MEASAT 2 to MEASAT 3. (Anon., 2011)Being their subscribers myself, I couldn't see any improvement that Astro stated.

The advantages of monopoly is high profits. Astro enjoys revenue as high as RM3.2billion. (Sidhu, 2012)Astro also enjoy the benefits of economies of scale and other cost advantages. Astro's subscribers is as high as 3.1 million customers. (Sidhu, 2012)This makes Astro to have lower average cost in production.


Works Cited

Anon., 2011. Astro's monopoly has short-changed Malaysian TV viewers. [Online] Available at: http://www.consumer.org.my/index.php/development/private-sector/479-astros-monopoly-has-short-changed-malaysian-tv-viewers [Accessed 14 November 2012].
Anon., 2012. Astro.com.my. [Online] Available at: http://www.astro.com.my/portal/services-2 [Accessed 14 November 2012].
Sidhu, B.K., 2011. Astro To Increase Price. [Online] Available at: http://biz.thestar.com.my/news/story.asp?file=/2011/6/24/business/8963931&sec=business [Accessed 14 November 2012].
Sidhu, B.K., 2012. Astro's game plan. [Online] Available at: http://biz.thestar.com.my/news/story.asp?file=/2012/2/18/business/10754896&sec=business [Accessed 14 November 2012].
Tan, J., 2012. Astro To Continue To Evolve, Be Relevant To Investors. [Online] Available at: http://www.freemalaysiakini2.com/?p=52735 [Accessed 14 November 2012].
Yeap, C., 2012. Exclusive: Astro wins EPL broadcast rights possibly at about RM1b. [Online] Available at: http://www.theedgemalaysia.com/highlights/224974-exclusive-astro-wins-epl-broadcast-rights-possibly-at-about-rm1b.html [Accessed 14 November 2012].

Saturday, 3 November 2012

Price Theory : Demand and Supply



Price of Fuel

Fuel has already become a daily need for everyone especially for citizens of a well developed country. We as the fuel consumer watch the price continue to fluctuate throughout the year. Here the question rises, what cause the price of fuel to rise and fall ? 

Cost of Crude Oil
One of the major factor is the cost of crude oil in market. Crude oil is the primary raw material used to produce fuel. Crude oil prices have risen dramatically each year, which is caused by a strong global demand, a limited spare oil production capacity, and a continuing political instability in certain oil producing areas. According to Caltex, the price of crude oil contributes almost half  the price of a gallon of fuel. This means that the price of fuel rises as the cost of crude oil rises. During 2008 to 2009, weak economic conditions around the world lead to a fall in demand, which cause the prices to fall as well. As the economic recovers, demand rises but unrest in the Mideast and North Africa faces the combination of rising in demand and reduce in supply again push the price higher. (Caltex Worldwide, Chevron Corporation, 2012)

Global Demand
Global fuel consumption is expected to grow as the global economy rebounds.The world’s demand for fuel increased rapidly for several years and hit the peak at 86 million barrels per day in 2007. As the global economic weaken in year 2008 and 2009, the consumption had reduced to 85 million barrels per day at it's peak before the recovery in year 2010. The EIA, Energy Information Administration predict the growth to accelerate in the year 2012 hitting 88.8 million barrels per day and nearly 89.7 million barrels per day in 2013 and continue to rise, the total world consumption of marketed energy is expected to increase by 44% in the year 2030 than it was in year 2006. —As the economic rebounds, income level is higher, therefore even if the price of fuel is unchanged, the demand for fuel will be higher. As the demand increase, supply is insufficient. In this case, an increase in the Price occurs to eliminate the shortage by affecting the quantity demanded and quantity supplied until the original equilibrium is established. (American Petroleum Institute, 2012)

Global Supply-and-Demand Problems
The increasing of price for crude oil over the past few years is due to the continuous high demand for fuel from strong economically growing countries in Asia like China, India and other non-OECD countries. This is partly due to the fact that it takes time to develop new pipelines.The limitation of oil refineries resulted a reduction of spare oil production. This cause a shortage of supply when there is an excess in demand of fuel. Unstable political conditions of the Middle East which is the oil producing regions is one main factor of global concern.  (Demand Media, Inc., 2012)

Natural Disasters
In any market situation, supply and demand imbalances can affect prices in both the short and long term.
The temporary shut down of the of the oil refineries due to the Hurricane Katrina and Rita in 2005 cause a direct impact to the market situation as supply and demand were thrown off imbalance. This occurs as the short term demand for the oil refineries exceed the supply on hand and increase prices. When the largest oil refineries in US were shut down due to the Hurricane, the supply of gasoline and other refined oil products were reduced approximately 10% . To ease the demand, supplies were imported from other parts of the country to the Gulf of Mexico region. Imported products are always more costly compared to local production, and this is one of the factor that causes the price to rise as well. As a result, supply was affected but demand still remain the same level, this caused the price to rise sharply.  (Chevron Corporation, 2011)



Works Cited


American Petroleum Institute, 2012. What's Up With Gas Price. [Online] 
Available at: http://gaspricesexplained.org/#supply

[Accessed 14 11 2012].
Caltex Worldwide, Chevron Corporation, 2012. Caltex. [Online] 
Available at: http://www.caltex.com/za/resources/determining-fuel-prices/

[Accessed 14 11 2012].
Chevron Corporation, 2011. The Price of Fuel. [Online] 
Available at: http://www.thepriceoffuel.com/whataffectsfuelpricing/

[Accessed 14 11 2012].
Demand Media, Inc., 2012. e How. [Online] 
Available at: http://www.ehow.com/list_5956282_factors-affecting-fuel-prices.html

[Accessed 14 11 2012].