Effects of Price Changes in Customers

Effects of Price Changes in CustomersDemand and return are two really(prenominal) basic and grievous terms in economics to study and determine the securities industry counterweight. A trade is the process of procureers and sellers exchanging reliables and work. Buyers, as a group, determine the hold fount of the marketplace, whether it is consumers buy undecomposeds or firms purchasing inputs. On the opposite hand, sellers, as a group, determine the supply side of the market, whether it is firms marketing their goods or resource owners selling their inputs. It is the interaction of buyers and sellers that determines market bells and output through the forces of supply and demand.Demand manifestly means the ability and pass oningness of consumer to buy certain come in of goods and function at a particular cost. According to the law of demand, the total of a good or service demanded varies reversely with its legal injury, other things equal. A demand mold i s a downward sloping sprain and it shows negative or inverse relationship between expenditure and total demanded. When the worth add-ons, the meter demanded by consumer decreases, conversely, when the bell decreases, the bill demanded by consumer change magnitudes. A channelise in quantity demanded is a movement along the demand crimp, when expenditure increases, point A moves to point B, and point A moves to point C when there is a shape drops as externalise 1 shown. Movement along the sheer occurs totally when there is a price transform.There are several(prenominal) causations why the relationship between price and quantity demanded is negative or inverse. Observed behavior tells us that consumers impart buy more than goods and services at lower prices than higher prices, ceteris paribus. Diminishing marginal utility is as well as one of the reasons, it means in a given time period, a buyer get out receive less satisfaction from each sequential unit consum ed, therefore, consumers allow for only buy added units if the price were trim back. Whereas, a change in demand is a shift of the demand curve, demand curve shift rightward when demand increases and shift leftward when there is a drop in demand. A shift on the curve is caused by the other factors than the price of the good such as administration regulations and technology change.When there is a price change, there will be two establishs on consumers. First, the substitution effect is an effect caused by a rise in price that induces a consumer (whose income has remained the akin) to buy more of a relatively lower-priced good and less of a higher-priced one. For instance, when the price of burnt umber increases, there are umpteen close substitute goods as options to replace coffee, and consumer can replace coffee by tea with the same amount of income that they are holding and the same price of tea. In this case, it brings a result that the quantity demanded for coffee decrease s and the demand for tea increases.Generally, the consumption of goods and services is vastly related to the income available to consumers. Income effect suggests that at a lower price, one can afford more of the good without giving up either alternative goods. In other words, a drop in price will increase the purchasing power of an individual, thus, they are able to buy more of the product than before. For instance, initially, the price of a product is RM200 per unit, and the constant income of an individual is RM1200, this individual is able to acquire 6 units. However, when the price of the product increases to RM220 per unit, he or she can only purchase 5 units.Apart from that, the other important term is supply. publish means the ability and volitionness of producer to produce and supply certain amount of goods and services at a particular price. A supply curve is an upward sloping curve and it shows a positive or signal relationship between price and quantity supplied. When price increases, the quantity supplied increases as well, vice versa, the quantity supplied drops when there is a decrease in price. Changes in prices of a good lead to changes in quantity supplied, which are shown as movement along the supply curve in betoken 2 from point A to point B to point C. Changes in supply occur for other reasons than changes in the price of the product itself. For instance, natural disaster, judge future price and numerous more. A change in any other factor can affect provider behavior results in a shift of the entire supply curve. A leftward shift is a decrease in supply, and a rightward shift is an increase in supply. food market equilibrium is a situation where quantity demanded equals to quantity supplied at a particular price. The market equilibrium is found at the point E at which the market supply and market demand curve queer as shown in figure 3. The price at the intersection of the market demand curve and market supply curve is called th e equilibrium price, P* and the quantity at the intersection of the market demand curve and the market supply curve is called the equilibrium quantity Q*.A famine exists at when the quantity demanded chokes the quantity supplied, whereas, a excessiveness exists at when the quantity supplied exceeds the quantity demanded. For example, when the market equilibrium price is at RM10 and it increase to RM15, then there will be a surplus of 20 units in figure 4. The quantity demanded dropped to 10 units. Hence, the solution is to decrease the price to market equilibrium price, RM10, to achieve market equilibrium. In figure 5, there is a shortage of 20 units. Suppose the market equilibrium price is too RM10 and the price is decreased to RM5, the quantity demanded increased to 30 units. Thus, it brings a result that quantity demanded exceed quantity supplied which means shortage. To resolve this problem, the price has to be increased to the market equilibrium price, RM10.There are variou s types of presidency policies to change the market equilibrium. In an open-market, government intervenes to control the market prices to put up improvements on the development and economy of the unpolished as well as societal well-fare in view of a conflict that consumer always wants lower prices and supplier wants higher prices. Besides, government intervention in the market also with aims to separate the market failure and minimize the income inequality.The motivations for price controls modify with the market below considerations. Government settles a price hood for goods deemed important to low-income households such as flour. A price detonator is a legal maximum on the price at which a good can be sold. Conversely, a price floor is a legal lower limit on the price at which a good can be sold, it is often set by government for wages, since wages are the main source of income for households.When government imposes a price capital on a product, there are two possibilit ies, either a binding or a non-binding price ceiling. However, for a price ceiling to be impelling it should be a binding price ceiling and the price ceiling must be set below equilibrium. A price ceiling set higher up the equilibrium is a non-binding price ceiling, and the price will go rump to the equilibrium price eventually by the demand and supply forces. In Malaysia, during the festive season, The Ministry of Domestic Trade, Co-Operatives and Consumerism will impose price ceilings on the all-important(a) goods for various festivals. In a recent year, 2013, the Controlled Price Goods Scheme surrender imposed price ceilings for 20 essential goods including standard sniveller, super chicken, topical anaesthetic beef, imported beef and so on. For instance, as figure 6 shown, the market price of chicken per kg was initially RM8.50 and the government fixed the price ceiling at RM7.70 per kg which is 70sen lower than the market price. This price ceiling was in force for 17 day s only, from 26th July to 11th sublime 2013 for the festival, Hari Raya Aidilfitri (Themalaysianinsider.com, 2013). The objective of setting the maximum price for the essential goods is to neutralise the sellers height the prices of the essential goods for Hari Raya Aidilfitri. When a price ceiling is imposed, the quantity demanded will exceed the quantity supplied, and a shortage will occur (Thesundaily.my, 2013).Price ceiling is often applied on take controls, the objective of controlling the prices of assume is usually to counteract the inequality of bargaining power between landlords and tenant, as part of a minimum set of rights to make the market fair. It is very well-k outrightn that there has always been housing shortage in new-made York City, therefore, to avoid rent hikes caused by housing shortage, New York State legislators champion the War Emergency Tenant Protection Act to protect the tenants from rent hikes. For instance, the equilibrium rent is $1000 per unit per month, and the government imposes a price ceiling below the equilibrium rent at $800 per unit per month as shown in figure 7, thus, the price of rent cannot go any higher when it hits the price ceiling and the maximum price of rent will be $800 per unit per month. Rent ceiling is imposed to protect the low-income households in the short run notwithstanding the long run impact is to avoid abandon of property out of the reason that the investors are not willing to purchase or construct new housing with low rents, because it is marginal to the investors. Beside the benefit of low rent for tenants, there is also a frightful impact on tenants. When the rents are low, the landlords tend to provide improper maintenances, execrable repairs and painting in order to minimize the cost of renting to make more profit (Block, 2008).As it was mentioned before, price floor is the same as price ceiling but the opposite, it is a legal minimum on the price at which a good can be sold. The ou tgo example would be wages as it is the primary resource of al near households incomes. For example, the New York government has fixed a minimum wage at $8.75 which is supra the equilibrium wage ($8.00) in 2014 as figure 8 shown, the wages cannot go any lower than $8.75 as it hits the price floor. This price floor is effective and is called binding price floor. Therefore, the minimum wage is now fixed at $8.75, and the market wage is equals to the price floor (Labor.ny.gov, 2013). Thus, for a price floor to be effective, it must be fixed higher up the equilibrium wage which is called a binding price floor, a price floor that is set below equilibrium is a non-binding price floor.When a price floor is imposed, there will be a surplus of low- skillful workers, because it would produce willing workers who will be unable to find jobs, an increase in the minimum wage would create additional unemployment for low-skilled workers. The unemployment impact of the minimum wage falls vastly on the least experienced, least skilled persons, often teenage labour, holding the lowest paying jobs.In the most recent case, the Malayan government has increased the price floor for the attainment of property for irrelevant buyers from RM500000 (2010) to RM1million in Federal Territories of Kuala Lumpur, Putrajaya and Labuan, according to a broadside issued by Economic Planning Unit (EPU) of the Prime Ministers Department on foremost March (Thestar.com.my, 2014). The main reason for this execution is aim to control the ownerships of properties by foreign interests. indicate to figure 9.Beside terrific price floor and price ceiling, the government also intervenes to change market equilibrium through appraisees and subsidies. There are two forms of taxes, direct and substantiating tax. Direct tax is a fee levied by government on income, whereas, indirect tax is a fee levied by government on the price of goods and services, and indirect tax is the tax that able to make change s on market equilibrium. The objective of collecting taxes is to pay government expenditure, and the government uses the store taxes for public infrastructure such as streetlamp and so on. Another reason is to discourage of production and consumption. The changes in demand and supply curve vary from the tax levied on sellers or buyers. When government levies taxes on buyers, the consumers tend to buy less. On the other hand, when tax is levied on suppliers, the cost of production will be increased and the suppliers tend to produce less.Just like some(prenominal) other countries do, Malaysian government is imposing Goods and Services Tax (GST) nonionized by Royal Malaysia Customs Department starting on 1st April 2015 in response to the fiscal deficit that Malaysia is experiencing. GST is an indirect tax establish on consumption that applied on all goods and services and it is set at 6%. GST is imposed to provide more revenues to government besides income tax, it is also said to offer a more comprehensive, efficient, transparent and effective tax system (Khoo et al, 2013). As shown in figure 9, when GST is imposed, the supply of goods and services will decrease from SS to SS1 and causes prices rise from P to P1, and the equilibrium quantity will decrease from Q to Q1, thus, the new equilibrium is at E1.Apart from GST, imported tug vehicle tax in Malaysia is very high and it can be taxed up to 100 part or even more. According to Malaysian self-propelled Association (MAA), the excised duty imposed on vehicle ranges from 65 percent to 105 percent on top of the 10 percent sales tax. A Japan-made 2013 Toyota Prius, the price after tax is around RM140000 but a similarly equipped Prius sells for only around RM80,000 in the US and Japan (Hans, 2013). The objective is to reduce the loss of Ringgit Malaysia outflow to foreign country and protect local vehicle manufacturing industry. The local vehicle manufacturers, Proton and Perodua are to a great extent support ed by the Malaysian government through the National Automotive Policy (NAP) (Lee, 2013). This is the reason why the price of vehicle in Malaysia is very expensive as shown in figure 10.Lastly, subsidy can also change the market equilibrium and it may be regarded as a negative tax. Subsidy is a benefit given by the government to groups or individuals usually in the form of a cash requital or tax reduction. The subsidy is usually given to remove near type of burden and is often considered to be in the interest of the public. A subsidy might be given to assist the poor, to help producer and to encourage consumption of goods and services.The Malaysia government has been subsidizing cooking oil colour since 1992, and more than RM1billion will be given out to stabilize the price of cooking oil every year. Without subsidy, the price of cooking oil was RM3.50 per kg, and the subsidized price is RM2.50. Refer to figure 11, when the cooking oil is subsidized, the supply will shift rightwar d which is an increase in supply from SS to SS1, then the price of cooking oil drops and the quantity increases from Q to Q1. The government provides subsidy for cooking oil is targeted for household consumers, unfortunately, 30 to 35 percent of subsidized cooking oil are flow to the eatery operators, hawkers and small-scale food-based industry, it is also said that even 10 percent of them has flowed to foreign countries (Adnan, 2012).On 2nd October 2014, there was a decrease of 20sen on send away subsidy and the price has increased from RM2.10 per liter to RM2.30 per liter. As shown in figure 12, the supply for fuel decreases from SS to SS1 and the quantity decreases from Q to Q1. The Prime Minister of Malaysia, Datuk Seri Najib Razak who is also the finance minister stated that the reduction in fuel subsidy is receivable to the reduced revenue for national expenditure. The fuel subsidy was also reduced for other assistance such as education aid and many more (Ahmad and Singh, 20 14).Reference ListAdnan, H. (2012).Archives The Star Online.. online Thestar.com.my. gettable at http//www.thestar.com.my/story/?file=/2012/10/2/business/12110226 Accessed 25 Nov. 2014.Ahmad, S. and Singh, N. (2014).Najib dialogue about further subsidy cuts. online Free Malaysia Today. Available at http//www.freemalaysiatoday.com/ menage/nation/2013/10/22/najib-talks-about-further-subsidy-cuts/ Accessed 25 Nov. 2014.Block, W. (2008).Rent Control The Concise encyclopedia of Economics Library of Economics and Liberty. online Econlib.org. Available at http//www.econlib.org/library/Enc/RentControl.html Accessed 22 Nov. 2014.Hans, (2013).Explaining The Mystery Behind High Car Prices in Malaysia Part 1. online Livelifedrive.com. Available at http//www.livelifedrive.com/malaysia/news/view/3802/explaining-the-mystery-behind-high-car-prices-in-malaysiapart-1 Accessed 23 Nov. 2014.Khoo, C. (2013).GST in Malaysia. 1st ed. ebook Malaysia KPMG tax Services Sdn Bhd, p.2. Available at http// www.kpmg.com/MY/en/services/Tax/gst/Documents/tl-gst-malaysia.pdf Accessed 23 Nov. 2014.Labor.ny.gov, (2013).Minimum Wages New York State Department of Labor. online Available at http//www.labor.ny.gov/workerprotection/laborstandards/workprot/minwage.shtm Accessed 22 Nov. 2014.Lee, I. (2013).What Causes High Car Prices In Malaysia?. online iMoney.my. Available at https//www.imoney.my/articles/high-car-prices-in-malaysia Accessed 24 Nov. 2014.Themalaysianinsider.com, (2013).New ceiling price for chicken from July 26 RM7.70 per kg The Malaysian Insider. online Available at http//www.themalaysianinsider.com/malaysia/article/new-ceiling-price-for-chicken-from-july-26-rm7.70-per-kg Accessed 20 Nov. 2014.Thestar.com.my, (2014).Foreigners can only buy properties costing RM1m and above from March 1 Business News The Star Online. online Available at http//www.thestar.com.my/Business/Business-News/2014/02/28/Foreigners-can-only-buy-properties-costing-RM1m-and-above-from-March-1/?style=bi z Accessed 22 Nov. 2014.Thesundaily.my, (2013).Ceiling price for chicken fixed at RM7.70 theSundaily. online Available at http//www.thesundaily.my/news/775160 Accessed 20 Nov. 2014.