Perfect Competition(Kevin)

Perfect competition is a theoretical market structure. It is primarily used as a benchmark against which other market structures are compared.

Perfect competition has several economic factors that must exist in a perfectly competitive industry, such as:

1.    All firms sell an identical product.

2.    All firms are price-takers.

3.    All firms have a relatively small market share.

4.    Buyers know the nature of the product being sold and the prices charged by each firm. 

5.     The industry is characterized by freedom of entry and exit. 

The perfectly competitive firm makes two decisions in the short run, such as whether to produce or to shut down and if the decision is to produce, what quantity to produce. The firm’s short-run decisions are made after some irrevocable commitments have generated sunk costs. The firm considers only avoidable costs when making decisions. Unavoidable costs have no impact on the decision. So for the firm to produce its revenues need only exceed avoidable costs, not total costs. The profit maximization goal doesn’t require the firm to earn a positive economic profit in the short run.

And for long run decisions are whether to increase or decrease its plant size and whether to stay in the industry or leave it.

For the industry that has best reflects perfect competition in real life is the agricultural industry. The agricultural industry probably comes closest to exhibiting perfect competition because it is characterized by many small producers with virtually no ability to alter the selling price of their products. The commercial buyers of agricultural commodities are generally very well informed and, although agricultural production involves some barriers to entry, it is not particularly difficult to enter the marketplace as a producer.  Farmers know the current market prices for agricultural goods as they are frequently published. Farmers produce a range of homogeneous goods. Many governments intervene in the agricultural market by fixing prices or giving subsidies.

Advantages of perfect competition for the agricultural industry are high degree of competition helps the industry to allocate resources to most efficient use, normal profit made in the long run, firms operate at maximum efficiency, consumers and producer surplus will be maximized. Meanwhile disadvantages of perfect competition for agricultural industry are insufficient profits for investment, lack of product variety, and lack of competition over product design and specification.

Market Equilibrium(Afiq)

MARKET EQUILIBRIUM FOR PRICING OF SUGAR IN MALAYSIA

The price of sugar is one of the controlled items by the government of Malaysia. It has been gone up four times since the January, 2010 and it has bringing the retail price per kilograms to RM 2.30 now.  The increase had been necessitated by factors beyond the government’s control, such as climate change, natural disasters in producing countries and global market price. The market equilibrium is the price where quantity demanded equals with the quantity supplied. The reasons I am using sugar as the subject because the raw of sugar has doubled in price over the past 18 months. The consumer demand for sugar has increased day by day while in the same time, the supply of sugar has decreased.

 For example, a seller offer 10,000 packs of sugar at the price RM2.30 for each pack, but buyers will purchase only 4000. The RM2.30 encourages sellers to offer lots of sugar but discourages many consumers from buying it. If the seller produced all the 10,000 packs, they would find themselves with 6000 unsold pack of sugar. The large surplus would prompt competing sellers by lowering the price to encourage buyers to take the surplus off their hands. As the price falls, the incentive to produce sugar would decline and the incentive for consumer to buy sugar would increase.

In conclusion, the market interacts to bring about the equilibrium price, clearing the market of excess demand or supply. In this way, it is said that the market mechanism achieves consistency between the plans and outcomes for consumers and producers without explicit coordination.

Demand and Supply

Why is the oil price in Malaysia is high?

Hi, I’m just a boy who wondering why the oil price in Malaysia is  high. I’m a Business student in a private university somewhere in Subang Jaya. I’m here to debate or discuss about the oil price in our beloved country Malaysia. Our prime minister Datuk Seri Najib Tun Razak said that our oil price is way cheaper than Indonesia, Singapore, and Thailand. From my point of view, yes our oil price is cheaper than those country that Datuk Seri Najib said but the thing is, he’s comparing the oil price with those country that import oil and gas whereas Malaysia is a country that PRODUCE and EXPORT oil and gas.

The Malaysian government should compare our oil price with country such as Qatar, Oman, Saudi Arabia, Venezuela and others country that also produce oil. In 2009, Malaysia is the second largest exported of LNG in the world after Qatar exporting over 1 tcf of LNG, which accounted for 12 percent of total LNG exports Japan, South Korea, and Taiwan were the primary purchases. The current oil price in Malaysia in U.S dollar is US$0.543 per litter. Maybe to all of you it is quite cheap but it is not. The current oil price in Saudi Arabia is US$0.127 and Venezuela US$0.047 per litter.

According to http://www.malaysiakini.com/letters/47888 it said that we Malaysian paying less for petrol. Yes! If you compare them to Japan , Hong Kong, United State, Canada and so on. Now the price per gallon in Malaysia is US$2 meanwhile in Saudi US$0.61, Iran US$1.44 and Venezuela US$0.08 per gal gallon

Petronas is making millions of dollar each year but still the oil price keep increasing year by year. Petronas was ranked by Fortune as the 80^th largest corporation in the world in 2009 and the 13^th most profitable. So why is the oil price in our country is high? What seems to be the problem?

TNB as a Monopoly firm!(Syahir)

Tenaga Nasional Berhad(TNB) as a monopoly firm

Hi! My name is Mohd Syahir and I am a business student from a private University somewhere in Sunway. Have you ever knew, that Tenaga Nasional Berhad(TNB) is a monopoly firm?

Well, monopoly is categorised under imperfectly competitive industry, in this industry they have the market power where they have some control over the price of their services or products. They can even increase the price without having nothing to worry about losing all demand for their services or products. As we know, TNB sells their electricity services all over Malaysia including the Peninsular and Sabah and Sarawak, TNB is the only firm that sells electricity in this country, and so far there is no close substitutes like TNB. TNB is a price maker in the market as they have the power to set prices without influencing the demands for the electricity that they provide, by doing this they can have a greater profits called supernormal profits.

Until today, there is no new firms trying to supply the same services that TNB provides. As a monopoly firm, they can set up some barriers to entry to prevent new firms entry into the market. There are some barriers to prevent new firms such as the patents or copyrights, it is the legal restriction that grant the exclusive use of the patented services or process to the firm, and they block other firms from entering the market to provide the same service. Other than that, the government directive, which have the power to make newly entry firms to be unattractive or almost impossible to survive in this particular industry. Then, there is the ownerships of scarce raw materials, TNB is the only firm that have the materials to provide the services therefore, this makes the new entry firms cant enter this market as TNB is the only firm in this industry.

According to a website www.securities.com/Public/company-profile/MY/Tenaga_Nasional_Berhad_en_1663430.html they said that Tenaga Nasional Berhad has a monopoly license to operate nationally for 21 years which 8 years remaining. 

Price Elasticity of Demand for Rice

Price Elasticity of Demand for Rice

     Price elasticity of demand is a unit-free measure of the responsiveness or sensitiveness of the quantity of a good or service demanded to change in its price when all other influences on buying plans remain the same.

     Elastic demand is defined as a large percentage change in quantity demanded for given percentage change in price. Inelastic demand is defined as a small percentage change in quantity demanded for given percentage change in price. Unit elastic demand is defined as given in percentage change in price, there will be an equal percentage change in quantity demanded.

Calculating Price Elasticity of Demand

Price elasticity of demand is calculated by using the following formula: -

     The graph above shows that the price of rice has risen from P0 to P1. If the coefficient of price elasticity of demand is between 0 and 1, therefore the demand is in elastic. For example, a 10% rise in price of rice might cause the demand for rice to decrease by 5%.

     If price elasticity of demand is lesser than 1, therefore the demand responds more to a change of price. Therefore, the demand for rice is elastic.

     There are a few determinants of elasticity for rice. The availability of substitutes. The more substitutes a particular product has, the more elastic the demand. For example, rice can be substituted with bread. Next, level of income. People with higher incomes tend to have an inelastic demand. For example, people with high income don’t have a problem the rise of price for rice. Then, price of the product itself. The more expensive a particular product, the more elastic it is.

     The price elasticity of demand is affected by the time period allowed following a price change. The longer the consumers have to respond to a price change, the more elastic the price. If the rise of price in rice is long-term, consumers should change their consumption decisions or find substitutes.