Sunday, 28 October 2012

Changes in prices of meat due to Eid ul Adha


Changes in prices of meat due to Eid ul Adha
Looking at the article, http://www.khaleejtimes.com/nation/inside.asp?xfile=/data/nationgeneral/2012/October/nationgeneral_October89.xml&section=nationgeneral , Eid Al Adha is one of the most important festivals for Muslims in which all Muslims sacrifice sheep, camels, goats or cows. The amount you sacrifice varies with size of the family, income and prices of these animals. This tradition of sacrificing on Eid Al Adha is followed in respect of Prophet Ibrahim’s obedience to Allah, as he was willing to sacrifice his offspring when Allah commanded him to do so. Muslims follow this practice all around the world and the demand of these animal increases during Eid Al Adha. We can demonstrate through an economic model of demand and supply how the pricing mechanism works and how demand and supply is affected.

Equilibrium Price of Goat
 


            




In the above shown graph, one can see a vertical axis that represents price of a goat and the horizontal axis represents the quantity of the goat. In a simple model the demand and supply meet at an equilibrium point setting the price and quantity reflecting the quantity demanded and quantity supplied. This point E1 is the equilibrium price and quantity that is sold in a market. Additionally, in the graph above the red line depicts the supply schedule and the blue line depicts the demand schedule. The point above the equilibrium is the surplus of goats and the point below E1 is the shortage is goats.

Referring to the article “Livestock prices shoot up ahead of Eid  AlAdha” , we can draw that due to seasonal/festival changes, supplier can charge a higher price being aware that the consumers will be wiling to pay at any point; in this scenario consumers are bound due to religious constraints.  However, the Ministry of Economy in this case had given assurance to citizens that they would monitor the prices and took radical measures against the ‘Unscrupulous traders’, from this it can be drawn that the prices of goods have been increasing, as the festival gets closer.
Following is a table that shows the change in price of Somali sheep.
Somali sheep:
Time period
Weight
Price
Before
10 kg
400-500 Dh
After two weeks
10 kg
600 Dh

Over a period of two weeks, the price of Somali sheep weighing 10 kg increased from between 400-500 to 600 Dirhams due to the increase in price of Somali sheep the quantity demanded has decrease but by less than 1, which shows that the demand curve is inelastic and a change in price of the lamb will cause a minute or no change in demand as consumer still require to fulfill their religious commitment. In graph 1, the will be movement along the demand curve where as the supply curve will stay the same.

Following is a table that depicts the increase in price for Pakistan mutton:
Time Period
Weight
Price
Before
1 kg
26-28 Dh
After a month
1 kg
33-34 Dh

Subsequently, if we talk about the price elasticity of demand in this case we see that with the although the price has increased by more than 25% but the quantity demanded has remain the same showing that demand for meat is inelastic.

Price Elasticity of Demand showing it is inelastic as it is a necessity




Likewise, we are aware that beef or chicken can be used as a substitute for meat since they suit the same purpose. Lets assume that the price of meat has increased by 25% and that led to increase in demand for beef or chicken. If this takes place it means that they both are substitute. This can be proved by showing that when the price of one meat increases by 25% the demand for beef or chicken also increase by 25% or more which shows that cross elasticity is equal to 1 or more than one. When this happens the goods are treated as substitutes.

CROSS ELASTICITY OF DEMAND SHOWING MEAT AND BEEF ARE SUBSTITUTES


         

In the above diagram we have shown that when the price of meat increase from 26-28 dhs to 33-34 dhs in the graph 1. It leads to quantity demanded being decreased from q to q1 but this does not only affect the graph of meat at the same time it leads to shift in the demand curve from D to D1 at the same price. This means that with the increase in price of meat quantity demanded of meat decreases and people shift towards beef.
Now let’s see if meat is a normal good or inferior good. This deals with income elasticity of demand means when a person’s income increase would the demand of a product increase or decrease. If it increases and income elasticity of demand is greater than 1 then it is a normal good if it does not then it is an inferior good.

INCOME ELASTICITY OF DEMAND SHOWING MEAT IS A NORMAL GOOD


In the above diagram we have shown that when the income increase from I to “I1” the demand of a product increases from Q to Q1 showing a direct relationship between income and demand of a product.

We know that there are 4 types of market structure starting with perfect competition in which the demand is perfectly elastic because there are so many players in the market and the product is homogenous where as the monopoly deals with demand being completely inelastic as there is only one player controlling the market and influencing the price. Meat comes in the category of perfect competition as there are no major players in the market. The product is homogenous, there are no barriers to entry and exit and the consumer have complete information about the product. People usually buy meat looking at their convenience because they feel everywhere they would get the same meet and they do not differentiate in terms of quality or any other factor.


DEMAND CURVE IN PERFECT COMPETITION SHOWING DEMAND CURVE IS PERFECTLY ELEASTIC



As the Ministry of Economy has assured the citizens of watching the prices of livestock they could lower the price of these by subsidizing the sellers of the livestock. It would lower the price for the buyers and make it cheaper for them.


The above graph shows the fall of price this had shifted the entire supply schedule down reducing the price. This is a useful mechanism the government usually reduces to decrease the price of the good; the post-subsidy would become the new supply schedule for the market.


In conclusion, the government needs to start subsidizing for consumer protection or most individuals will not be able to afford to buy animals to sacrifice. Several locals intended on purchasing the animals before the festival arrived but the prices for the animal were rather high. Subsequently the goats and sheep on display were skinny. Hence buyers are being overcharged as skinny animals mostly have bone weight rather than meat.

Is iPhone 5 a want or has it become a need in modern world


Is iPhone 5 a want or has it become a need in modern world

Looking at the article 

Apple is a highly recognized corporation known for gadgets such as the iPhone, iPod, iPad, and MacBook. With the rise in social media, and the inevitable increase in demand for technology came the iPhone 5. The launch of the new phone by Apple has had the whole world biting their lips anxiously waiting to get their hands on the new gadget. As the article suggests that Apple “had run out of its initial supply and many preorders were scheduled” it indicates high and growing demand for the product. The article also indicates that Apple faced many “supply constraints”. There are many factors that cause such demand and supply behavior for Apple.


The graph above illustrates the nature of the demand and supply curve. It indicates relatively elastic demand and inelastic supply. As the article mentions that the demand for IPhone 5 was high and since supply was limited there was excess demand in the market. This point E is the equilibrium, which indicates the total quantity traded at the equilibrium price.

However, there are other factors that affect the demand and supply of a good. For example, for clothing, seasons and what’s in style play an important role in setting the demand for the clothing and for supply government subsidies, taxes or increase or decrease in price of inputs, time affect the supply of a good.

The high demand for iPhone 5 could be a result of successful advertising campaigns by Apple, as well as a change in consumer taste. Apple has amalgamated the most innovative technology with changing consumer needs, creating hype for their products particularly the iPhone. By creating a “want” for the IPhone 5 they have made a niche market product into a standard market product, using new and innovative marketing and advertising strategies. Apple has kept their products updated with the latest technology while catering to changing consumer needs thus explaining the high demand mentioned in the article.

Referring back to the article, “Apple sells over 5 million iPhone 5, supply constraint looms”, the price of the IPhone is set by the company however the supply is limited until more is produced by the company. Hence, both supply and price of the good are fixed and will not change with the increase in demand for the good. In this although the company wants to produce more Iphone5’s , they have no control over the situation as their suppliers of raw materials are facing problems leading to an inelastic supply curve in the short run. Furthermore, due to pressure from the trade union to increase wages and shortage in supply, the supply curve will shift towards the left till the matter of trade union is sorted out and cost of production is brought back to the normal price. If apple decided to expand its horizons by developing their own resources to produce the raw material, it would require investments, Research and Development and most importantly time. Therefore in the long run apple will not be able to increase supply unless they develop alternatives and the supply curve will remain inelastic until then.


Supply being perfectly inelastic due to shortage of  supplies and strikes by trade unions


Moreover an analyst at Topeka Capital Markets in New York in an interview claimed that Apple’s I phone 5 drew complete madness and the rate of pre orders was extraordinary. Projections were made that the sales would be much high once the IPhone 5 was officially launched. Considering the article, demand is influenced by the reviews from consumers and critics, what is in fashion also competing phones such as the Android affect the demand of the good drastically. The iPhone 5 has a huge demand and is considered a fashion statement however at the same time people are moving towards the Android that decreases the demand for iPhone 5..  As the price of the iPhone 5 is determined and set by the company and is not related to the market demand, the supply schedule would be completely vertical. A completely vertical supply schedule signifies that supply is perfectly inelastic and will stay fixed over the short run until more is produced.


For supply, time is a constraint also according to the article; Supply was affected because Foxconn Technology, the largest contractor of Apple shut down its’ factory in China, due to the protests by their employees this would impact the supply of the iPhone 5. As the employee’s demand higher wages and due to the protests the factory had to be shut down which would lead to a shortage of 2000 employees working on the iPhone 5. Additionally sources of Reuters claim that Sharp Corp, who supply screens for Apple have been working their way to raise funds to pay off debts causing them to fall behind schedule in producing the iPhone 5 screen displays. However Sharp Corp doesn’t agree and refuses to accept the accusation made, as Sharp is supplying screens.

Demand schedule moves inwards due to substitute ‘Android’.



Graph 3 shows the decrease in demand for IPhone 5 because of the competing phone Android that would lead consumers to move towards Android that can be seen as a substitute this would lead the demand curve to move inwards from D1 to D as less people would demand the iPhone 5 now.  Substitute goods are goods that are similar and satisfy the same needs, People move toward substitute goods if the prices are lower and/or if the product is of better quality. This would lead the market of IPhone 5 market to be complex because firstly, there is a shortage of IPhone 5’s secondly, the new Android would attract consumers

Demand and supply curve for androids


Due to supply being inelastic of iPhone5 the demand and supply of other android phones will increase because people will shift to other competing smart phones when they would not be able to get IPhone5. This is shown in the graph above; at the same price the demand increases shifting it towards the right and it causes the supply curve also to shift towards right further increasing the quantity.

Demand schedule moves inwards due to substitute ‘Android’.

Graph 4 shows what would happen over time to the demand and supply schedule curve. The supply over time would become elastic which would be less vertical as the company would produce more IPhone 5’s which would make up for the shortage in the market and the demand will fall over time due to the competition in the market. Over time, the price of the iPhone would fall as well and the company might as well introduce promotions to increase the demand for IPhone 5’s.

In conclusion, it is difficult to predict ahead of time because a market for phones is ever changing. Over time, other factors would predict the demand and supply for iPhone 5’s because a black market could arrive where consumers would break their contracts or report their phones as stolen and sell their phones to other buyers in the market or people would even purchase used or refurbished iPhone 5’s. These are factors that usually come into play when dealing with consumer goods.

Demand and supply curve of the market in the long run when both supply and demand becomes elastic



Demand and supply curve of market of phones in the short run when both supply and demand are relatively inelastic





Saturday, 27 October 2012

RON95 petrol subsidy up 10 sen, pump price unchanged


PETROL
     Based on http://www.themalaysianinsider.com/malaysia/article/minister-ron95-petrol-subsidy-up-10-sen-pump-price-unchanged, petrol is one of the most important resource that is being used by various users for example motor vehicle users. petrol is a limited resource that is not renewable unlike other resource such as solar energy and etc. there are few company that sell petrol in Malaysia market, for example Petronas, Esso,Petron , and Shell. There is a few exploitation  in Malaysia which is Labuan ,Sabah,Alor  Star, Johor and so on. There is a few method of petrol extraction , such as open-pit mining , and drilling mining. From 1998 to 2008, the quantity demanded of petrol had increased for about 200%.That is a big number and it had made a huge profit to our country. The increase in quantity demand for petrol is due to increase in quality of living and they are willing to spend money on items such as cars and electrical appliances for self satisfaction. Malaysia is one of the main petrol suppliers in Asia area, whereas the customers are Thailand, Singapore, Vietnam and others.
     
Firstly, I will explain about the supply curve .From the law of supply, it is mentioned that as the price of a good increases, suppliers will attempt to maximize profits by increasing the quantity of the product sold. An example of the Law of Supply is as the price of good increases, suppliers will want to supply more of it. However, as the price of a good decreases, suppliers will not want to supply as much of it because they don’t get the good benefit in that.(www.investopedia.com)Supply of conventional petrol is inelastic as shown in the above graph for a few reason. The actual cost of pumping a marginal barrel of petrol is relatively low, once the capital expenses of prospecting and building an petrol rig (and associated infrastructure) has been put in place. The above graph is show about the relationship between the subsidy and supply. If supplier which have get the subsidy from government then they will be increased due to they can get more of benefit from the petrol. If supplier dint get the subsidy from government, their cost will be higher so the benefit they get will be decreased. According to the Malaysian insider, Malaysia government will give the citizen some subsidy is about per litre is now RM1.03, so RON95’s pump price presently is RM1.90 per litre. Therefore , the supply will from s2 switch to s1.


     Secondly, I will explain about the relationship between the price of petrol  and the quantity demanded of petrol .From the law of demand it is mentioned that while other factors remained unchanged ,the higher the price of a good , the smaller the quantity demanded; whereas the lower the price of a good ,the larger is the quantity demanded. For instance, when price of brand A pencil increase then the quantity demanded of brand A pencil will be decreased. In the Malaysia ,government will have some subsidy of petrol to help the citizen ,so citizen of Malaysia still can afford to pump the petrol and don’t need to stress about spend the money for petrol. From Dec 2010 ,the price of petrol is increased from Rm1.85 per little to Rm1.95 per little .From 2010 to 2012 , the quantity demanded of petrol have not any decrease, on the contrary increase more than previous times due to population will be increased every year.  
     In long term,the quantity demanded for petrol  will be increased .This is because the population will be increased by every year also. The price of petrol will be increased due to the petrol is limited resource. If which of the day the petrol is finished ,then we hard to find it already. Limited resource is big different with the renewal resources, because the limited resource need to spend up to million year to produce it . So, the price will be increased when the big supplier want it because they also want to protect the benefit by themselves.

     Petrol is a neccesity nowadays in the world which is an unavoidable need to keep things going.Therefore, even the price of petrol gets higher ,the quantity demanded for petrol will still be same.Eventhough there is technology that uses other resource to convert into energy to replace petrol ,for example the solar energy used in some of the car, but it is not common in Malaysia yet . so, the demand for petrol will be constant due to less choices for the resources that can be used to replace petrol. So citizen of Malaysia still must use petrol in their life. Beside that , the government should find other resources can replace the petrol , it will be renewal resources, such as wind system, solar system , water system and others. If not the price will be increased until citizen cant afford to pump the petrol and it may be affect the demand of car supply , so government had better find out the renewal resources ,because it can recycle and reuse.
    In normally way , the price of petrol will be increased then the quantity demanded of petrol will be decreased from the law of demand. But , the petrol is a limited resource and people who have a car then they will use it so the quantity demanded will hard to decrease This is because one of the family in Malaysia atleast have a car so they must use it .That why the petrol is a necessity for people .The supplier of petrol can get more benefit in petrol because the petrol is limited resource, so the price can be adjust by government when they want to earn more because the price of petrol is fixed in a country . If not the system of the petrol will be confused for every buyer. In my opinion ,government must faster to find other resource to replace petrol, such as solar energy ,gas and others because one day the petrol will be gone. This is because its can reduce commitment for every motor vehicle users.I think this is the best  way for settle the limited petrol and limited oilfield. Let the  petrol not only resource fuel for the motor vehicle and help the poor family to reduce their commitment.