Saturday, October 27, 2012

Reduced Sugar Subsidy



INTRODUCTION

In this article “Sugar Subsidy Reduced For People Good’s”,is based on  <<http://www.nst.com.my/latest/sugar-subsidy-reduced-for-people-s-good-1.151472#>>our Prime Minister Datuk Seri Najib Razak announced that, the sugar price will increase RM0.20 due to reduction of sugar’s subsidy .The reason why the government has to reduce the sugar’s subsidy is because there are 2.6 million people in our country are having  diabetes. However, our prime ,Minister hopes that the community of business will not burden the people due to the increasing price of sugar.

Does Sugar Subsidy Effect Consumption Of Sugar ?

When the subsidy is reduced and the price goes up , people will consume less sugar and practice a healthy lifestyle including eating a healthy diet ,’’says Domestic Trade , Cooperatives and Consumerism Deputy Minister,Datuk Tan Lian Hoe .From my perspective, I absolutely agreed this statement .For example , usually people are putting 2 small teaspoon of sugar in a cup of sugar , but after the reducing sugar subsidy people will put 1 teaspoon of sugar  .Besides that ,there are 2.6 million of Malaysian are having diabetic , the number of it are slightly increasing .By preventing this , reducing sugar subsidy is a best and smart way to reducing number of people are having diabetes.
Effect Of Reduction Subsidy Of Sugar 
The above graph has shown the effect of the reduction of subsidy on the sugar price. The demand curve is slopping downward while the firm supply curve is shifting to the left. It is from S1 to S2. This demonstrates the consequence of the reduction of the sugar production. When the production quantity is reduced, the market equilibrium price will be still increasing as the reason of the demand more than the supply. Besides that, the reduction of subsidy given to the sugar manufactures will contribute to the increase of the production cost. The manufactures need to spend more money on producing the same quantity of sugar compared to last time. By that, the equilibrium price will increase from P1 to P2, the quantity demanded  is contracted from Q1 to Q2.

 Relationship Between  the price of sugar and Quantity  Demand Of Sugar

In my opinon ,sugar price is under the price elasticity demand. So, the demand curve of price elasticity demand is relatively steep and the value is 0 <PED< 1.Price elasticity of demand is a units of free measure of the responsiveness of the quantity demanded of a good to a change in its price when all other influences on buying plans remain the same. As we know sugar is necessity goods for all individual, so there a large proportion of individual’s income that spent on sugar. People will face he difficulty on paying more as the price of sugar increase. Therefore ,sugar having an inelastic price elasticity of demand. When demand is inelastic, the percentage of the quantity demand is less than the percentage change in price with the price elastic less than 1 in an absolute value. Besides that , there are some factors that determining the Sugar is a price elasticity demand in inelastic demand . . It indicates that when the government reducing the RM0.20 of sugar’s subsidy, it will not affect the demand of sugar because sugar is an inelastic goods .So, from the graph, we can clearly defined there is a downward sloping of the demand  curve.Percentage of people income spend on the goods is one of the common factors.For example , of whatever people income is increasing or decreasing , they still need to buy the same amount sugar as before .They will not buy a large proportion of sugar when they income is increasing .So , sugar is an inelastic demand in price elasticity demand.

 Price Ceiling Of Sugar 



As we know sugar is under the price ceiling which means that government has set a regulation that the price of sugar not allowed to rise above a certain level . Government feels that the market price is too high and they have to control the charges that the sellers pass to consumers. From the graph, we can clearly defined that the reducing the subsidy of sugar will causing the supply curve from S0 shift to S1. However, there will be an excess demand of the sugar because QD is bigger than QS. This will cause the sugar shortage and forcing the price of sugar increase.Therefore, the government will set a price of sugar that is lower than the equilibrium price to avoid the situation such as black market to happen. Seller can charge any price of up to price ceiling but not allow to go above it. By setting the price ceiling, the poor people or people who are having lower income can afford to buy sugar. We can clearly see there is a shortage from the graph. The maximum price will encouraging consumer to consume more sugar but discouraging the producers to produce sugar because the profit gained by the producers decrease .When the shortage is occur, the good may be allocated in unfair way for instance ,first come first serve. To distribute the sugar more fairly, government adopt a system that let everyone get the chance to enjoy the limited goods.

Monopoly In Sugar Industry

 MSM Malaysia Holdings Berhad (MSM) is the one of the sugar manufacturing company in our country .This means the sugar manufacturing industry in our country is under the monopoly system .Firm is a price taker but cannot charge price sugar  that consumer will not bear it.So , in the monopoly graph ,the total revenue is starts from  the origin ,average revenue is downward sloping ,and marginal revenue is downward sloping too .This is because the monopolist can either control the price of sugar or output of sugar .Besides that , sugar industry are barriers to entry into the monopoly industry ,so economic profits of sugar can persist in the long run.In the long run, sugar industry (MSM Malaysia Holdings Berhad) will be earning the supernormal profit because there is no competition of it and more importantly because of the assumption “barriers to entry ‘’.

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