Assignment 1 economic 415 PDF

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BACHELOR OF ACCOUNTANCYACECONOMICSECO 415ASSIGNMENT 1NAME: SAIDATUL RAHIMA BINTI MOHD HALIMSTUDENT ID: 2020988277LECTURE: DR ZURIYATI AHMADQuestions 1: using diagram illustrate the price ceiling set by government three ply masks per boxThe diagram above shows the demand and the supply curve during u...

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BACHELOR OF ACCOUNTANCY AC220

ECONOMICS ECO 415 ASSIGNMENT 1

NAME: SAIDATUL RAHIMA BINTI MOHD HALIM STUDENT ID: 2020988277 LECTURE: DR ZURIYATI AHMAD

Questions 1: using diagram illustrate the price ceiling set by government three ply masks per box

Price (RM)

S

Pₑ

e

Price ceiling

25

Shortage

D Qs

Qₑ

Qd

Quantity of three-ply face mask (ear loop/head loop)(Q)

The diagram above shows the demand and the supply curve during unexpected event like Covid-19. The demand curve (D) intersects with the supply curve (S) at equilibrium point (e) with a price of (Pe) and quantity of (Qe). The equilibrium price is the price where the quantity demanded is equal to the quantity supplied. That quantity is known as the equilibrium quantity. In this situation, the price ceiling of RM 25 is set below the equilibrium price by the government. Price ceiling is a limit on the price of goods or services imposed by the government to protect consumers. The government believe that equilibrium price in market is high and unreasonable. At the price ceiling of RM25, the quantity supplied is Qs, and the quantity demanded is Qd. The distance between Quantity Demand (Qd) and Quantity Supplied (Qs) is a shortage. In economics point of view, if the government imposing price ceiling policy, the quantity demanded under the price ceiling will somehow exceeds the quantity supplied that is creating shortage in 3 ply mask (ear loop/ head loop) supply.

In reality, 3 ply mask (ear loop/ head loop) were scarce in Malaysia due to Covid-19 that happening nowadays. The quantity demanded of face mask right now is higher since they need to wear masks as precautionary step from covid-19 infection and the front liner will use the face mask as one of personal protective equipment in their duty work. That is why the government impose price ceiling to prevent traders or producers who will hike up the prices unreasonably. The government also want to ensure that the welfare of the consumer is protected. So that the face masks are financially accessible to the average person and then they can prevent themselves from Covid-19 infection.

Question 2: Why do the government need to do the price ceiling for the face masks?

Price ceiling is a legal maximum price for particular goods and services. In order for a price ceiling to be effective, it must be set below the natural market equilibrium. Price ceiling is imposed by government to certain product where the seller could not sell at any unreasonable price. Due to unexpected event happens nowadays which is Covid-19. The government imposing price ceiling to the face masks. The reasons of the government impose price ceiling policy is to protect the consumer welfare. By establishing a maximum price, a government wants to ensure the good is affordable for as many consumers as possible. By impose the price ceiling policy; it can help the consumer to obtain the face masks in lower price whereby the supplier might take opportunity to sell the face masks at higher price. It is also will help the low income earners to spend less money on face masks. The next reasons why the government imposed price ceiling is to control inflation. Inflation exists when prices rise but the purchasing power fall. In this situation, the price ceiling can control inflation by lowering the price of face masks below market price. So that the face masks are financially accessible to the average person without affecting their cost of living and then they can prevent themselves from Covid-19 infection. In conclusion, generally price ceilings are normally imposed during periods of, or directly following economic hardship, famine or war. The government needs to step in to establish a maximum price to prevent out of control increases in price. In this situation which is Covid-19 happens nowadays, the price ceiling policy should be applied in this situation to protect consumer welfare and prevent inflation.

Question 3: Based on what you have learnt, explain the demand for face mask during the unexpected even (eg haze and covid-19)

Demand in the definition of economics is the ability and willingness to buy or obtain certain goods and services in given period of time at particular price. Whereby supply is the willingness for producers to sell goods. The figure below simply illustrates the changes in demand due to covid-19. Assuming the price of the face masks per box (P0) remains constant.

Price (RM)

Shift rightward P0

D1

D0

Qd0

Qd1

Quantity demand of face masks (Qd)

During the unexpected event such as covid-19, the demand of the face masks will increase. As shows in the diagram above, the original demand curve (D0) with price of (P0) and quantity of (Qd0) will shift to the right to new demand curve (D1) with price of (P0) and quantity of (Qd1) due to covid-19 .This is because the people need the face masks to prevent them from being infected with the Covid-19 and prevent them from spread the virus to another person. Furthermore the demand of the face masks increase during Covid-19 because of the front liner that on their duties need the face masks to prevent them from infection.

Question 4: If government lifted the price ceiling policy, discuss what is expected to happen to the quantity and price of the face masks during unexpected event?

Historically, the price ceiling policy is imposed by government to protect consumer welfare and control inflation. In this situation, by lifting the price ceiling, the quantity demand of the face masks will increase because the consumer willing to buy more masks due to Covid-19. The price for the face masks also will be increase too. This is because the producers or traders will use this opportunity to increase the price so that they can earn higher profit. The price of the face masks will increase and that will lead to surplus. This is because of the inflations which is people are unable to buy or obtain the face masks due to high price. This also would be unfair to consumer who willing to buy the face masks at higher price. Furthermore, it also would be unfair to taxpayer because the money that has been paid by them are used to buy surplus. The government would impose production restrictions in an attempt to reduce the surplus. In conclusion, the government should apply price ceiling policy to protect consumer welfare from spending higher price to obtain face masks in order to prevent them from being infected of Covid-19 and control inflation that will lead to market failure.

Question 5: What are the disadvantages for imposing price ceiling to face masks? Explain.

Price ceiling refer to maximum price set by the government to protect consumers. Price ceiling aims at making products affordable and attainable by consumers with acceptable prices. While they make staples affordable for consumers in the short term, price ceiling in a long run can cause adverse effect on market and create huge market inefficiencies. First, by imposing the price ceiling the quantity demanded will exceeds the quantity supplied of the face masks or shortages will result. The demand of the consumers for face masks will increase because consumers can obtain the face masks with a lower price. The consumers desperately purchase the face masks to prevent themselves from having an infection of Covid-19. The government begins rationing distribution to restrict the demand of the consumers. So that, consumers won’t be able to utilize as much goods as they need. Next, the disadvantages of the price ceiling will lead to lower supply of the face masks. The producers will begin to slow or stop their production. This is because the price of the face masks must be lower than the current market price or equilibrium price which is lead them to earn low profit. Therefore, there may be less incentive to supply the goods and the number of properties on the market declines. In addition, by imposing the price ceiling also will lead to poor product quality of the face masks. Producers won’t be able to generate desirable profit when government set price ceiling. In this condition, many producers may use raw materials of comparatively lesser quality with cheaper price in order to maintain same or almost same revenue as before. This is due to the producers need to cut the cost of production so the face masks can be sold with a lower price. Next, the maximum price set by the government will lead to the emergence of black market. A black market is economic activity that takes place outside government-sanctioned channels. The black market exists because people try to overcome the shortages of face masks. Furthermore, in this situation, the irresponsible producers will use this opportunity to get higher profit since they will sell the face masks with higher price. Besides that, the irresponsible consumers will resell the face masks with unreasonable price because they know that some of people willing to buy the face masks with high price. The effect of a black

market is that the government will face losses regarding revenues received from taxation. This is because goods traded on the black market are not registered, so no records will be available for tax collection....