Market for Iphone5

  For this article, I am going to talk about  recent problems faced by Apple from a China company 'Workers in China strike over Iphone 5 labor Demands' written  by Adam Gabbatt on Friday 5 October 2012 . Recently, Apple  had sold five million new iPhones, beating first-weekend sales of its predecessor, the iPhone 4S  by about one million. But fears of iPhone 5 shortage as Chinese factory workers go on strike after being ordered to work on national holiday which is in high demand globally following its release. Pressure are on the workers to increase the quality of the phone after there have been numerous reports of complaints over damaged sets, which have reportedly been scratched and dented.

     

    A firm is an institution that hires factors of production and organizes them to produce and sell goods and services. The production function is an equation describing the relation between inputs and the maximum amount of ouput that can be produced with those inputs. So when  the Chinese workers go on strike, the amounts that they can produce will surely decrease. The company will need the following to manufacture such as advanced  materials, labor, machinery and a factory. As demand for Iphone has greatly increased, prompting our company to produce more phones. They should be able to order more advanced materials with little delay, so we consider advanced  materials to be a variable input. Labor is one and includes the human services used in any production process. They need extra labor, but  can likely increase the labor supply by running an extra shift and getting existing workers to work overtime, so this is also a variable input. That is what the Foxconn's Zhengzhou’s been doing until they ordered the labors  to work on national holiday . The equipment on the other hand, may not be a variable input. It may be time consuming to implement the use of additional equipment. It depends how long it would take us to buy and install the equipment and how long it would take us to train the workers to use it. Adding an extra factory is certainly not something we could do in a short period of time, so this would be the fixed input.

   Next, quantity of labor employed must increases so that there is more output. This will result into marginal product increase initially but eventually decreases and so as  average product increases initially but eventually decrease. Increasing marginal returns arise from increased specialization and division of labor. Diminishing marginal returns arises because each additional worker Zhenghou factory of  has less access to capital and less space in which to work. As a firm uses more of a variable input with a given quantity of fixed inputs, the marginal product of the variable input eventually diminishes.  The high demand of the new Iphone 5 put pressure on staff to increase the quality of the phone. If the factory workers keep doing this, than there will be shortage. It is situation where the quantity available or supplied in a market falls short of the quantity demanded or required at a given time or price.

    

      There are a lot of factors that can  influence  the elasticity of demand. Under the closeness of substitutes, this products, Iphone can be classify as elastic. Now days, the close substitutes for phones is getting more and more, thus people will have more alternatives to choose. Another factor which influences elasticity of demand is the amount which is spent by the consumer on a good. If a consumer spent substantial part of his or her income on a good then any change in price of a good will lead to consumer switching from that good, however if consumer spends only small part of his or her income then change in price of a good will not lead to a drastic drop in sales of the good. So if a consumer is thinking of buying an Iphone will pay higher attention to any change in price of a good, as compared to when he or she is taking decision regarding buying an apparel from supermarket. Under, the proportion of income, the greater the proportion of income consumers spend on a good, the larger the elasticity of demand for the good.

   

    When it comes to tax, the division of the tax between buyers and sellers depends on the elasticities of demand and supply. In this case Iphone 5 is knowed as perfectly elastic demand because it has a lot of more substitutes  . If they cannot afford an Iphone they can still go to others phones like Nokia, Samsung and more. So, to prevent this from happening, the producers would take the burden of taxes so that the revenue will not decrease so as the quantity demand. In contrast, for products that are inelastic like cigarettes and beer, producer will give the taxes to the consumers because no matter expensive the goods is, the smokers and alcoholic will still pay for it. Thus,  revenue and quantity demanded increases.

     For short run technology constraints, total product is the total output produced in a given period. The marginal product of labor is the change in total product that results from a one-unit increase in the quantity of labor employed, with all other inputs remaining the same. They should offer the labours a high wages to attract to work. In this case, Zhenghou should have offer the workers a high wages if they want them to work on national day.  The average product of labor is equal to total product divided by the quantity of labor employed. Therefore the quantity of labor employed must increases so that there is more output. This will result into marginal product increase initially but eventually decreases and so as  average product increases initially but eventually decrease. Increasing marginal returns arise from increased specialization and division of labor. Diminishing marginal returns arises because each additional worker has less access to capital and less space in which to work. As a firm uses more of a variable input with a given quantity of fixed inputs, the marginal product of the variable input eventually diminishes.

  The conclusion is, Apple's iPhone 5 may have been impacted after thousands of factory workers in China went on strike. It is possible that there is a shortage in the Iphone 5. If this happen, consumers will turn away from their product  and go for other smart phones products like Samsung, Nokia, Blackberry and more.  As a result, quantity demanded for their products will decrease and their revenue will also fall. ,  Therefore, Apple company must take care of its production and in the meantime,  make sure the workers are happy and treat them fairly.

Posted by Muhamad Azzamudin

Demand and Supply of Sugar in Malaysia

    

    Based on the article I have read, from The Star Online written by  Mark Lawrence  'Increase In Sugar Price' on Friday January 1, 2010 , it says that there is  an increase in price of sugar of RM 0.20 cent with the new price being RM1.65 in Peninsular Malaysia and RM1.75 in Sabah and Sarawak. As the price goes up, it will effect the demand and supply. Law of demand says that the higher the price, the lower the quantity demanded and vice versa. This law holds true because as the price of a goods increases the real income with the consumer declines and in order to avoid forgoing consumption of other important goods the consumer decides to consume lesser quantity of the good.  In this case, when the price of sugar goes up relative to income, people will not afford all the things  and they will buy less than they previously bought thus the quantity demanded of sugar decreases. People will only buy a certain amount of sugar to maintain their budget. Therefore when the price of a sugar increase, there will a movement up along the demand curve.

  

      Besides that, they also have to increase the price because of health concerns. The 2006 National Health and Morbidity Survey said that over 40% adults in Malaysia are overweight. That means almost half Malaysian adults are prone to diseases like diabetes and obesity. In the article, Datuk Mohd Zain Mohd Dom said that the Government would withdraw its subsidy on white bread from today and remove it from the price control scheme. The reason for this is because, the effect of subsidy on consumers for bread is not as great as the effect of petrol. Petrol involves a lot more of economic, for example food, electricity and  obviously transportation services. Nevertheless, complement is a good that is used in conjunction with another good. In this scenario, as the price of sugar goes up the quantity demanded of  canned drinks or a cup of tea will go down. An increase in the price of a complement reduces demand. Thus the price of complements have a inverse relationship with the demand of a good.

    Moreover, the demand of sugar will be said as elastic.  There is a lot of sugar substitute out there, and natural ones are the best. If they do not want to buy sugar they can find other alternatives like, the natural ones, Stevia . Stevia is currently the best, natural, non-calorific sweetener in the world. So why not, consider using stevia today? Consumer  will go for Stevia instead of sugar. Thus,  the demand for Stevia will increase and shift to the right because the price of the substitute that is sugar rises. According to the graph below, the demand curve will shift rightwards and when the demand rises, there is a movement up along the supply curve, D1 to D2. The equilibrium will increase from E1 to E2, thus equilibrium price and quantity rises.

   Another factor which influences the elasticity of demand is the quantity of a good which is bought by the consumer of a good. A quantity which is bought regularly will have higher impact of rise in price as compared to that good which is bought in lower quantity. The consumers will still buy sugar because it is an essential needs but they will consume less. Moreover, the producers of sugars are hoarding their products to wait for the price of the sugar to increase. That is why FOMCA, President Datuk N. Marimuthu,  welcomed the increase as a way of reducing artificial shortages through hoarding, and said sugar prices had not been raised for the past 14 years despite the commodity being at a 28-year high. The government will increase the price a little bit so that the illegal suppliers sell their products instead of keeping it to wait for the price to jump higher.

    

   There a few factor that affect the supply. Firstly, as the price of inputs like raw materials increase, the supply curve will shift to the left as producers are less willing or able to sell goods at existing price. Companies like , FRASER & Neave Holdings Bhd (F&N) will reduce the supply because of rise in sugar price that has  increased costs of production. On the other hand, as the population of kids in Malaysia increase, the demand for soft drinks will also rises. Based on the graph below, the demand curve D1 will shift to the right D2 while the supply will shift to the left from S1 to S2 because of rise in price of sugar. Then, an increase in demand and a decrease in supply raises the equilibrium price from E1 to E2. Equilibrium price is when the two forces are balanced, the price will neither increase or decrease they will be stable. This type of equilibrium exists when the price is high enough that the quantity supplied equals the quantity demanded.  This combination of changes in demand and supply raised the price of the soft drink, (F&N) .

     The cost of higher sugar prices will have to be passed on to consumers as  the producers will not be able to absorb the cost impact. Markets will always adjust on their own to create an equilibrium price for goods. . Governments will only place price ceilings on goods and services essential for sustaining life, like in this case, the sugar. In the future, if the sugar price is too high for the people, governments will step in. Governments will place a price ceiling, a maximum price that can be charged for a good or service  on a good to enable all citizens a chance at affording the good. The key here is that the item is available in enough quantity to be served to most people, but is too limited in supply to avoid extreme price mark ups.

   
    In a nutshell, the price of sugar is still cheap despite 20 cent  hike from RM 1.45 per kilograme and  the consumers will not be much affected by the price increase in sugar. Companies that depend on sugar like F&N will be affected. However, not all goods would see an increase in price because not all drinks and food use sweetener. For example, there are teh tarik that use condensed milk instead of sugar. Last but not least consumers should change their eating and drinking habits by consume less sugar and consume healthier product that can replace sugar like Stevia to prevent them from getting disease.

Post by Muhamad Azzamudin

The Market Demand for Private Goods and Public Goods

      In economics, a public good is a good that is both non-excludable and non-rivalrous in that individuals cannot be effectively excluded from use and where use by one individual does not reduce availability to others. Some examples of public goods include fresh air, knowledge, lighthouse, national defence, flood control systems and street lighting. Public goods that are available everywhere are sometimes referred as global public goods. As such the overall value of public goods is obtained by summing the value that each individual receives for a given quantity. The non-rivalrous nature of public goods consumption makes the derivation of the market demand different from that of private goods. The difference is horizontal versus vertical. Many public goods may at times be subject to excessive use affecting all users such as air pollution and traffic congestion. Public goods are often closely related to the ‘free-rider’ which meant people not paying for the good may continue to access it. Besides that, the goods may be under-produced, overused or degraded.

         In economics, private good is defined as “an item that yields positive benefits to people” that is excludable which meant its owner can exercise private property rights, preventing those who have not paid for it from using the good or consuming its benefits. Besides that, rivalrous meant consumption by one necessarily prevents that of another. A private good is scarce in economic resource and can cause competition for it. The market demand curve for a private good is a horizontal summation of individual demand curves. Private goods are less likely to have the free rider problem compare to the public goods. Assuming a private good is valued positively by everyone, the efficiency of obtaining the good is obstructed by its rivalry which is simultaneous consumption of a rivalrous good is theoretically impossible. Besides that, the feasibility of obtaining the good is made difficult by its excludability meant that people have to pay for it to enjoy its benefits.

       As mentioned earlier, the market demand for private goods is derived through the horizontal summation of individual demand curves. Furthermore, the market demand for public goods is derived through the vertical summation of individual demand curves. For private goods, the market demand will answer the question “What is the total quantity that buyers would be willing to purchase at given price?” while for public goods, the market demand will answer this question “what is the total value or benefit generated from consuming a given quantity?”

                                       Private Goods Demand

The Market Demand for Private Goods

     To see the difference between private and public goods, first consider the market demand for private goods. The primary focus of the market demand for private goods is on the price that the buyers pay. The total market demand is derived by adding up or summing the quantity demanded by every buyer at a given price. For example, the market demand for stuffed animals. This particular market contains only two buyers, Muizz and Azim. Suppose that Muizz is willing and able to purchase 2 stuffed animals at a $1 price and Azim is willing and able to purchase 6 stuffed animals at this price. In this case, the total market demand at the $1 price is 8 stuffed animals which is 2 + 6. The market demand curve is then derived by identifying the quantities that these two buyers would be willing and able to purchase at different prices.

      The market demand is the horizontal summation of the individual demand curves of Muizz and Azim. The quantities are horizontally summed for a given price. The resulting red demand curve is the market demand for stuffed animal.

                                                     Public Good Demand

The Market Demand for Public Goods

      Non-rivalrous consumption makes the derivation of the demand for public goods a different story. Everyone can enjoy the benefits of a public good simultaneously. The consumption by one person does not prevent the consumption by another. As such, the value society receives from a public good is the sum of the value received by all who enjoy the benefits. This means that the demand for public goods is based on the vertical summation of individual demand curves.

      For example let's return to our two buyers, Muizz and Azim. However, in this case they are consuming a public good, such as national defence. The focus of attention is now on the price each buyer would be willing to pay for a given quantity of the good let’s say 2 fighter jets. Suppose that Muizz is willing and able to pay $1 for a given level of defence and Azim is willing and able to pay $3 for this level. The total market demand is the sum of the prices that each is willing to pay, which is $4 ($1 + $3). The market demand curve is then derived by summing the prices that these two buyers would be willing and able to pay for different quantities. The market demand curve is the vertical summation of the individual demand curves of Muizz and Azim. The prices are vertically summed for a given quantity. This new red demand curve labeled D is now the market demand for the public good.

        The conclusion of these private and public goods is that the difference is subtle, but key to an understanding of public goods. Efficiency dictates that the extra benefit generated by a good is equal to the extra opportunity cost of production which meant the marginal benefit generated from the production of one more unit of the good is equal to the marginal cost of production. Furthermore, because private goods are rivalrous in consumption, the production of one more unit of the good can be consumed only by one person. Efficiency is then achieved when the extra benefit received by that one person is equal to the extra cost of production.

        In other hand, the story is a different for public goods that are non-rivalrous in consumption. This is because public goods are consumed by everyone simultaneously and the extra benefit derived from consumption is the extra benefit by everyone combined. This can be obtained by summing the extra benefit that each receives, which meant by summing the price each is willing to pay.

Posted by Muhammad Faizzullah

Demand and Supply for Housing Area

  “Are we nearing equilibrium for the housing supply and demand?” that was what Datuk Abdul Rahim Rahman been thinking in the Star Property on 26^th November 2011. What is equilibrium? Based on the economic, economic equilibrium is a state of the world where economic forces are balanced and in the absence of external influences the equilibrium values of economic variables will not change. Based on the standard economics text-book that I learn, equilibrium occurs at the point which quantity demanded and quantity supplied are equal.

                                              

      The above graph shows that the intersection between the quantity demanded and the quantity supply. The area that is shaded B occurs when the demand of a goods are low and the supply of the goods are high. This is what we called a surplus. Meanwhile, the area that is shaded A occurs when the demand of a goods are high and the supply of that goods are low. For this situation we called it a shortage. The blue colour line is what we call the equilibrium because of the quantity demanded is equal to quantity supplied. 

      Is there any equilibrium point in housing market, considering the many factors influencing demand and supply?

     The main factors of the demand for housing are demographic. Population size and population growth are the main demographic variables. However, family size, the age composition of the family, the number of children, net migration, non-family household formation, the number of double family households, death rates, divorce rates, and marriages are other demographic variables that would influence demand for housing. Other factors such as household income, price of housing, cost, consumer preferences, investor preferences, price of substitutes and price of complements all are important determining demand for housing.

      Income is an important cause of housing demand that showed positive income elasticity of demand in North America ranging from 0.5 to 0.9, meaning the demand for housing grew when the income increases. The price of housing is also an important variable influencing demand for housing, where in terms of elasticity just like any normal goods it is negative which when the price increases, the demand will decreases.

      As for supply, the quantity of incoming supply is typically influenced by cost, price of existing stock of houses, and the technology used in the construction, where material costs tend to contribute the largest share of the construction cost, about 30% to 40%. In the short run, supply tends to be very price inelastic which meant when the cost increases, the supply decreases a bit. However, over a longer period, it tends to be very price elastic which meant when the cost increases, the supply decreases. 

      Based on a study conducted by Fallis in 1985 showed price elasticity of supply was estimated at 8.2, which indicate when the price increases, the supply will drastically decreases. The degree of elasticity depends on the elasticity of substitution and supply restrictions. For example, the use of capital intensive technology has been employed to reduce the rising labour cost, but having less impact on the supply of housing.

     At first half of 2011, Malaysia had 4,466,062 units of housing, an increase of 1.7% from the total of supply in the first half of 2010. About 24,709 units were completed in the first half of 2011, a lower number compared to 50,611 units completed in the first half of 2010. Kuala Lumpur and Selangor accounted for 6,567 units or 27% of the total new stock. Kuala Lumpur and Selangor had 414,436 and 1,285,192 homes, reflecting an increase of 2.0% and 1.7% respectively from the total as of first half of 2010.

     Besides that, other states which showed significant number of units completed are Sarawak 2,612, Penang 2,507 and Perak 2,184. The incoming supply in the country was recorded at 560,636 units, where Selangor is the largest contributor which is 134,143 units or 24% of the total followed by Johor which is 76,429 units or 14% and Negeri Sembilan 65,227 units. Kuala Lumpur has 39,656 units coming on stream.

     In terms of transactions recorded as of first half of 2011 for the country, there were 133,984 transactions in the residential category, out of which the largest transacted numbers were priced in the range of RM100,000 to RM150,000, which accounted for 22,857 units, followed by units priced between RM250,000 and RM500,000, which accounted for 21,559 units.

     Selangor recorded the highest number of transactions at 38,424 units, followed by Johor 15,015 units, Penang 13,832 units, and Kuala Lumpur 11,522 units. The most popular units transacted in Selangor, Kuala Lumpur, and Penang were for units priced between RM250,000 and RM500,000, while in Johor, the highest transactions recorded were for units priced between RM100,000 and RM150,000.

     This brief analysis gives an indication that the total number of units coming into the market needs to be in line not only with the level of affordability of potential buyers in the area the projects are to be launched but also the demographics of Malaysian population. As of July 2010, total population was estimated to be 28.25 million and the population is expected to grow at a rate of 2.4% per annum, where about 65% of the population is urban population. Today, less than 4% of Malaysians live in poverty and it is estimated that about 2.0% of the total urban population in Malaysia lives below the poverty line, earning monthly household income of equal or less than RM750. Low income households which are earning income equal or less than RM2,000 per month represents 75% of the median income in Malaysia. The national average household income is estimated at RM4,000 per month. It should also be noted that about 65% of Malaysia’s population is below the age of 35, thus there would definitely be strong demand for housing.

      Due to continuous movement in the factors affecting supply and demand for housing, policy intervention is necessary to ensure that the majority of the population has equal access to own homes. Furthermore, Malaysian government is taking incentive to help those who are facing this problem by increasing the eligibility for My First Home Scheme for those who are earning less than RM3000 gross income per month to RM5000 in the Budget of 2013. Besides that, our Prime Minister Datuk Seri Najib Razak announced that a subsidy of 1.9 million will be allocated to build 123,000 affordable homes around the country.

      In conclusion, it is hoped that the provision of affordable homes as announced in Budget 2013 would achieve its main objective of increasing home ownership among the majority of the population.

Posted by Muhammad Faizzullah