GMGA2023 Public Policy topic 5 continue

Assalamualaikum wbt & Greetings

This notes is a continuation notes from the Public Policy Making: Market, Economy & Government Roles
(ECONOMY, MARKET & PUBLIC POLICY). This notes intend to discuss the Market Efficiency sub topic.
Before we proceed here are the short notes about previous lesson on topic 5.

1. In so far, we have learnt briefly about concept of economy & market (pasaran) & market
efficiency (Kecekapan pasaran).
2. The field of economy inform us that rakyat or people is household (isi rumah) or human being
(kehjadian/makhluk) born with limited resource BUT with unlimited needs. So the field of
economy mentions, the government and market would try to provide goods and services at
their best to fulfill our needs.
3. Government provides us with numerous goods and services. Example?
4. But we understood that government does has limitation in fulfilling ALL of our needs. So we
have second institution – that is market (business/perniagaan)
5. Market responsible to provide goods and services. Market main motive is to gain more profit,
because they intend to fulfill household self-interest.
6. So in order for the market to efficiently produce goods and services that are able to fullfill
hiusehold marjet must be efficient. So the concept of market efficiency occurred.
7. Given that we have learnt the market efficiency concept.
8. Market efficiency concept > economic concept > a situation whereby houselhold is able to fulfill
their self-interest, market is able to gain greater profit. This is done without governmet
intervention and without no one is harmful or negatively affected by the household and market
action. Kecekapan pasaran daripada konsep ekonomi. Pasaran cekap apabila isi rumah dapat
tingkatkan kepuasan diri, peniaga dapat keuntungan. Ini dilakukan tanpa campur tangam
kerajaan, dan tiada yang terkesan secara negatif akibat tindakan isi rumah (membeli) dan
pasaran (menjual).
9. We had also learnt several characteristrics that needs to be fulfilled in order for the market to be
efficiently operated. Refers to the ppt notes. In this discussion we have learnt about:
a. Rational choice (pilihan rasional)
b. Perfectly competitive market (pasaran persaingan sempurna) > oligopolly and
monopolly
c. Absence of public goods > characteristics of goods ie rivalry (persaingan faedah) +
excludable (pengasingan); non-rivalry (tiada persaingan) + non-excludable (tiada
pengasingan). Form these concepts we have learnt the concept of public goods – barang
awam (free rider; externalities); private goods – barang swasta (exclusive principe);
quasi-public goods - separa barang awam.
10. Today we will learn about the conept of MARKET FAILURE (KEGAGALAN PASARAN)

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1. Market failure is a opposite concept of market efficiency:

a. a scenario where in the eye of society the act to maximize self-interest by household &
profit by firm leads negative outcome / implication > the competitive outcome of
markets is not satisfactory from the point of view of society > freely functioning
market is unable to produce an efficient outcome > where markets do not organise
production or goods allocation efficiently, or sellers or household unable to gain their
interest (household unable to attain their self interest; sellers unable to gain profit)
b. Pasaran tidak memperuntukkan sumber2 yg terhad dgn cara yg dirasakan lebagai perlu
dan patut oleh masyarakat > Tindakan memaksimakan kepuasan diri / keuntungan
menyebabkan kepayahan terutama kepada individu yang tidak terlibat dalam proses
jual beli > Alokasi sumber yang tidak adil (kaya semakin kaya, miskin semakin miskin),
atau penjual dan isi rumah tidak dapat memenuhi keperluan mereka

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2 example of market failure. The photos portray the concept of market failure. We take
the example of smoking.

It is true that everybody can smoke. It’s a free country. Why people smoke? Simply
because they feel that smoking would actually fill their self-interest (whatever their
interest ie to feel free, to feel MACHO, MASCULINE etc.) This creates demand for
cigarettes and other smoking devices (cigarettes, vape, shisha, drugs and etc). So as
seller who looking for opportunity to make money, they would definitely produce
smoking devices. Just look at the number of vaping stores around you!. Does the
smoking industry produces any harm to others? ASK YOURSELF. If the answer if yes,
means smoking is one of the examples of market failure. Imagine without government
intervention (campur tangan kerajaan), people can freely smoke and sell smoking
devices. Now imagine babies, and elderly people, living in smoke (asap). Imagine the
growth of drugs businesses! What would be the implication?

Hopefully you are now able to imagine the concept of market failure. Is a concept
whereby the action to fulfill one’s needs, and to gain profit would actually lead to
negative implication especially to the person who do not involve in the buying and
selling transaction.

The Kim Kim river case in Malaysia water pollution, people living in the nearest area of
Kim Kim River does not involve in selling or buying whatever being produce by the
factory. But they are the victim of the case. In this case, different types of pollution is
considered as MARKET FAILURE!

Can you imagine another example of market failure? Like, does eating fast foods create
any harm? What about tablet? Smart Phone? Plastic surgery?

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But WHY market fail?

Market is fail when:

1. Monopoly
Remember market is efficient in perfectly competitive market but not in monopoly
or oligopoly type of market. Listen to the previous video in order to understand this
concept
2. Imperfect Information would lead to manipulation of price. Seller or buyers will be
loss
3. Positive and negative externalities (kesan limpahan positif / negative). We have
learnt this concept before.
a. Positive externalities (kesan limpahan positif) normally will benefit
household, negatively affect seller. Like in the case of public goods. Market
or seller does not want to produce public goods because this goods produce
positive externalities. Household would gain profit as they do not have to
bear (tanggung) any cost, but they enjoy the benefits. Seller on the other
hand might be the cost and unable to gain any profit.
b. Negative externalities (limpahan negatif). Seller gain profit, but household
or specifically other party who did not involve in buying and selling
transaction would negatively affected. Like in the case of smoking, pollution.
4. Income Inequality (ketidaksamaan pendapatan)
Market system will not always respond to the needs and wants of people with
insufficient economic condition. As market would naturally go for profit instead of
helping those in needs. In this case, rich people might be richer, poor people will be
left behind.

Example: singing competition versus math or public management competition. Which

offers more price?
Most popular Singer versus doctors > who gain more income?

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This will be the end of topic 5.

It is important for you to understand those concepts and thought about economy, and market. The
discussion on these matters are useful for us to understand our next topic: Government Intervention
(Campur tangan kerajaan)