CONFIDENTIAL MAM, MOM, MAC/DEC 2023/MGT 2134

GROUP ASSIGNMENT

COURSE/CODE : MGT 2134 - PRINCIPLES OF ECONOMICS

SESSION : DECEMBER - APRIL 2024

SUBMISSION : 28 FEBRUARY 2024

DATE

At the end of this Group Assignment, students will be able to explain the economic problems and
how to solve it using microeconomics and macroeconomics tools (C3).

NAME OF STUDENT STUDENT ID

NURUL HIDAYATUL HIKMAH BT AB GARIB MAM22060107

DAYANG SITI NORSHAMIRA BT MOHD. MAM22060073

AMIN

SYVESTINA NESA VALENTINE MAM22060052

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INTRODUCTION

Microeconomics is the social science that studies the implications of incentives and decisions,
specifically how those affect the utilization and distribution of resources on an individual level.
Microeconomics shows how and why different goods have different values, how individuals and
businesses conduct and benefit from efficient production and exchange, and how individuals best
coordinate and cooperate with one another. Generally speaking, microeconomics provides a
more detailed understanding of individuals, firms, and markets, whereas macroeconomics
provides a more aggregate view of economies. Next, is from Conventional Perspective that is a
study of how people use limited (scare) economic resources in order to fulfil their unlimited wants.
Next, is from Islam Perspective that is study of how men obtain and utilize the economic resources
according to Syariah not only to fulfil spiritual and material needs but also to achieve blessing
from Allah.

Market Equilibrium is the state in which market supply and demand balance each other, and as a
result prices become stable. Generally, an over-supply of goods or services causes prices to go
down, which results in higher demand—while an under-supply or shortage causes prices to go
up resulting in less demand. Or this is condition when Quantity Demanded for a good is equal to
the Quantity Supplied for that good (D=S) (Equilibrium). For example, at price RM 8.00, quantity
demanded and quantity supplied have the same amount of burger which is at 6000 units. So, the
equilibrium price is RM 8.00 and the equilibrium quantity is 6000 units of burger. Not only that,
when the answer is 0 that is equilibrium.

Government intervention is when the government gets involved in the marketplace for the purpose
of impacting the economy. It can often be a very controversial topic and is known to fuel political
debate. Those that advocate for government intervention argue that the Law of Supply and
Demand is not enough to keep the economy running smoothly, and this intervention will protect
against abuses and guard the overall success of the economy. They argue that it is a responsibility
of the government to ensure the best interest of the people and do what is necessary to reduce
or eliminate poverty and hardship. Others believe that government intervention is not the answer
to every economic problem, and their involvement often does more harm than good. For example,
the government intervention in the economy is from taxes, subsidies, price controls and many
more.

Maximum price is a legally established price that is not allowed to increase above a maximum
level set by the government. It also called price ceiling (basic commodities) such as sugar and
rice. Next, is the highest possible price that producers are allowed to charge consumers for the
good service produced provided set by government. Next, for advantages is consumers can buy
products at lower price and protect consumer from price discrimination. For disadvantages is a
maximum price will create an excessive demand (shortage) for certain products and this can lead
to black markets.

Minimum price is a legally established price set by the government at a level above the equilibrium
price in market. It also known as price floor (agriculture products and minimum wage paid to
workers by employers. Next, is the lowest possible price set by the government that producers
are allowed to charge consumers for the good produced. Next, is advantages for help farmers to
increase their income and protect workers from exploitation. For disadvantages is with price floor,
price is set higher than the equilibrium price, thus consumers have to pay more for goods and
service. It will be caused surplus in the market.

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QUESTION 1 (10 MARKS)

Below are the market equilibrium for the production of meatball. All the values are in RM and
Units:

By using your economic understanding:

a) State THREE (3) market conditions in the market (1 mark)

b) State the equilibrium price and quantity (1 mark)
c) By showing on a graph given, what happen to the market if the price fixed at RM60? How many
shortage or surplus in the market? (4 marks)
d) Illustrate in a separate diagram, what will happen to equilibrium price and quantity of meatball
if a recent study claims that meat is linked to an increased risk for cancer. (4 marks)

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ANSWER OF QUESTION 1

a. i. Demand-Side Factors

ii. Supply-Side Factors

iii. Market Structure

b. EP = RM 50

EQ = 400 UNITS

c. At the price RM60: By using the formula S - D

QD = 300 UNITS = 500 - 300

QS = 500 UNITS = 200 UNITS (SURPLUS)

S > D (SURPLUS)

d.
Price

P0
P1

D1 D0
Quantity
0
Q1 Q0

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If meat is linked to an increased risk for cancer, it would likely lead to a decrease in demand for
meatballs due to consumers' concerns about health risks. This decrease in demand would shift
the demand curve for meatballs to the left, leading to a new equilibrium point with a lower
equilibrium price and quantity. D0 represents the original demand curve for meatballs. While D1
represents the new demand curve for meatballs after studies linking meat with cancer risk were
released. S represents the supply curve for meatballs. P0 and Q0 represent the original
equilibrium price and quantity of meatballs, respectively. While P1 and Q1 represent the new
equilibrium price and quantity of meatballs, respectively. As seen in the figure, the equilibrium
price (P1) and quantity (Q1) of meatballs decrease in response to the decrease in demand
caused by the findings of the study.

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QUESTION 2 (20 MARKS)

Newspaper Online Article: Proper Price Control Mechanisms Required to Deal with
Soaring Vegetable Prices

By: Amanda Yeo

Finally, Malaysians could enjoy breaking of fast by having a sumptuous meal with their loved ones
without limitation on the number of people gathering together and physical distancing during this
Ramadan month after two years of the pandemic. However, the rising food price inflation
continues to pose challenges, especially among low-income households who are still trying to
recover their economic livelihoods during this endemic period.

Although the government has extended the Keluarga Malaysia Sales Programme (PJKM) till June
to reduce the financial burden of the rakyat, vegetables remain one of the most nutritious food
items experiencing soaring prices.

According to a statement of the Consumers Association of Penang (CAP) in November 2021, the
price for red chilies had gone up from RM13 to RM19 per kg and RM14 for green chillies from
RM10 per kg previously.

When we consider the vegetable price reduction by 20% under the PJKM scheme, the price for
red and green chilies per kg should be RM15.20 and RM11.20, respectively.

However, when we look at the retail price from the Federal Agricultural Marketing Authority
(FAMA), the average pricing of red and green chilies in Seberang Perai Tengah, Penang, on April
7, 2022, was at RM18 and RM12 per kg, respectively.

Pandemic alters food expenditure

The increasing price trend indicates that consumers had to spend more money buying the same
number of chilies, a common ingredient to cook curry.

Therefore, there is an increasing concern that Malaysians with low-income levels will be forced to
“downgrade” by purchasing cheaper food such as bread and instant noodles to mitigate the impact
on their purchasing power and what little savings that are left.

EMIR Research has written an article whereby the COVID-19 pandemic has altered food
expenditure among the urban and rural poor. With reduced income, the bottom 40% (B40) have
to lower their food intake. They are relatively less capable of buying healthy food relative to the
pre-pandemic era.

Nonetheless, the increase in Producer Price Index (PPI) and Consumer Price Index (CPI) show
that rising food price inflation will not subside anytime soon.

The Department of Statistics Malaysia (DOSM) revealed in its latest findings that PPI for local
production – an output-based index that measures the average change in commodity prices for
local market sales valued at factory prices – has increased from 9.2% in January 2022 to 9.7% in
February 2022. Higher primary commodity prices have increased the PPI.
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The manufacturing index experienced a 7.9% increase in February 2022 compared to 7.0% in
January 2022. The sub-manufacturing index for the manufacture of vegetable & animal oils & fats
is the second-highest contributor to the overall manufacturing index, at 18.6%. The manufacture
of refined petroleum products witnessed a 20.3% increase, followed by the manufacture of basic
chemicals, fertilizers & nitrogen compounds, and plastics & synthetic rubber in primary forms
(13.1%).

In a month-on-month comparison, the PPI for local production had increased to 2%, compared to
1.3% in January 2022. Among all manufacturing sub sectors, the manufacture of vegetable &
animal oils & fats witnessed a 3.2% increase, followed by the manufacture of refined petroleum
products (2.1%) and the manufacture of electronic components & boards (0.5%). As a result, the
manufacturing index on a month-on-month basis rose from 0.8% in January 2022 to 1.3% in
February 2022.

On the other hand, the CPI increased moderately by 2.2% – from 122.5 in February 2021 to 125.2
in February 2022.

Rise in food inflation

A rise in food inflation is the main attribute to the CPI increase.

Chief Statistician Datuk Seri Mohd Uzir Mahidin indicated that the 3.7% increase in the Food &
Non-Alcoholic Beverages category was mainly due to the rise in the sub-category of “food at
home” by 4.1% over the same period. Nevertheless, he did not mention vegetables are the
essential stuff used for cooking preparation at home.

On the other hand, the other sub-category, namely “food away from home”, increased from 3.1%
in January 2022 to 3.6% in February 2022. The relaxation of COVID-19-related standard
operating procedures (SOPs) has resulted in more Malaysians eating out once again, among
other social activities.

No doubt meat items such as cooked beef (6.4%), murtabak (6.2%) and satay (5.4%) are
contributing the most to the increase in the “food away from home” index. Yet, vegetables (4.3%)
consist of a certain proportion of the index aside from milk, cheese & eggs (5.1%) and fish &
seafood (3.6%).

The CPI “food away from home” sub-index shows that Malaysians, in general, are placing a
balanced and healthy diet as their priority.

We could also refer to “The Healthy Eating Pyramid” published by the Department of Nutrition,
Harvard School of Public Health, as shown in Figure 1.

In short, a balanced and healthy diet consists of different kinds of food in a certain amount of
quantities and proportions so that the requirement for calories, proteins, minerals, vitamins and
alternative nutrients are deemed adequate.

Statistics seem to show that most Malaysians have balanced meals comprising meat, vegetable
and dairy intake.

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Notwithstanding, a recent article written by Ilyana Mukhriz, a research associate at Khazanah
Research Institute, suggested otherwise.

She stated in her article in Malaysiakini (April 5, 2022) titled “Recognize social determinants to
improve health” that Malaysians are not necessarily healthier despite enjoying longer life
expectancy.

While a Malaysian new born in 2019 can expect to live up to 75 years, compared to 71.9 years in
1990, some 9.5 of those years are likely to be spent in poor health – 0.4 years more than in 1990.
“Social determinants of health” (SDOH) such as housing, education, jobs, incomes, access to
nutritious food and physical activity, for instance, could be the leading factors to poor health.

Therefore, those with limited access to nutritious food have a higher risk of being diagnosed with
non-communicable diseases (NCDs) such as diabetes, obesity and heart disease.

According to the 2018 data of the World Health Organization (WHO), coronary heart disease
related deaths in Malaysia reached 34,766 or 24.69% of total deaths.

Imagine those B40 communities who lost their jobs or income during the pandemic: how could
they afford to buy increasingly expensive vegetables for their nutritional intake?

With soaring vegetable prices, food truck sand coffee shop owners, among others, with limited
cash flow only could cut the vegetable portions served in order to reduce associated operating
costs ranging from salaries of employees, rent, utility charges and cooking gas.

Hence, to ensure Malaysians continue to enjoy substantial vegetable intake during the endemic
period, EMIR Research has some policy recommendations to recommend for the different
stakeholders:

For the citizens:

Consider growing their own vegetables if they have empty space at their homes. Instead of
purchasing more costly vegetables, Malaysians could enjoy eating fresh home-grown vegetables.

With a mini garden inside a residence, stressed-out individuals or families could enjoy a good
indoor environment, air quality and well-ventilated indoor spaces. They could also relax their
minds through gardening.

For the government:

1. Work closely with several non-governmental organisations (NGOs) such as Food Aid
Foundation, The Lost Food Project and Pasar Grub, distributing leftover but consumable food or
“lower quality” vegetables and fruits to the B40 communities who are most vulnerable to food
insecurity.

To ease the food aid delivery, the government should mark and map and include all the B40
families onto their geographic information system (GIS) for data collection, planning and
implementation, especially those who are living in interior and squatter areas;

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2. Integrate food and nutrition-focused programmes with different transfer modalities such as in
kind, cash or vouchers into the social protection system.

Low-income households, in particular, can use food vouchers or cash to buy food. It would ensure
everyone has a basic income, giving them the ability to cover their basic spending needs and
enjoy nutritious food;

3. Provide subsidies for seeds, fertilizers and pesticides to be paid directly to the farmers through
a coupon system.

The farmer could use the coupon to buy high-quality seeds from any vendor or company. The
vendor also can use the coupon to claim payment from the government. This approach would
create healthy competition among vendors besides stimulating agricultural activities. At the same
time, it would motivate farmers to produce high-quality vegetables with sufficient quantities for
domestic needs, allowing Malaysia to be less dependent on imports;

4. FAMA and related government agencies should do more in terms of logistics by assisting rural
farmers to store and transport agricultural products to major cities of Malaysia. So, the rural
farmers no longer have to travel across muddy, rocky roads, selling vegetables to the end-users.

In a nutshell, the government has to intensify and enhance the policy mechanisms to guarantee
the welfare of farmers, wholesalers, retailers and consumers alike.

The price ceiling (maximum price) or price control mechanism that is targeted only at the retailer,
i.e., market vegetable seller, is not sufficient to counterbalance the effects of rising food price
inflation.

As such, the government must take pro-active measures to address the issue of profiteering by
focusing on the middlemen in the supply chain who dominate and fix the prices, as even confirmed
through investigations by consumer groups, for example.

Both the Ministry of Domestic Trade and Consumer Affairs Malaysia (KPDNHEP) and FAMA are
the responsible government stakeholders to conduct regular monitoring and enforcement –
ensuring farm, wholesale and retail prices are set at reasonable and acceptable levels.

Source: BERNAMA, April 2022

By using your economic knowledge:
a) Summarize the above online article regarding the microeconomics issues. (5 marks)
b) Explain the above online article by using microeconomics theory. (15 marks)

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ANSWER OF QUESTION 2(A)

The article discusses the microeconomics issues because of soaring food prices in Malaysia,
particularly impacting low-income households during the COVID-19 pandemic. Despite
government initiatives such as the Keluarga Malaysia Sales Programme (PJKM) to alleviate
financial burdens, the prices of vegetables that are essential for people's health have continued
to rise, affecting consumers' purchasing power. The Producer Price Index (PPI) and Consumer
Price Index (CPI) have both shown significant increases, reflecting the ongoing food price
inflation, with the rise in food inflation being a key contributor to the CPI increase. The article also
highlights the impact of limited access to nutritious food on public health, emphasizing the social
determinants of health as a crucial factor influencing overall well-being.

Furthermore, the discussion delves into the potential consequences of increasing vegetable
prices, such as the potential need for low-income individuals to downgrade their food choices,
leading to reduced access to healthy food options. Additionally, the article emphasizes the
importance of balanced and healthy diets, suggesting that Malaysians prioritize such dietary
habits. However, it also presents a contrasting perspective, citing a research associate's article
that indicates despite longer life expectancy, Malaysians may not necessarily be healthier due to
various social determinants of health.

The article concludes by proposing policy recommendations for different stakeholders to address
the issue, such as encouraging citizens to grow their vegetables, collaborating with NGOs to
distribute food aid to vulnerable communities, integrating food and nutrition-focused programs
into the social protection system, and providing subsidies to farmers for seeds, fertilizers, and
pesticides. The government is urged to enhance policy mechanisms, guarantee the welfare of
farmers, wholesalers, retailers, and consumers, and take proactive measures to curb profiteering
in the supply chain through regular monitoring and enforcement. Overall, the article emphasizes
the need for proper price control mechanisms and comprehensive interventions to tackle the
challenges posed by soaring vegetable prices and ensure continued access to nutritious food for
all Malaysians.

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ANSWER OF QUESTION 2(B)

Theory of Demand

Demand is a schedule which shows the various amount of a product that consumers are willing
and able to purchase at a specific price and time.

Law of demand
• There is an inversed/negative relationship between price and quantity demanded. Thus,
demand curve is downward sloping.
• The higher the price of a good, the lower the quantity demanded for that good.
• The lower the price of a good, the higher the quantity demanded for that good.

Theory of demand applied to the online article:

The Demand Theory is relevant to this topic, as we can see that Malaysians require veggies such
as chilli, carrot, pumpkin, and many more to keep a healthy physique. Refer to “The Healthy
Eating Pyramid” published by the Department of Nutrition, Harvard School of Public Health,
Vegetables remain one of the most nutritious foods, and in Statistics seem to show that most
Malaysians have balanced meals comprising meat, vegetable and dairy intake. That’s why they
are in high demand among people. However, due to recent price inflation, many lower-income
families, particularly those in B40, are finding it difficult to purchase food. Furthermore, due to
rising prices, individuals in Malaysia are less likely to buy veggies, as B40 residents lack the
necessary funds. As a result, most Malaysians prefer to buy other foods in order to survive, even
if the foods are unhealthy. since of a lack of demand from the people, the government produces
less resources since the prices are too expensive for all Malaysians. Especially during the covid-
19 epidemic, when people's demand for veggies must have surged, price inflation on items means
that many less able individuals cannot afford to buy them, making it easier to become ill. As a
result, the government must act quickly to solve this issue in order to save many Malaysians from
being oppressed by the rise in price inflation.

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Theory of Supply

Supply is a schedule which shows the various amount of a product that producers are willing and
able to sell at a specific price and time.

Law of Supply
• There is a positive/ direct relationship between price and quantity supplied. Thus, supply
curve is upward slopping.
• The higher the price of a good, the higher the quantity supplied for that good.
• The lower the price of a good, the lower the quantity supplied for that good.

Theory of Supply applied to the online article:

Supply theory is also directly connected to this article, since we can see that Malaysians have
lower demand for veggies, causing suppliers to manufacture less amounts of commodities for
sale. This is due to rising price inflation, which causes most people to avoid buying veggies since
they do not have enough money. So, when sales are low, the corporation or factory will cut the
supply of sales to avoid bankruptcy. in the article also said where "there is an increasing concern
that Malaysians with low-income levels will be forced to "downgrade" by purchasing cheaper food
such as bread and instant noodles to mitigate the impact on their purchasing power and what little
savings that are left". According to the "Social Determinants of Health" (SDOH), less availability
to healthy food might be a key factor in ill health due to a lack of demand from people and suppliers
who are not generating a large number of items. According to World Health Organisation (WHO)
data from 2018, coronary heart disease-related fatalities in Malaysia totalled 34,766 or 24.69% of
all deaths.

Theory of Production

Production is the process by which inputs are combined, transformed, and turned into outputs. In
production process, firms tend to minimize the production cost and maximize its profit.

Factors of Production
• Land refers to all-natural resources.
• Labour refers to human resources that categorized into skilled or unskilled labour.

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• Capital refers to financial resources and all human made tools or instruments that used in
production process.
• Entrepreneurs refers to a person who responsible in making decision along production
process.

This production theory is when price inflation increases, all sales items increase, so every firm,
store and entrepreneurs that sells food and drinks should be smart in managing their financial
cost of their firms and the price set to the buyer. In this online article, it can be seen clearly where,
“With soaring vegetable prices, food truck sand coffee shop owners, among others, with limited
cash flow only could cut the vegetable portions served in order to reduce associated operating
costs ranging from salaries of employees, rent, utility charges and cooking gas.” In this way,
traders can sell their food at a low price to all Malaysian people to continuous their profits, so that
they do not go bankrupt and Malaysian people also get a healthy food and be healthy. When
inflation occurs, prices rising, it is difficult for firms or traders to control their finances, production
and the prices they set for the buyers. When their finances need to be controlled, they need to
reduce their production costs to increase their profit.

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CONCLUSION (5 MARKS)

Microeconomy deals with the study of the market system on a small scale. It helps a person
study the behaviour of individual economic units of an economy. The main components of
microeconomics are demand and supply. Microeconomics can also be referred to as price
theory. Microeconomics has an important place in economics as it has both practical and
theoretical importance. The three main principles of microeconomics are opportunity cost supply
and demand and utility maximisation. Microeconomics plays an important role in understanding
the functioning of the economy. But the uses of microeconomics have some limitations. It only
deals with the economic behaviour and relations of an individual but ignores the aggregate
approach. Thus, it only represents a partial analysis of the variables and relations in an economic
system. It concludes that in a perfectly competitive market with no externalities, per unit taxes,
or price controls, the unit price for a particular good is the price at which the quantity demanded
by consumers equals the quantity supplied by producers. This price results in a stable economic
equilibrium. Next, maximum price is a legally established price that is not allowed to increase
above a maximum level set by the government and the minimum price is a legally established
price set by the government at a level above the equilibrium price in market .

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