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Raja Muhd Arif 2021230568 Case Study 2

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29 views6 pages

Raja Muhd Arif 2021230568 Case Study 2

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rajarif3324
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FACULTY OF BUSINESS AND MANAGEMENT

ECONOMICS (ECO415)

INDIVIDUAL ASSIGNMENT

ASSIGNMENT TITLE: CASE STUDY 2 (INFLATION)

PREPARED FOR:

DR. ARLINAH BINTI ABD RASHID

PREPARED BY:

RAJA MUHAMMAD ARIF BIN RAJA ERIS

CLASS: NBO3B

SUBMISSION DATE: 29 JANUARY 2023


ECONOMICS – ECO415

CASE STUDY ASSIGNMENT #2

The Edge May 25, 2022


KUALA LUMPUR (May 25): Malaysia's inflation, as measured by the consumer price index (CPI),
increased 2.3% in April 2022 from a year earlier, led by higher food prices, according to the
Department of Statistics Malaysia (DOSM) on Wednesday (May 25, 2022).

"The increase in food inflation, which contributed the highest [weightage] to the overall weight of
[the] CPI, remained to be a major contributor to inflation.

"Inflation for this group increased 4.1% in April 2022 as compared to the same month of the previous
year," DOSM chief statistician Datuk Seri Dr Mohd Uzir Mahidin said in a statement.

Mohd Uzir said food inflation in April 2022 was higher year-on-year (y-o-y) at 4.1% with 89.1% of food
items in the CPI's food and non-alcoholic beverages group recording increases.

Among other CPI components, the restaurants and hotels segment rose 3.2% while the transport
portion climbed 3%, he said.

"The increase in food & non-alcoholic beverages group was largely due to an increase in the
component for food away from home which [increased] 4.4% as compared to 4% as recorded in March
2022. For instance, both satay and rice with side dishes recorded higher increase of 7.1% (March 2022:
6.6%).

"Cooked vegetables and cooked beef increased 6.9% (March 2022: 5.7%) and 5.7% (March 2022: 5.2%)
respectively. Meanwhile, food at home which refers to raw materials for cooking preparation at home
increased 4.1% as compared to a year ago," he said.

According to the DOSM, the CPI's combined milk, cheese and eggs group increased at a faster pace of
7.2% in April 2022 compared with 7% in the previous month.

The DOSM said the meat and vegetables groups increased 6.2% and 4.5% respectively while the
combined fish and seafood group climbed 3.8%.

"The increase in vegetable prices was due to weather uncertainties that have affected the maturity of
vegetables and caused a decline in supply in the market.

"In addition, the [increase] in the price [of vegetables] was attributed to the increase [in] fertiliser
prices, logistics costs and labour shortages at agricultural sites," the DOSM said.

The DOSM said the government between April 26, 2022 and May 10, 2022 implemented the maximum
price scheme for goods in conjunction with the recent Hari Raya Puasa celebration.
The implementation of the scheme is expected to ease Malaysia's inflation in May 2022, especially for
the CPI's food group, according to the DOSM.

On the CPI transport component's y-o-y 3% rise in April 2022, the DOSM said the rise was largely due
to the increase in the average price of unleaded petrol RON97 at RM3.84 a litre from RM2.55 a year
earlier.

"This was in line with the 63.3% increase in Brent crude oil prices to US$105.78 per barrel in April
2022," the DOSM said.

On a monthly basis, the CPI increased 0.2% in April 2022 from March 2022, according to the DOSM.

Malaysia's y-o-y inflation of 2.3% in April 2022 accelerated from 2.2% in March 2022.

The country's CPI increased 2.2% in March 2022 from a year earlier, mainly driven by the 4% increase
in the CPI's food and non-alcoholic beverages segment as prices of food items including chicken and
vegetables spiked more than 10%, according to the DOSM.
a) Based on the article, state the reasons of price increase for vegetables.

The increase in vegetable prices was due to weather uncertainties, fertiliser


prices, logistics costs and labour shortages at agricultural sites that have affected
the maturity of vegetables and caused a decline in supply in the market.

(3 marks)

b) Based on the situation described in the article, explain the cause of inflation for Malaysia. Draw
the appropriate diagram to support your explanation.

Demand-pull inflation occurs to arise when aggregate demand in an economy is


more than aggregate supply. It involves inflation rising as real gross domestic
product rises.

There is an increase in aggregate demand, and the supply remains the same or
decreases. When supply cannot meet growing demand, prices for goods and
services are pulled higher.

(4 marks)
c) “The DOSM said the government between April 26, 2022 and May 10, 2022 implemented the
maximum price scheme for goods in conjunction with the recent Hari Raya Puasa celebration.”
With appropriate illustration, briefly discuss the price control of maximum pricing which can
protect consumer especially during the festive season.

price controls are a form of government-mandated economic intervention. They


are meant to make things more affordable for consumers and are also commonly
used to help steer the economy in a certain direction. For instance, these
restrictions may be deemed necessary in order to curb inflation. Price controls
are opposite to prices set by market forces, which are determined by producers
because of supply and demand. Price ceilings, also known as price caps, are the
highest prices at which goods and services can be sold. This happens when
authorities want to assist consumers who believe that prices are far too high.
Governments may also impose price controls on goods and services if they
believe producers are not benefiting from the way goods and services are priced
in the free market. This enables businesses to remain competitive while also
remaining profitable. Controlling how prices are set prevents firms from forming
monopolies. When demand is high, businesses have an advantage and can set
their own prices. As a result, they may be able to inflate prices to increase profits.
Governments can step in and set price ceilings to prevent suppliers from raising
prices further, to allow competitors to enter the market, and to crush monopolies
that exploit consumers.

(4 marks)
d) Briefly explain two (2) outcomes of exercising such form of price control explained in (c).
(4 marks)
The main advantage of a price ceiling is that it limits the consumer's costs. It
keeps things affordable and prevents price gouging or producers/suppliers from
exploiting them unfairly. If a temporary shortage is causing rampant inflation,
price ceilings can alleviate the pain of higher prices until supply returns to
normal levels. Price controls can also boost demand and encourage spending.
Thus, price ceilings have advantages in the short term. They can become a
problem, however, if they last too long or are set too far below the market
equilibrium price when the quantity demanded equals the quantity supplied.The
market experiences a shortage because the quantity demanded exceeds the
quantity supplied because the government sets a maximum price below the
equilibrium price. A shortage occurs when a lower price stimulates higher
demand while also encouraging producers to provide less.

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