Hybrid revolution

Written by Wei Yoong L.

Article based on:
<http://paultan.org/2012/07/19/breaking-honda-to-produce-hybrid-cars-in-malaysia-starting-with-the-ckd-jazz-hybrid/>

Cars are important transportation equipment to the citizen in Malaysia especially to those people who live in the city center. Everyday, we can see long line of car sticking bumper to bumper during the peak hours. According to statistic, every family who live in the city will own at least 2 cars. In fact, some of the families that have a lot of family member will own up to 4 to 5 cars. So, cars have played a very important role to the citizen. If a person’s car broke down, will result, as the person cannot travel around from places to places. In this recent time, the trend has change from fuel consumption to hybrid cars. Hybrids cars are cars that run with electric. Therefore, there is reason that causes the demand of hybrid car to increase.

Demand is the wants that people want to buy, or people who can afford and plan to buy. So, in order for people to increase in demand in hybrid, the firms need to consider of the wants of the car, could people afford the car or are the people planning to buy a car. Petrol is the most important resource to make a car move. Therefore, this shows that petrol is the complement good with car. The demand and supply curve below will show the demand change from fuel consumption cars to hybrid cars effected by the petrol price.

(Figure 1.1)

Figure 1.1 insulates the quantity of fuel consumption car demanded on the x-axis and the y-axis shows the price of fuel consumption cars. Besides that, the red line show the supply curve of the fuel car and the blue and yellow line show the demand curve of the fuel car. Initially, there is equilibrium in the car’s market at the quantity of Q1 and the price of P1. When fuel price increase and it will affect the market of the cars. As we all know that the petrol is the complement goods for car, without petrol the car cannot be function. As the price of the petrol increases, the people will find a substitute to replace the fuel car. So, this action has causes the demand of the fuel car drops and made the demand curve shift to the left. So, the shift of the demand curve has form another equilibrium point which that the quantity reduce from Q1 to Q2 and reduce the price from P1 to P2.

Due to the increase in price, people will find a perfect substitute to replace the fuel consumption car. The increase in price of fuel will lead to an increase in price of traveling cost. Therefore, people will find the best way to reduce the cost by change their trend to hybrid cars. Thus, the changes of taste in car have effect the market of hybrid car. The demand and supply curve below will show how the price of petrol effect the change of hybrid car.

(Figure 1.2)

Figure 1.2 show that the demand and supply curve of the hybrid car. The x-axis shows the quantity of the hybrid cars and the y-axis insulates the price of the hybrid cars. In addition, the red line shows the supply curve of the hybrid car and the blue and yellow line show the demand of the hybrid car. Initially, when there is not change in price of petrol the, the equilibrium point of quantity is at Q1 and the price is at P1. If the price of the petrol increases, this will lead to people will buy more hybrid car instated of fuel consumption car to reduce their expenses on traveling. As a result, this led to and increases hybrid car and cause the demand curve shift to the right. This action has causes an new equilibrium form at the quantity increase from Q1 to Q2 and the price increase from P1 to P2.

The selling price of the hybrid car in Malaysia is slightly higher than the fuel consumption car due the capital investment pour into the hybrid technology. Beside that, the new technology that newly introduced have very little competitor and mainly dominate by Honda in Malaysia. So, the company has control over the price of the hybrid car and causes a price inelastic. But people still is willing to buy the car, because it saves up at least 30 to 40 percent of fuel consumption. The selling price for hybrid car is expensive, but percentages that save up on fuel are worth more than the fuel consumption car ever thought it look cheaper in selling price. As a result, the fuel saving on hybrid car make an increase in demand for hybrid car. In addition, the subsidy are given by the government to hybrid car have increase in demand. The government eliminates the import duty and exercise duty on hybrid car with engine size less than 2.0 litters. The subsidy has made the price of the hybrid car even lower than before that more people can afford on it. This makes the demand to increase as well.

The hybrid car is mainly dominant by Honda and it creates a market structure called monopoly in the short run. Because this new technology just establish, this result very little firm adapt into this technology causes very little competitor to compete with Honda Company. So this make the company to set there price high and sell to the consumer. In contrast in the long run, there will be more firms establish into this technology for example, Toyota, Proton and etc in coming time. So when these companies come out with their new hybrid car will cause a competition among firms and lead to an oligopoly market structure. When there is competition, the firms will sell their product at a lower price in order to fight with other firms to survive in the market. Eventually, the price of hybrid car will fall in the long run time frame. Furthermore, if the price of hybrid car drops more than the fuel consumption car, the fuel consumption car will slowly decrease from the market. This will happen because the hybrid car is perfect substitute to fuel consumption car and hybrid car bring more benefits towards the consumer.

In conclusion, the hybrid car will bring a revolution in our car industry, because it brings more benefit and cost saving toward the consumer. I hope that, these technology will be more establish all around the world so everyone can enjoy using it.

Apple's goal by the end of 2012

Written by Wei Yoong L.

Article based on:

<http://biz.thestar.com.my/news/story.asp?file=/2012/9/18/business/20120918080726&sec=business>

Nowadays, technology is widely seen in 21st centaury. The technology has change people’s life by making our lives more convenient and easy. Besides that, the technologies have save up people’s time to complete a task. Therefore, recently, Apple Inc has launched the iPhone5 smart phone to the world. According to Apple inc (September,2102), booked orders for over two million iPhone5 models in the first 24 hours and to sell 45.21 million iPhone in the end of this year. In order, Apple Inc to produce such a big bulk of iPhone5, there are many problem need to be overcome.

Apple Inc is not just producing one good, which is iPhone5. However, there are still producing others product example iPod touch, iPod Nano and also iPad. Hence, if Apple Inc would want to increase the production of iPhone5, the company would need to face a tradeoff. The reason the company will face a trade of is due to the limited resources and the working labor hours to produce the several of Apple’s product that called scarcity. The material used to produce in iPhone5 not only just focus in iPhones but also others, such as anodized 6000 series aluminum also apply in the MacBook pro, the ceramic glass on the white model and the pigmented glass on the black model of iPhones5 and also the processor and LCD screens also used to produce iPad as well. Besides that, the approximate labor for Apple Inc in China is about 200,000 workers to produce iPad, iPhone5 and other Apple’s produce. Therefore, with this limited resources and labors that Apple has eventually will face constraints and lead them to a tradeoff by giving up some of the quantity of other Apple’s product when the company would want to focus on iPhone5. Furthermore, this will bring effect to the company to hit the targeted number of iPhone5 sold by the end of the year. So, we can see the Production Possibilities Frontier (PPF) to see the best way to produce the maximum production in this scarcity.

The PPF will only focus on 2 goods (iPad and iPhone5) produce by the company and other quantity of all the other goods and services remain constant in the state of ceteri paribus. However, there is only 2 things are variable which is the iPad and iPhone5.

The curve below explains the PPF curve.

(Figure 1.1)

This curve explains that the company cannot produce more goods anything above the curve at point H due to the availability of resources and labor. Besides that, the company is attainable to produce anything below the curve, but they will not want to produce goods any quantity at the brown color region such as point G due to lack of efficiency of using resources and labors. Furthermore, the favorable quantity that the company would want to perform is quantity along the curve that is point A, B, C, D, E, F. Every quantity that the company produces along the curve shows the resources and labor are fully utilizes by no wasting it. However this curve shows a tradeoff when the company would want to produce more in a particular product. For example, when apple would want to produce more on iPhone5 form point C to point D. the number of iPhone will increase from 2.5 units to 3 units, but a decrease in iPad form 13 units to 10 units, so do the same on the other points on the curve. Thus, Apple Inc would need to find the most suitable point to create the maximum revenue and to hit the goal of iPhone5 sold in the end of the year.

To prevent Apple Inc to fall on point G for iPhone5, the company would need to be production efficiency. It can be achieve by producing goods at the lowest cost and highest output with utilizing the resource efficiently. Therefore, the company would need to find the cheapest LCD screens, ceramic glass and etc from the suppliers and it incur an opportunity cost by finding the materials. Furthermore, after finding the minimum cost of material, the company would need to produce the maximum number of Iphone5 by allocating resources efficiently. Once the company misallocates the resources wrongly the number of output decreases and will lead to a higher cost of production for the targeted number of iPhone5. However, there is a taste of change for the people to iPhone5. So, in order to maximize the profit for Apple Inc, the company would need to achieve allocative efficiency. Due to the change of trend, the company would need to allocate more resources on iPhone5 instated of iPad. If the company still would produce the same amount of iPhone5 and iPad, their total revenue in the end of the year will be reduce. This will happen is due to people the current change of trend having causes more people demand on iPhone5 and less demand on iPad. So, if the supply of iPhone5 is the same as iPad there will lead to a shortage of iPhone5 and surplus of iPad. The company could have reduce the supply of iPad and focus the resources on iPhone5 by boosting up the quantity to maximize their profit.

The price of the iPhone5 is control by the Apple Inc, when iPhone5 first launch, there is no competitor to compete with Apple Inc. Thus this shows that item is price inelastic. In the short run, there is still increase in demand of iPhone5 even thought the price are high. This is due to the change of trend and some people will buy cause of appreciate their social status in the society. On the other hand in the long run, the market structure will change into oligopoly. Apple have very little competitor in fact their major competitor is Samsungs. This shows the characteristic of small number of firm to compete. Eventually, Samsung will come out a similar product like iPhone5 to compete with Apple. Naturally, when there is competition will lead to a substitution of product and causes the iPhone5 from price inelastic to price elastic. So, at this time the price is vary and causes loss of some Apple Inc’s consumer and causes the demand to decrease. This will lead to a decrease in demand, and make Apple to come up and new idea and produce a new product.

In conclusion, Apple Inc will need to overcome most of the problem in the article in order to reach their goal by the end of this year. Therefore, I am very excited looking forward on the way of Apple Inc handles this problem in the coming time.

Bill Pushes for Increase in Wages

Written by Nariman T.

Article is written based on: <http://www.nytimes.com/2012/06/07/business/bill-pushes-for-increase-in-wages.html>

According to the topic where Jesse L. Jackson said that raising minimum wage would help to improve economy of United States. He has introduced a bill that would immediately increase the minimum wage by $2.75, from $7.25 to $10. That raising might encourage Americans to spend more, thus, help stimulate the nation’s struggling economy.

When wage rates are low, or when they fail to keep up with raising prices, employees may turn to government and lobby for a higher wage rate.

If government impose regulation that makes illegal to set wages lower than specified level ($10) in labor market, it is called minimum wage.

At the equilibrium price, the quantity demanded equals the quantity supplied. In a labor market, when the wage rate is at the equilibrium level, the quantity of labor supplied equals the quantity of labor demanded: there is neither a shortage of labor nor a surplus of labor. So when a minimum wage is set above the equilibrium wage, there is a surplus of labor. The demand for labor determines the level of employment, and the surplus of labor is unemployed. We can illustrate the standard analysis using a simple supply and demand model of the labor market.


Let's assume that the minimum wage rate in US is set at $10 an hour. Any rate below $10 an hour is illegal (in the gray-shaded illegal region). At the minimum wage of $10 per hour, 20 billion hours are hired but 22 million hours are available. Unemployment of 2 million hours a year is created. With only 20 million hours demanded, someone is willing to supply the 20 millionth hour for $4.

The minimum wage frustrates the market mechanism and results in unemployment and increase job search. At the quantity of labor employed, the marginal social benefit of labor exceed its margial social cost and a deadweight loss shrinks the firms' surplus and the workers' surplus.

Minimum wage laws are an example of a price control. Price controls limit the volume of transactions, and distort the quality of goods or services exchanged in the market place. In the case of a minimum wage, the costs are thought mainly to take the form of reduced employment and output, while the gains accrue mainly to those who keep their jobs at a higher wage rate.

Most economists believe that the aggregate losses accompanying price controls, including minimum wage laws, exceed the aggregate gains. Nevertheless, most democracies are characterised by political or quasi-judicial intervention into labour markets.

The demand for labour depends negatively on the real wage. Following an increase in the real wage, employers may alter their production processes to use less labour. If they cannot find less labour-intensive production techniques, their costs will rise and the demand for their output will decline. In either case, an increase in real wages paid to workers reduces the demand for their services.

An increase in output per hour that comes from higher productivity due to better equipment or methods is a good thing for the economy. An increase in output per worker that comes simply from working people longer and harder is not really an increase in productivity and is not beneficial to the economy.

The supply of labour depends positively on the real wage. As wage rates increase, workers are attracted to enter the workforce rather than continue education and training, work at home, work in their own businesses, or survive on the lower amounts of market goods and services they can buy using public or family "welfare" assistance.

From my point of view, this issue has two sides, the positive side is the increase in production, less unemployment, stronger buying power. Card and Kreuger say that increases in the minimum wage have increased teenage employment and decreased unemployment. The cruel irony of the minimum wage is that it harms most the very segments of our society that it is intended to help—the unskilled poor and the inexperienced young. Many believe that the minimum wage is hurtful to families at or below the poverty line. In order to benefit from higher minimum wage, a worker needs to have a job to begin with. When the minimum wage increases, many businesses let positions go in order to afford the rate hike. Workers that are laid off tend to be those without high school education, making it harder for them to find a new job.

Minimum wage increases cause employers to have fewer funds available to hire more workers, and in many cases, businesses will need to let workers go to cover the costs of the rate increase. Businesses may also choose to outsource jobs to find workers willing to perform the duties for less.

Another way businesses will seek to cover these costs is by passing the rate increase on to consumers. This means that if a business is forced to pay an employee a higher minimum wage, the business will then raise the price of their goods in order to afford the new wage cost.

Existing workers might also be willing to supply additional hours per week, or additional weeks of work per year, as the wage rate rises. For simplicity, the following discussion ignores any adjustment in hours worked in response to a minimum wage.

The intersection of the supply and demand curves determines an equilibrium real wage and equilibrium level of total hours of employment. If the prescribed legal minimum real wage is above the equilibrium market clearing level, the minimum is said to be binding. A minimum that is below the equilibrium market clearing level is non-binding and has no effect on the market equilibrium.

Strong demand for palm oil despite global economic concerns

Written by Nariman T.

Article is written based on: <http://www.theborneopost.com/2012/10/01/strong-demand-for-palm-oil-despite-global-economic-concerns>

Suppliers of palm oil all over the world in particular Malaysia are concerned about potential diminishing of palm oil in the future. However top consumer countries still shows high rates and demonstrates good condition on their markets.

“In the first 25 days of September, Malaysia’s palm oil shipments jumped 11.3 per cent month-on-month, led by a 94.7 per cent surge in exports to India and 47 per cent increase to China,” the research analyst pointed out.

It means that demand has signally increased due to determinants factors of demand such as: 

Tastes: If taste or preference for a product increases, demand for the product will increase and shift to the right. For example if 1 billion people in China would prefer palm oil it could incredibly positive impact on Malaysian economy entirely.

On the graph it affects like that: 

If the number of buyers for a product increases, demand for the product will increase and shift to the right.

If income increases, demand for a palm oil product will increase and shift to the right (Positive relationship between Income and Demand for Normal goods).

However, in some countries a palm oil is a necessary good, thus demand will be remain.

Substitute Goods

If the price of a product increases, demand for its substitute good will increase and shift to the right (Positive relationship between Price of one good and the Demand for its substitute goods). Malaysian palm oil is a good substitution for soybean, which grows in United States. Especially, given discount of about US 350 trading in US, the palm oil has preference.

Complementary Goods

If the price of a product increases, demand for its complementary good will decrease and shift to the left (Negative relationship between Price of one good and the Demand for its complementary goods).

In New Zealand palm oil has a wide application in production of cow milk, in order to add more fat into the milk, people use palm oil. Therefore, if cow milk price go up, demand of palm oil will go down. 

Unrelated Goods

If the price of a product increases, demand for an unrelated good will remains the same (No relationship between Price of one good and the Demand for its unrelated goods).

For example, if Proton will rise the prices, it will not affect the palm oil production entirely.

Consumer Expectations

If consumer expects that prices of a product increases in the future, current demand for the product will increase and shift to the right.

“We estimate that the lower US yield will give rise to demand for 1.8 million tones of substitutes, which will be mainly palm oil,” – says author. So, it is a good sign for oil suppliers, in the future demand will increase, thus prices will be much higher.

In the long term, he believed palm oil price would strengthen as the commodity’s production in Indonesia would decelerate starting next year and reach a plateau in 2016 as its trees aged.

Advertisement

Advertisement is not applicable to this case; because the buying power will not increase even it is much advertised. As I mentioned before, it is a necessary good.

There exists a direct (positive) relationship between Price and Quantity Supplied. When Price increases, the Quantity Supplied also increases and when Price decreases, the Quantity Supplied also decreases. 

So when oil suppliers will be able to set a high price, consequently Quantity Supplied also increase.

There are 7 determinants of oil supply:

Resource Prices

If resource prices increase, the cost of production of a good will increase resulting in a decrease in Supply.

If resource prices decrease, the cost of production of a good will decrease resulting in an increase in Supply.

Technology

If technology improves, this results in an increase in Supply. For instance, Malaysian scientists enhance efficiency and cleaner production, expand uses of oil and develop the processing and utilization of oil palm products.

If taxes increase, the cost of production of a good will increase resulting in a decrease in 

Supply. Malaysia can establish high taxation, however it is a bad sign for suppliers, because they will have to increase the price.

If subsidies given increases, the cost of production of a good will decrease resulting in a increase in Supply.

Prices of Other Goods

An increase in the price of a product decreases the supply of another product. 

E.g. the price of palm oil increases, more land is used to plant palms. So the supply of soybean drops. Palm oil and soybean are substitutes in production

Producer Expectations

E.g. expecting higher prices for palm oil in the future may cause a farmer to reduce his dairy production today. The current supply of oil decreases as a result of this.

Number of Sellers

As more firms (sellers) enter the market, the supply curve will shift to the right.

Climatic Conditions

Supply (lower supply - the supply curve will shift to the left) will be affected when there is a storm, rain, flood in the fishing and/or agricultural industry etc.

Elasticity

The price elasticity of export demand is expected to receive considerable attention due to the current economic climate of volatile export markets and prices. The export demand elasticity is used to predict the change in demand for an export for a unit change in its price and to model the behaviour of foreign buyers.

Elasticity is to measure responsiveness of the quantity demanded to one of its economic variable. The price elasticity of demand measures the responsiveness of quantity demanded to a change in price, ceteris paribus.

The price elasticity demand of the palm oil is inelastic because palm oil is used in food that is a basic need of human being such as cooking oil and margarine. Other than that, use of palm oil is now expended into manufacturing soap, detergent cosmetic and so on. Thus, the change in price of palm oil will not affect much on the quantity consumed.

Price elasticity of supply measure the responsiveness of quantity supplied to a change in price, ceteris paribus. As quantity supply of palm oil will not be affected by the change in price itself, the price elasticity of supply of palm oil is perfectly inelastic. The reason is oil palm tree takes 30 months of planting to start bearing fruits and maintain to be fruitful for the subsequent 20 to 30 years to ensure the consistent of oil's supply. This is a long period that cannot easily change the quantity supply of the palm oil. Any change in price of palm oil such as from P1 to P2, the quantity of palm oil supplied will remain at Q.

The Change in Market Structure in the Mobile Phone Market

Written by Kaiwen C.

Article is written based on information provided in this Link

“Success in business today requires real-time, mobile access to business opportunities”. In the 20th century, information is everything. Almost everyone, regardless of age would have a phone in their hands at any time. The mobile phone has a very huge market, and shown an interesting development over decades. Almost all new product starts with a monopoly. In a free market, the monopoly will break down into either an oligopoly with brands, or a perfectly competitive market. Now we will look into 3 mobile phone companies that have huge influences in the change in market structure of the mobile phone market. 

The mobile phone market is very concentrated ever since the beginning of the information era which started around the 90s. The leading mobile phone company was Nokia then, a mobile phone company originated from Finland. Nokia gained dominance for a long period of time until the evolution of normal mobile phones into smartphones which started around 2007. Smartphones became very popular after the introduction of iPhone by Apple. It monopolized the mobile phone market till the next leading substitute – Android that is installed into Samsung mobile phones recently. 

Nokia introduced the first mobile phone that’s using the GSM system on July 1st, 1991 – the second generation mobile phone. As the sole technology owner, Nokia was able to monopolize the whole mobile phone market for a significant period of time. During 1994, Nokia launched the model 2100, introducing the first ever mobile phone with their ring tone. With a target of 400, 000 units, Nokia was sold around 20 million units of the 2100 series, which is 5000% of their target. The demand for Nokia was much more than they targeted. 

After the monopoly broke down into oligopoly, Nokia was still able to maintain as the market leader. I believe Nokia’s success is due to they are able to provide affordable mobile phones to most of the public who are at the middle income group. In addition, by mass production, Nokia enjoyed the benefit of economies of scale, where the marginal cost of the product is highly reduced, which also allow them to sell their product at an acceptable price. Comparing Nokia to other competitors at that time, Nokia was able to provide their product at a lower price, and the quantity demanded for Nokia mobile phones increase. From this we can deduce that the price elasticity of demand for Nokia mobile phones is relatively elastic. In addition, I also believe that Nokia is trying to promote their phone as an income elastic normal good. A normal good will attract wider range of consumers from different income groups. Even people from the lower income group will buy the product when they can afford it as their income increases. 

Over years of development, mobile phones revolutionized into different specialized fields in order cope with the owner’s needs and preferences. Smartphone is one of the revolutionized forms of mobile phone. The first smartphone on market was Simon Personal Communicator in 1994. However, Apple was the first company to successfully incorporate its innovation into smartphones. The term smartphone only came popular after Apple introduces their first smartphone in 2007 – iPhone. I believe Apple’s biggest success was at their application section as they open up the development to everyone. Apple does not require much skilled labor and equipment to develop applications for their product. The usage of personal resources is low but the output is high, furthermore the application developed fits the consumer’s needs. Hence in their application development, Apple is allocatively efficient. 

                                                 

Unlike Nokia, Apple tries to create a premium brand image for their product. I believe this is the failure in iPhone. Apple thinks that they can at least monopolize the market for a period of time like how Nokia did. As time changes, technological factors improved, which hasten the process of imitation or creating substitutes. Nokia while monopolizing the market has already taken measures of mass production to provide mobile phones at a price even lower than oligopoly. However, Apple on another hand is seeking to sell the iPhone as a premium product, in other words a superior good. Where the demand increase by a large amount as income rises; in addition, the product is also scarce and high priced. To sum up, the income elasticity for iPhone is highly elastic for medium income group. 

Apple monopolized both the operating system and the product for smartphone using iOS and iPhone. It didn’t last long till the monopoly was infiltrated as technology factors hasten the process of creating substitutes as compared to Nokia’s time. On one hand, iOS faces Android, an operating system bought over and later on developed by Google. On the other hand, iPhone faces another strong competitor that long existed in the mobile phone market – Samsung. Instead of developing both the hardware and software like Apple did, Android and Samsung specialize in their respective field. Android is only focusing on developing the smart phone’s operating system where Samsung focuses on providing and manufacturing better hardware for the phone. This measure allows Samsung and Android to operate more efficiently than Apple. 

Even though at the beginning, the software and hardware are very far from iPhone’s technology, but the price offered by Samsung is lower than iPhone. This allows Samsung to be seen as a substitute for iPhone. Recently in the second quarter of 2012, both the software and the hardware of Android and Samsung were able to outperform Apple’s product. Samsung overtook Apple and was recognize as the market leader in the Smartphone market. In addition, Samsung also overtook Nokia as the market leader in the mobile phone market. Samsung now holds 21.6% of the total mobile phone market share, whereas Nokia only holds 19.9% of the mobile phone market share, and Apple only hold as little as 6.9% of the mobile phone market share. Samsung promotes its smartphone as a product in between a normal good and a superior good. The income elasticity of demand for Samsung smartphones are slightly more elastic compared to Nokia’s mobile phone. 

In conclusion, as technology goes, it is impossible to monopolize a market for too long. As the market breaks down from a monopoly into different market structures, the pricing of a product is crucial in regards to obtain bigger market shares. I believe Samsung is really successful in finding the equilibrium point to sell its product.

The Culprit Behind Traffic Congestion

Written by Kaiwen C.

Article is written based on the text in this Link

After coming back to Malaysia from overseas, I always wonder why the traffic always is so congested. Looking through the internet I came across some answers such as “too many cars”, “roads are not wide enough” and most stating that the main reason is “accidents”. Those reason all makes sense, but I believe that the main reason of the problem is the poor public transportation system, causing a chain reaction to people buying more cars. In addition to poor infrastructure planning, the road cannot grow in pace with the increasing cars on the road. 

It might not make sense thinking that the failure in public transport can cause so many chain reactions; hence I will analyze this issue using an economic point of view using bus systems as the main example. Looking around the Kuala Lumpur region, there’s only a few bus operators such as Rapid KL, Cityliner, etc. Since there are only a small number of firms that are competing in the market, this can be classified as an Oligopoly. 

Take a look back in time, the bus system consist of both mini buses and normal buses. And for mini bus, anyone can be a bus driver as long they have a bus driving license. And the bus operator would need to obtain a specific route license to operate. Even though the bus operator must have a special license, the barriers for entry are still low. This can be classified more of a perfectly competitive market. 

Assuming that the market structure of the bus services is as analyzed above, the change in market structure is more likely caused by the changes in government policy towards the issuing of bus licenses. Before when there was no limit to apply for the government license, it was not considered a barrier to enter as everyone was eligible to apply. However with a limit set, this can be seen as a legal barrier to enter the market. 

While comparing the difference between the two market structure, price is an inevitable factor to analyze. When the bus services are in a perfect competition market, everyone are price takers as they do not dare to take the risk of increasing or lowering the price, the price for bus fares are usually at the price range where both bus service provider and the bus service consumers can accept. Bus operators take their prices from the bus association which set their prices according to the equilibrium of the market and government. Whereas in an oligopoly, the pricing is more moderate compared to a monopoly due to the existence of competition, but still much higher than a perfect competition. We can interpret that the price is the equilibrium between the demand and supply of a market. After the change in structure the price of bus fares should increase. 

The price of the bus fare before cost around RM 0.50, whereas now it cost from RM 1.00 up to RM 3.00 depending on the distance. However, the reason of the increase in bus fare is more likely due to inflation. Hence a question arises: Why after the change in market structure, the change in price for bus fare wasn’t much affected? 

This can be explained that the bus services price is still under the control of the bus association. Whereas in order to increase the bus fares, the bus association have to apply for an increase to the government. However in order to satisfy the public instead of the individuals that own the bus companies, the government controls the price tickets for buses at a lower price. This is probably also another reason why many privately owned bus companies closed down due to insufficient fund and low profit. As a result, the market structure for bus services shifts more towards an oligopoly. The concept of price control is similar to a price cap, where limit is set towards how much one can charge in a particular market. And also it will cause inefficiency in the market similar to how price cap does. 

With controlled price imposed, private bus companies will exit the market as the profitability will decrease by a huge margin and might even cause a loss. Controlled price makes the price for bus services reduce resulting in a decrease in supply and an increase in demand. The supply of bus services is already really scarce as mentioned in the first part of this article. As the quantity demanded is higher than the quantity supplied, a shortage will occur (QD – QS). 

However, the demand for buses aren’t that high anymore. This can be explained by the change in number of consumers. In short, the market size of bus services is shrinking. Instead of using public transport, a big portion of the consumer chooses to personally own their transportation. Personal cars become a substitute for buses in this case. Hence resulting in “too many cars” as mentioned before. 

The failure in public transport was able to affect the personal car market by increasing its demand. The government took advantage of the increase of demand to promote the automobile industry in Malaysia. By imposing higher tax on imported cars, local manufactured cars have a better competitive edge compared to imported cars. 

However, the implementation of taxes is inefficient. As shown in the graph, a deadweight loss occurs and the victim of the loss is both the customers and the supplier. Due to the implementation of tax, the price increases, and the quantity demand decreases. On the other hand, the quantity supplied remains the same, resulting in a social loss as resources are wasted on products that the society does not value. 

If I were to classify transportation as a firm, it is inefficient in terms of short run. However achieving efficiency in a long run is not impossible. In the short run, cars are considered as a variable factor and the roads are considered as a fixed factor. But in the long run, both cars and roads are variable factors. Sadly, the roads are not built or expanded in Malaysia. The fault lies within poor infrastructure planning by the government. Another possible reason is that the actual problem in every big city is that there are too many cars entering the city even though infrastructure was well planned. 

In conclusion, the situation of traffic congestion can be improved only if the government had a better infrastructure and administration planning. But the real problem lies on the number of cars itself. There are too many cars on the road due to the failure in public transport. As the Prime Minster recognize that “An efficient public transport system is crucial for the development of the community”. I do not foresee that in budget 2013, the implementation of Prasarana Rapid bus services can improve the condition of public transport in Malaysia. I strongly believe if the public transport is not interfered by the Government, it could possibly improve the public transport system. By doing so, it will turn the public transport market back into a perfectly competitive market. Like before the government intervened, the market is efficient and both suppliers and consumers will benefit the fullest of their surpluses.