UNIVERSITI TEKNOLOGI MARA

FACULTY OF BUSINESS MANAGEMENT

ECONOMICS – ECO415

CASE STUDY ASSIGNMENT 1

GROUP: NBO2N

Prepared by:
MUHAMMAD ZULAMIR BIN ZAINUDDIN (2023631284)

Prepared for:
DR. ARLINAH BINTI ABD RASHID

Date of Submission:
19.5.2024
Question 1

ANSWER
a) i) Price elasticity of demand (PED) is a measure used in economics to quantify the
responsiveness or sensitivity of the quantity demanded of a good or service to changes in its price.
It is calculated as the percentage change in quantity demanded divided by the percentage change
in price, while keeping other factors constant. If PED is greater than 1, demand is considered
elastic, indicating that consumers are highly responsive to price changes. If PED is less than 1,
demand is inelastic, suggesting that consumers are less responsive to price changes. If PED is
exactly 1, demand is unitary elastic, meaning that the percentage change in quantity demanded is
exactly proportional to the percentage change in price.

ii) Basket 1: The price elasticity of demand for Basket 1 is greater than 1 (Ed > 1). This
indicates that the quantity demanded is sensitive to price changes, especially when prices
increase, characterizing it as Elastic demand.
 Basket 2: The price elasticity of demand for Basket 2 is less than 1 (Ed < 1). This means
the quantity demanded is not very responsive to price changes, even if prices go up,
indicating Inelastic demand.

b) i)

ii)
The first factor is Substitutability. The availability of close substitutes is one of the
primary factors influencing elasticity of demand. When consumers have more
alternatives to choose from, demand tends to be more elastic. Conversely, if there are
few or no substitutes, demand tends to be more inelastic.

Second one is Luxury and Time. The necessity or luxury status of a good
significantly impacts its elasticity. Necessities tend to have inelastic demand because
consumers can't easily do without them, even if prices rise. Luxuries, on the other
hand, tend to be more elastic because they are not essential for day-to-day living,
allowing consumers to reduce or avoid their consumption in response to price
changes.
c)

Based on the diagram above, decreased income means that at every given price, the
quantity demanded is lower, so that the demand curve shifts to the left from D0 to D2.
In this case, the decrease in income would lead to a lower quantity of cars demanded at
every given price, and the original demand curve D0 would shift left to D2. The shift
from D0 to D2 represents such a decrease in income. At any given price level, the
quantity demanded is now lower.

d)
Price Ceiling. A price ceiling is a government-imposed limit on how high the price of
a product can go. This control is used to ensure that essential goods remain affordable,
especially for low-income consumers.

Price Stabilization Programs also one of the types can be use. These programs aim to
stabilize market prices through government intervention, which may include buying
excess supply or subsidizing production costs.

Subsidies. Subsidies involve financial assistance from the government to reduce

production costs or incentivize increased production.
Question 2

Chicken, eggs prices to be floated from July 1

KUALA LUMPUR: The government will be floating the prices of chicken and eggs from July 1 after the
removal of subsidies by the end of the month. Agriculture and Food Security (KPKM) minister Datuk
Seri Mohamad Sabu said in a written reply that the Domestic Trade and Cost of Living Ministry
(KPDN) would then evaluate and control the price of the items compared to the current retail ceiling
price. "KPKM will implement soft landing mechanisms to ensure that the supply of chicken and eggs
can be stabilized after the subsidy ends," he said.

Among the mechanisms are abolishing the ban on the export of live broiler chickens except Day Old
Chick (DOC), round chickens and chicken cuts from July 1 July to enable farmers to earn income from
the export market and help cash flow into the country.

The government will also allow imports of poultry and eggs from various recognized source countries
including Thailand, China, Brazil and Denmark. Imports of eggs will only be from Thailand and
Ukraine, he said. The government will also continue the round chicken stockpile program under the
Board of Farmers' Organizations (LPP). He said that as of May 7 this year, 63 per cent of the target
of 2,177 metric tons had been stored.

"We will also continue the Madani Agro Sales Program by the Federal Agricultural Marketing Authority
(FAMA) to market various agricultural products including eggs, with prices which are five to 10
percent lower than the local bazaar, especially in low-income housing areas. "As of May 8, a total of
28,078,620 eggs have been distributed through 369 FAMA outlets," he said. He was responding to a
question from Datuk Mas Ermieyati Samsudin (PN-Masjid Tanah) who questioned whether the
ministry had conducted a comprehensive study of the impact of the policy change.

(https://www.nst.com.my/news/nation/2023/06/917719/chicken-eggs-prices-be-floated-july-1)

1. State the law of supply.

(1 marks)

The law of supply states that, ceteris paribus (all else being equal), as the price of a
good or service increases, the quantity supplied by producers tends to increase, and
conversely, as the price decreases, the quantity supplied tends to decrease. In the context
of the provided statement, the government's decision to remove subsidies and float the
prices of chicken and eggs from July 1 is likely to allow the market to set prices based on
supply and demand. This may lead to higher prices, incentivizing farmers to increase their
production to meet the potential demand at these new price levels, demonstrating the
principle of the law of supply.

2. With illustration, explain how the mechanism mentioned in paragraph three will
affect the market for poultry and eggs.
(5 marks)
 First, abolishing the ban on the export of live broiler chickens. This will help farmers
make money by selling to other countries. By reaching more customers globally, farmers
might earn more. But it could mean fewer chickens available locally, which might raise
prices for shoppers.
Second, allowing imports of poultry and eggs. Opening imports from countries like
Thailand, China, Brazil, and Denmark will bring more poultry and eggs to our markets. This
can satisfy demand and maybe even bring prices down. But local farmers might struggle
against the competition from these imports.
Third, imports of eggs restricted to Thailand and Ukraine. The government's
restriction on egg imports to just Thailand and Ukraine aim to guarantee the quality and
safety of imported eggs. This step can uphold consumer trust in imported eggs and avoid any
health concerns. However, it might reduce the variety of eggs in the market.
Forth, continuation of the round chicken stockpile program: The government is
keeping up the round chicken stockpile program through the Board of Farmers' Organizations
(LPP) to keep round chicken supply stable. This helps avoid sudden price changes and
ensures round chickens are consistently available.
The last one, Madani Agro Sales Program. Run by the Federal Agricultural Marketing
Authority (FAMA), this program sells different farm products, like eggs, at prices five to ten
percent lower than local markets. It's aimed at low-income areas, giving people their cheaper
food choices. This helps ease the money strain on low-income families and ensures they can
get essential foods.

3. The Madani Agro Sales Program is said to reduce prices of agricultural product by
5 to 10 per cent. Explain how this will affect the market for agricultural goods
among the households.

(5 marks)
This will affect the market by reduced prices and increased affordability. A price
reduction of 5 to 10 percent makes agricultural goods more affordable for households,
especially those with lower incomes. This increased affordability can lead to higher demand,
as consumers are more likely to purchase goods at lower prices.

Another point is increased quantity demanded. As prices decrease, the quantity

demanded by households tends to increase, following the basic law of demand. This shift in
demand might lead to a rightward movement along the demand curve, indicating that lower
prices lead to higher quantities purchased.
 Market equilibrium adjustments also one of the affects. A reduction in prices due to
the program can influence market equilibrium. Lower prices generally lead to higher demand,
which can affect the balance between supply and demand.

Point four is beneficial impact on households and communities. For low-income

households, reduced prices for agricultural goods can lead to improved food security and
reduced financial stress. This can also have positive ripple effects on local communities by
promoting better nutrition and increasing disposable income for other essential needs.

For the last affects is long-term market dynamics. sustained price reductions can
stimulate consistent demand for agricultural goods. This may encourage farmers and
suppliers to increase production, leading to a more robust agricultural sector.

4. Briefly discuss the elasticity of supply for poultry and eggs.

(3 marks)
There are a few factors that affecting elasticity of supply for poultry and eggs which is
first production time and flexibility, availability of inputs and government policies and trade.
based on those factors, the elasticity of supply for poultry and eggs is likely to be moderately
high. Producers have a certain level of flexibility in adjusting production, and government
policies that allow imports and exports can contribute to a more dynamic market. the
stockpile program further supports this by providing additional supply when needed,
contributing to overall stability. While there are some factors that could limit elasticity, such
as long-term investments in infrastructure or potential regulatory constraints, the general
setup suggests that producers can respond reasonably quickly to changes in price, indicating a
relatively elastic supply.