SAMSUNG OVERSEES FURTHER PROFITS FROM SMARTPHONES’ SALES

According to the article taken from official online page of BBC News 
[ http://www.bbc.co.uk/news/business-19840040], posted on 5 October 2012, about profits that Samsung Company oversees from sales of smartphones, they expect further operating profits that is about 8.1 trillion won (about 7.3 billion US dollars), almost double 2011-year’s number.

Samsung is now one of the most desired Companies in the world these days due to its high performance smartphones. Samsung smartphones are one of the most advanced in high technology competing with Apple and HTC. According to global consumer ratings, the Samsung new Galaxy S3 has been ranked number one with the IPhone 4s taking the second position. This goes to show that Samsung has an edge when it comes to consumer demand and explains why there is such high competition between Samsung and IPhone. According to these estimates Samsung would be able to gain massive profits from its smartphones alone. The previous versions of the Galaxy smartphones have already shown how desired they are in the market going head on head on head with Apple’s IPhones. The advantage Samsung gets from the consumers is that the software Samsung uses for its smartphones is totally different from the one Apple uses. Samsung uses Android Software which is open source that means users can upgrade and download applications to Samsung totally free of cost where on the other hand Apple software is not open source and users have to pay for applications. This is another reason why Samsung is more in demand then its other competitors. There for Samsung should easily be able to produce massive profits from its smartphones in the near future. Most of the company’s profits were gained by sales of Smartphones; company makes semiconductors, screens and televisions as well. According to what Lee Sun-Tae, from NH Investment and Securities, said unexpected large sales of new Galaxy S3 and high-end models of televisions appear to have to have solid incomes in third quarter.

From other side, due to the impacts caused by Apple, Samsung would face a tremendous amount of loss resulting from the shortage to its smartphones sales in the United States as the court’s statement prohibits Samsung to make sales in the tri State area. To cover up the loss caused in the United States Samsung would have to increase its sales in various other countries and increase the demand for its Smartphones in other countries. Economically Samsung would also have to cut down some of its costs, which can be done in a number of ways most common being the reduction of its labor, or increasing the price it puts on its new products in countries where Samsung products have a high demand.  Samsung being a multinational company and one of the leading Smartphones manufacturers surely would have a lot of die heart Samsung fans who even after the ban on Samsung products would want to achieve its products. Samsung could take an advantage from this as in a country where its products are scarce now they can put a higher price to them as with high demand and a limited supply the price of the product can be increased. This economic strategy could help Samsung massively. 

This graph illustrates increase in demand and decrease in supply with a higher price.

Increasing sales in other parts of the world would still be one of the most prominent and effective options the company would have, In order to achieve this goal new market strategies and massive advertisement would play a decisive role in profit maximization as with increasing popularity the awareness of Samsung products would increase and consumers could prefer this brand.  Apart from this Samsung would still have to compete with Apple in other part of the worlds and in order to stand out from Apple, Samsung could introduce new technology to its products may it be in a shape of better specifications or enhanced physical features to make it appear more attractive to the eyes of the consumers. This shouldn’t be so difficult for Samsung as according to the consumers’ ratings Samsung’s new Galaxy S 3 is one of the most preferred users’ choices with Apple’s new IPhone 5 neck on neck! It is safe t say that the competition is fierce but with enforced pressure from the courts of the United States Apple would gain a clear advantage on Samsung in the States at least. 

To cover up, according to this study Samsung will face a massive demand reduction in the United States which would cause it a mountain of loss. Supply would be reduced in that area and would be focused in other parts where sales are not prohibited. 

                                                                                                     by Christina

BAD WEATHER PUSHES UP FOOD PRICES

According to the article taken from online website ‘The Wall Street Journal’ [http://online.wsj.com/article/SB10000872396390444900304577579453305747984.html] written by Liam Pleven, which talks about affect of bad weather on crops, because of bad weather market increases food prices.

Due to the massive amount of Droughts and excessive rainfall the production of crops has decreased drastically. The supply has lowered due to the lack of production and consumer demand is ever increasing. To keep equilibrium the price of the products has been increased but due to the circumstances the price is increasing and all consumer desire crops as it is a basic need, more over to overcome this shortage the countries would need to import crops from other countries which would again increase the price even more as it would contain the added taxes and the transportation costs imposed by the country of its origin.

This increase in prices brings forth the damage drawn by the dryness of the hot Midwest weather to the once expected to be bumper crops of corn and soybean which are a very important livestock feed and would result in the increase in prices for meat and dairy as when livestock feed has an increased priced the cost to produce the final product would increase and the price of dairy and meat would have added price of the livestock feed.

The global food price is increased by 6% since 2009.

This graph shows an effect of increase in global food price. As a result of bad weather, the supply of products has decreased, which is shown by shift of supply curve to the left to S₁. As there is no change in demand, equilibrium price increases by 6% and quantity supplied decreases. From other side, as the food products are considered as necessity goods and customers will keep on buying it, the rise of price will give quite high befits to the company. 

According to the graph, the increase in price increases quantity demanded for the necessity goods. Therefore, price doesn’t affect producers as they gain lots of profits; but it affects export market.Meanwhile there is a healthy supply of wheat and rice which eases the situation and oil prices are also lower than their 2008 peak which means that fuel costs which are transferred into the food prices can be lowered. Thus, due to the worsening of the drought, which would affect the corn and soybean growing regions, the market is looking ahead and is highly aware of the problems all over the world.

Countries that rely on soybean and corn would be affected by the drought in the United States, for example China that is a big importer of soybean, which it uses to feed pigs, which are a major source of meat protein in China. Mexico is a large corn importer and would also be affected by the United States drought.

Overall, the increase in price has good and bad sides. Firstly, it affect customers budget as they need to eat and they will be buying products. Lastly, it is a really good benefit for producers, but it is affects supply as the weather spoils crops.

                                                                                                                                            by Christina

UK- The Third Most Expensive Housing Cost in Europe

Based on an article written by Mark King [ http://www.guardian.co.uk/money/2012/jul/19/uk-housing-costs-third-highest ], dated 17 July 2012 from the The Guardian,  the housing cost in the United Kingdom  has became the third most expensive place in the EU after Demark and Greece. Britons are paying 40% of their income just on housing costs and spending even more when adding up with mortgage payment and cost such as utility bills, service charges and tax. They were overburdened with those costs due to the failure of governments prioritise in housing investment.

The housing cost which exceeds 40% of the total household income indicates that the rents are high. In limiting the level of rent paid, the government may set a price ceiling to the housing market, this is known as the rent ceiling. It is illegal when there is a higher charge of price over a specific level. Price ceiling which sets above the equilibrium price will certainly has no effect as there is no constraint in the market forces. Hence, no conflict between the law and the market forces. Alternately, when the price ceiling is set below the equilibrium price, the effects on the market are great. The application of price ceiling attempts to prevent the price from regulating the quantity demanded and supplied. As a result, conflict occurs between the force of the law and market forces.

When rent ceiling is set below the equilibrium price, it will lead to a housing shortage, increased in search activity and trading in a black market. A shortage of housing occurs when the rent is not in equilibrium, whereby the quantity demanded of housing exceeded the quantity of housing supplied. The limited quantity available is the quantity supplied and this availability will usually be allocated to those frustrated demanders who had spent time on the search activity. On the other hand, for those who did not opt for search activity will be forced to look into expensive private rental sector.   

It is common that during a housing shortage, people tend to spend time on surfing the internet to check for alternative available before making a decision. The time spent on looking for someone with whom to do business with is known as the search activity. By using this technique, the house owner will somehow benefit from the chance to secure a room or a house but the opportunity cost increases. It covers not only the price but also the value of the search time spent finding the good and other resources such as phone calls, automobiles , and gasoline which could have been used in other productive ways. The negative effect of increased search activity is that the cost which had been spent might be ended up more than the full cost of housing than it would be without a rent ceiling.

The third consequence of rent ceiling is the encouragement of illegal trading on a black market, an activity which caused the equilibrium price exceeds the price ceiling. It usually applies to rent-controlled housing and to other markets as well but in the housing context, the enforcement of rent ceiling result in frustration on the renters and landlords to seek for opportunity to increase the rent. The level of the black market varies according to the enforcement of the rent ceiling. A loose enforcement will result in black market rent closer to the unregulated rent, while a tighter enforcement will result in a black market rent equal to the maximum price that a renter is willing to pay.

When price ceiling is set below the equilibrium rent, the housing service is said to have an inefficient underproduction. Here, the marginal social benefit exceeds its marginal cost and there will be a deadweight loss which affects the producer surplus and consumer surplus.

The deadweight loss arises as a consequent of the less quantity of housing supplied compared to the efficient quantity. This is shown in the grey area in the graph. The consumer surplus shrinks to the green area while the producer surplus shrinks to the blue area. The red area indicates the potential loss resulting from the increased activity search activity and the consumer has to bear for it. While the full loss from the rent ceiling covers the sum of deadweight loss and the increased cost of search.

Although the application of rent ceiling might be inefficient, it can achieve a fairer allocation of scarce housing in terms of equity. According to the fair rule view, anything that impinged the voluntary exchange will be unfair. But according to the fair result proposed by John Rawls in his Theory of Justice, a fair distribution or outcome is the one that makes the poorest person as well off as possible. Therefore, the fairest outcome is the best to allocate the scarce housing to the poorest. To test on the achievement of the outcome, the blocking of rent adjustments itself does not eliminate scarcity, while other mechanisms like: lottery which allocates housing to those who are lucky, first come-first serve basis and discrimination based on friendships, family ties or other criteria such as race and ethnicity can be considered as fair.

No doubt that this policy meant a lot to assist the poor, but when we take into considerations on other factors such as: limitation on the freedom on citizens, the harm arises far more to the citizen than it helps and the low benefits to the citizen, the rent control should be removed for the best interest of the majority. In regards of the poor, the government should come up with new plans such as new affordable houses with a higher subsidized to enable to accommodate the poor.

                                                                                                                                          by Patricia Lee

Falling Demand of Free Range Eggs in the UK

Based on the article “Falling Demand for Free Range Eggs Easing” [ http://theranger.co.uk/News/Falling-demand-for-free-range-eggs-easing_21809.html ] dated 1^st October 2012 which was published by the British Free Range Egg Producers Association, the demand for free range eggs in the United Kingdom have dropped while the sales of cage eggs have increased.  Peter Thornton, the Chief Executive of Europe’s largest egg business said that the share of free range accounted for 53 percent of all volume sales in retailers in 2011 had fallen below half the total market and 5 percent was lost per annum. On the other hand, the sales of cage eggs were growing at the rate of 20 percent in the major retailers.

The law of demand says that when other factors which influence the buying plans is kept constant, the higher the price of a good, the lower is the quantity demanded. This concept can be deduced from the substitution effect.  It is well known that the prices of free range eggs are higher than those of cage eggs due to the high feed cost. When the price of free range eggs rises, so do the opportunity cost. The availability of substitutes, such as the cage eggs which is much cheaper, will be more favourable to customers to economize on its use.

Customer’s income is another reason for the decrease in quantity demanded when price rises. Sir Terry Leahy, the former boss of Tesco perceived that people would seek out a value alternate when there is a recession. When the price of good rises relative to income, consumers were faced with a higher  price and they could not afford to buy it. Naturally, they will react by buying fewer free range eggs and choose to buy more value or standard products.

A change of customer’s income and the price of related goods result in a change of demand. In response to recession, the fall in income decreases the demand for free range eggs. The demand curve then shifts leftward, as shown by the shift arrow of the yellow curve.  

As the demand for free range decreases, there will be a surplus since quantity demanded is lower than the quantity supplied. When more customers are purchasing cage eggs, the quantity demanded exceeds the quantity supplied and therefore, there will be a current shortage on cage production.

To achieve market equilibrium, quantity demanded must be equal to the quantity supplied. Referring to the above graph, the demand curve with downward slopes and the supply curve with upward slopes will intersect at the equilibrium price. Price above the equilibrium will be a surplus and the price below equilibriums indicates a shortage.

Price adjustments are the way to move towards the equilibrium price. A shortage of cage eggs will lead to an increase of price. As the quantity demanded exceeds the quantity supplied, consumers could not force the producer to sell more cage eggs than initially planned. When the price rises up to its equilibrium point, the shortage eventually reduced because the quantity demanded decreases and the quantity supplied increases. When the price increased to a point where there is no longer a shortage, the forces moving the price stop operating and the price comes to rest at its equilibrium.

Alternately, a surplus of free range eggs forces the price down. As mentioned in the article, the free range eggs have been cascarded down into value egg. Producers plan on selling does not match with the consumers plan on purchasing. In that case, the producers could not force consumers to buy more than they planned and price cut will be the best way to fall back to its equilibrium. The price fall decreases the surplus because the quantity demanded increases while the quantity supplied decreases. When the price has fallen to the point where there is no longer a surplus, the forces moving the price stopped operating and the price comes to rest at its equilibrium. In the current situation, the free range eggs were displaced by more enriched cage production which comes on stream. The surplus of free range eggs will become more and more and this will be a matter of concern for the industry and they have to come up with a plan to control the size of the laying flocks and the production of free range eggs so as to meet the consumer’s demand.

In my opinion, the eggs market in the UK did not achieve an efficient outcome. A competitive market achieves allocative efficiency only when equilibrium occurs. At the intersection point, the marginal social benefit on the demand curve equals to the marginal social cost on the supply curve.However, this will not occur on the current situation. The current market which delivers an inefficient outcome is being regarded as a market failure. In fact, there are two market failures here, one for the overproduction of free range eggs and another one for the underproduction of cage eggs.

Considering the overproduction market, with the quantity of free range eggs that is produced per day, consumers are willing to pay the amount which is less than the cost to produce. This results in a waste of resources. When drawing a graph, the deadweight loss can be shown in the area between the demand and supply curve towards the right of the intersection point. It reduces the total surplus to less than its maximum. Hence, there will be a social loss due to the deadweight loss resulted from the inefficient production.

On the underproduction market, the quantity of cage eggs produced per day is too little. Consumers are willing to pay much more than the cost of production. By producing the small amount of cage eggs, the total surplus is smaller than its maximum possible level. The scale of inefficiency is measured by the deadweight loss, which is the decrease of total surplus resulted from an inefficient level of production. On the graph, the deadweight loss can be shown towards the left of the intersection point, an area covered between the supply and demand curves.

                                                                                                                                         by Patricia Lee

Problems with Raising the Minimum Wage

"The problems with raising the minimum wage" by Brian Gongol [http://www.gongol.com/research/economics/minimumwage/ ] describe about some issues would be created while the minimum wage is raising in labor market.

The government needs to set a minimum wage as it helps in increasing the standards of living amongst the workers, it decreases poverty and it enables businesses to be more efficient. This setting of a minimum wage by the government helps to ensure that no worker is paid below the set amount of wage.

A minimum wage is the lowest hourly, daily or monthly remuneration that employers may legally pay to workers. Equivalently, it is the lowest wage at which workers may sell their labor. Although minimum wage laws are in effect in many jurisdictions, differences of opinion exist about the benefits and drawbacks of a minimum wage. Supporters of the minimum wage say that it increases the standard of living of workers, reduces poverty, and forces businesses to be more efficient. Opponents say that if it is high enough to be effective, it increases unemployment, particularly among workers with very low productivity due to inexperience or handicap, thereby harming less skilled workers and possibly excluding some groups from the labor market; additionally it is less effective and more damaging to businesses than other methods of reducing poverty. The minimum wage set below the equilibrium wage has no effect. The reason is that wage does not constrain the market force. The force of the law and the market force are no in conflict. But a minimum wage above the equilibrium wage has powerful effects on labor market. The reason is that the minimum wage attempts to prevent the price from regulating the quantities demand and supplied. The force of the law and the market force are in conflict.

Diagram 1

As the minimum wage is increasing, more and more firms would reduce the labor demanded and fire some employees. This is because companies are not willing to pay minimum wage to employees who are low-skills or freshmen. So, companies can be more selective in those whom they employ thus the least skilled and least experienced will typically be excluded. Thus, higher minimum wage will increase the unemployment rate in labor market. (Show by diagarm.3)

Higher minimum wages are especially destructive for people with poor work skills and limited work experience. This is why young people and minorities tend to suffer. If an employer needs someone to perform odd jobs, and he values the work at $2 per hour, he will not hire a person if the minimum wage is $7 per hour, thus keeping unemployment in low-wage brackets higher than it would otherwise be. So, there is a black market wage (Show by diagram.3) in labor market. Actually, in reality life, there are some people who are unemployment is also accept lower wage to perform due to the surplus of labor.  

Minimum wages is unfair. Minimum-wage legislation prohibits wages from falling low enough to equate the number of people seeking jobs with the number of jobs being offered. As a result, the supply of unskilled labor permanently exceeds the demand for’ unskilled labor at the government-mandated minimum wage. Minimum-wage legislation thus creates a buyers’ market for unskilled labor. And as in all buyers’ markets, buyers (employers) have an unequal bargaining advantage over sellers (unskilled workers). Consider, for example, a grocer. Suppose he decides that a clean parking lot will attract more customers, and that this will increase his sales by $10 per day. Of course, the grocer will pay no more than $10 a day to have his parking lot cleaned. He then investigates how best to get this done. Suppose there are two options available to him. One way is to hire a fairly skilled worker who can clean the parking lot in one hour, while the second way is to hire two unskilled workers who, working together, will get the job done in the same time. Other things being equal, the grocer will make his decision based upon the relative cost of skilled versus unskilled labor. Let’s assume the skilled worker will charge $6 an hour, while each of the unskilled workers will charge $2.50 an hour. In a free labor market, the grocer will hire the two unskilled workers be-cause, in total, it costs him $5 per hour for the unskilled workers whereas it would cost $6 for the one skilled worker. But what will the grocer do if a minimum wage of $4 per hour is imposed? To hire the two unskilled workers will now cost him a total of $8 an hour. The skilled worker now becomes the better bargain at $6 an hour. Minimum-wage legislation strips unskilled workers of their one bargaining chip: the willingness to work at a lower wage than that charged by workers with more skills. The result is unemployment of the unskilled workers. Consider another effect of the minimum wage. Because there are more people who want jobs at the minimum wage rate than there are jobs to go around, employers have little incentive to treat unskilled workers with respect. If an employer mistreats an unskilled worker, the employer need not be concerned if the worker quits. After all, there are plenty of unemployed unskilled workers who can be hired to fill positions vacated by workers who quit. In addition, the permanent buyers’ market created by the minimum wage encourages employers to discriminate in their hiring and firing decisions on the basis of sex, race, religion, and so on. Suppose an employer has two minimum-wage jobs available, but there are ten unskilled workers who apply for the jobs. Bemuse the workers are prohibited from competing with each other on the basis of wage rates, other factors must determine which of the workers will be hired. If the employer dislikes blacks, and if there are at least two non-black workers who have applied for employment, no black workers will be hired. With a surplus of unskilled workers, there is no economic incentive to stop this bigoted employer from indulging his prejudices.

                                                                                                         by Xu Zhi Peng

The High Cost of Rent Control

"The high cost of rent control" [http://www.nmhc.org/ThirdPartyGuidance.cfm?ItemNumber=60869]  from National Multi Housing Council describe issues on the rent ceiling at America in recent years.

A number of communities around the country continue to impose rent controls, usually with the stated goal of preserving affordable housing for low- income and middle-income families. In order to let more people can able to rent house, the government would sets the rent ceiling price below the equilibrium price in housing market. Why should rent ceiling set below the equilibrium price not set above? The reason is if government sets the rent ceiling above equilibrium price, people will   need to pay more for rent housing. Thus, if rent ceiling set above the equilibrium price in housing market has no effects. However, once the rent ceiling sets below the equilibrium price in housing market has powerful effects due to rental of housing decline that makes a great number of people be affordable. 

Diagram 1

Rent control does not advance this important goal. To the contrary, in many communities rent control has actually reduced quantity of available housing. We can see from diagram.1, when the rent is at the equilibrium level, the quantity of housing supplied equals the quantity of housing demanded and there is neither a shortage nor a surplus. But, at a rent set below the equilibrium rent, the quantity of housing demanded exceeds the quantity of housing supplied. Thus, there is a shortage in housing market.  In a tight market, there are some people looking for housing than available rental units, at this case the black market will be created. The level of a black market rent depends on how tightly the rent ceiling is enforced. With loose enforcement, the black market rent is close to the unregulated rent. But with strict enforcement, the black market rent is equal to the maximum price that a renter is willing to pay. (We also can see the maximum black market price from graph.1)

Diagram 2

The Substantial Costs of Rent Control Fall Most Heavily on the Poor. The costs of rent control fall disproportionately on the poor. Poor families suffer a marked decline in existing housing as the quality of existing housing falls in response to reduced maintenance expenditures. The middle class can move out; for many reasons, poorer families lack this option. In an unregulated market, this consumer selection process will be governed by the level of rents. However, by restricting rent levels rent control causes housing providers to turn to other factors, such as income and credit history, to choose among competing consumers. These factors tend to bias the selection process against low income families, particularly female- headed, single-parent households. At this situation, people probably have to pay more than rent ceiling price that would let people receive surplus. It’s consumer surplus, show by diagram.2.  Poor families also are at substantial disadvantages when it comes to finding new housing. In a tight market, there may be more people looking for housing than available rental units, thereby giving housing providers substantial discretion in choosing among competing potential consumers. So, renters would pay more time for searching the housing that would makes people have loss from housing search, show by diagram.2. 

Higher Income Households Benefit Most from Rent Controls. Rent control is most often justified as an anti-poverty strategy. Yet, there is strong evidence that higher income households are the principal beneficiaries of most rent control laws, not the poor. For example, a study of rent control in New York City found that rent-controlled households with incomes greater than $75,000 received nearly twice the average subsidy of rent-controlled households with incomes below $10,000. So, that would makes a producer surplus in housing market ( It show by diagram.2) due to  some households just willing to lend their house at illegal market, that means the rental is more than the rent ceiling price. Therefore, in America 93 percent of economists agreed that a ceiling on rents reduces the quantity of housing available, so there is a deadweight loss (Show by diagram.2) in housing market because the quantity of housing supplied is less than the efficient quantity.

In addition, Rent ceiling is unfair as rent control promote housing discrimination. By eliminating rents as the basis of choosing among a pool of potential consumers, rent control opens the door to discrimination based on other factors. As noted earlier, rent control forces housing providers to look to income and credit history in choosing among competing consumers, factors which sharply bias the selection process against poor and young consumers. In some cases, consumer selection decisions also may be based on a potential consumer's race, sex, family size or other improper or unlawful factors. There is another unfair of rent control is Rent Controls Unfairly Tax Rental Housing Providers. Rent controls are designed to supplement consumer income at the expense of rental property providers, by holding below market levels the permissible rate of return on rental property investment. There is substantial evidence that such transfers are highly inefficient. For example, housing consumers gained in benefits only 52 percent of what housing providers lost. So, the tax would on the households. This is due, in part, to the tendency of consumers in rent-controlled units to "hoard" housing and to be over-housed, a tendency that further exacerbates the underlying housing shortage. But more importantly, such income transfers pose fundamental questions of fairness. Why should the uniquely public burden of providing subsidized housing to the poor and middle class be borne solely by providers of rental housing? Given both the inefficiency and unfairness of the rent control "tax," I think government should rely on broader, more equitable means of subsidizing poor families.

                                                                                                        by Xu Zhi Peng

Cancel the Subsidies of Sugar

Based on the newspaper- Sin Chew Daily, 29th September 2012, http://www.sinchew.com.my/node/262868?tid=1 . The news indicates that Malaysia government determine cancel the subsidies of sugar.

Sugar prices will officially rise up 20 cent per kg on 1^st October 2012. Besides that, government will eliminate subsidies gradually to give consumers enough time to adapt. Even though sugar’s price rises up did not bring much impact to ordinary consumers but sugar is necessity in the food processing industry. Furthermore, it will bring impact to coffee suppliers because sugar is related to condensed milk, saccharin, coffee powder. There are some reasons to influence demand and supply of sugar, affect of eliminates subsidy and elasticity of sugar.

There are some effects of cancelled government subsidy on sugar. A subsidy is a payment made by the government to a producer but it will enhance the financial burden to our government. According to the subsidy curve, it will create a rise in price and decrease in quantity producer when the line S2 moves to S1. Producer will increase the price of sugar to increase profit when government cancelled subsidy. Quantity of producer will decrease because consumers will reduce the use of sugar when it’s price increase. Moreover, it will appear a decrease in supply when the quantity of demand moves to Q1 from Q2 and producer need to bear the cost by themselves. Government cancel subsidy on sugar will increase the burden of government and food processing industry or decrease the sale of coffee. 

There are some reasons to influence the demand of sugar when government decide canceled the subsidy on it.  Businesses  be aware of sugar’s price will rise up and it can be stored, the opportunity cost of obtaining the good for future use is lower today than it will be in the future. Thence, the demand of sugar will increases before 1^st October because businesses and grocery stores expect future prices of sugar to be higher, they will purchase more now. Besides that, the substitute of sugar such as crystal sugar, saccharin will increase in demand. The quantity demand of substitute will moves to D2 from D1 when the sugar’s price is rise up because some quantity demand of sugar will transfer to its substitute. Sugar is an inferior good is one for which demand decreases as income increases. For an example, when consumers income rises they buy less sugar and higher nutrition, organic sugar.

In addition, there are some factors to influence the supply of sugar. The cost of sugar will be higher when government cancelled subsidy of sugar. The cost of sugar of production rises, the lowest price that a producer is willing to accept for that good rises, so supply decreases. According to supply curve, it will move to left side when production cost of sugar increase. On the other hand, the prices of related goods that firms produce influence supply.  The law of supply explains that the higher price brings forth an increase in the quantity supplied. Thence, the supply of coffee will increases because government cancelled subsidy on sugar result coffee’s price rises up as the same time quantity supply of sugar will increases.  For example, if the demand of coffee increases, the demand for sugar will increase as well. According to supply curve, it will move to right side when the prices of coffee increase.

There are several factors that affect price of elasticity of sugar. Sugar is inelastic on demand because consumers will continue to demand the good even though the price is rise up. The first factor to influence elasticity of sugar of demand is proportion of income spent on the good. An increase in price of sugar is unlikely to decrease the consumer’s demand if a consumer only spends a small portion of their income. Sugar represents a low proportion of a consumer’s income even though the price was raised up, the less inelastic is the demand for it. Moreover, closeness of substitutes is the factor to affect of elasticity of sugar. There are more substitutes for a good, elasticity is higher, as consumers can easily switch to other goods in response to price changes. Sugar has a lot of closer substitutes such as saccharin, crystal sugar, and sugar cane.

Lastly, there are some factors that affect elasticity of supply. The most important reason to influence elasticity of supply is time frame for the supply decision. In the short run sugar producer will only be able to increase input of labor to increase supply of commodities but the supply change will be little because other factors of production such as technology and mechanical may not be increased in the same proportion and may limit the supply. Therefore, the supply of sugar is inelastic in a short run. However, in the long run a firm will increase the input of all factors of production and thus the sugar’s supply becomes more price elastic. Second factor to affect elasticity of sugar’s supply is resource substitution possibilities. Sugar can be produced by using commonly available resources that could be allocated to a wide variety of alternative tasks. Furthermore, sugar can produced in many different countries, proof that the supply of sugar is highly elastic.

In conclusion, there are some factors to affect demand and supply of sugar, influence of cancel subsidy and elasticity of sugar.  The government's decision was reasonable, gradually cancel the allowance to let consumer have enough time to adapt. Besides that, cancel 20 cents subsidy of sugar will not be a significant impact. Consumer should identity government’s decision, then together to reduce the financial burden of our government.

                                                                                                                                  by Chew Chia Yee