Microeconomics

ARTICLE (CONSUMER)

Fuel price hike: 20 sen increase will burden the people, say groups

PETALING JAYA: Various groups have slammed the government’s decision to increase the price of RON 95 petrol and diesel by 20 sen, saying the move would effect the lower-income groups. Fomca president Datuk Marimuthu Nadeson said the government should be improving public transport nationwide if it wanted to hike fuel prices, adding that this would result in a chain reaction. Prime Minister Datuk Seri Najib Tun Razak earlier announced that the price for RON95 petrol and diesel would be raised by 20 sen per litre from midnight.

Chief activist of the Muslim Consumers Association (PPIM), Datuk Nazim Johan, said although the increase was inevitable, the government should plug the leakages in the system before placing the burden on consumers. “Now, even millionaires with 30 cars in their garage get subsidies,” he said, adding that those who wanted the subsidies should apply for them. He suggested a system similar to the Welfare Department which gives allowances to those in need.

PSM secretary-general S. Arutchelvan said the government had gone against its word of not increasing the price of RON95 petrol. “This increase will cause further hardship to the people especially the lower-income group,” he said pointing out that the minimum wage had not been properly implemented. He believed that the government would implement the Goods and Services Tax (GST) soon, causing more inflation.

Bayan Baru MP Sim Tze Tzin said he expected that inflation would creep in over the coming months. He said that the relationship between oil prices and inflation was prevalent in economies such as Malaysia. “The people rely heavily on subsidies, especially fuel subsidies,” he said, adding that the government should have informed the people in advance of the price hike.

INTRODUCTION (CONSUMER)

The cost of living is the amount of expenditure on goods and services incurred by households, including their financial obligations, to maintain a certain standard of living. Malaysia seems to be a low cost of living country, when compared to other countries. But for the people who living here the cost of living continues to increase each and every year which has led the population to tighten its belt. There is a real increase in cost of living for all Malaysians regardless of education and wages. Malaysians are struggling more and more to make a living and support their families. Imported goods, food, transportation, housing, and everyday expenses are on the rise and add to the cost of living in Malaysia.  Low-income families receive support through different welfares programs and high-paid professionals benefit from a reduced income tax, but the middle class that struggles the most.

PART 1 (SUMMARY)

As said by Rashvinjeet in the article from The Star Online, an expansion by 20cent in the cost of fuel will really load general society particularly those individuals who are utilizing their own vehicle to move starting with one place then onto the next. The decision taken by government has made the buyer's to against them keeping in mind the end goal to keep up the lower-bunches salary people groups to keep utilizing cars. In addition, Fomca President, Datuk Marimuthu Nadeson said that government should increase the quality of public transport provided in Malaysia in order to increase the price of fuel where it would result in a knock-on effect. In addition, Datuk Nazim Johan proposed that endowments on fuel ought to be given to the individuals who are gaining beneath the focused on compensation. He likewise recommended that Welfare Departments ought to assume their part in giving assets to those in need. Moreover, those individuals from higher power said that administration had conflicted with its assertion of not expanding the fuel value which may prompt genuine expansion later on.

PART 2 (CONSUMER)

1. Demand and Supply

Based on the article that we found, “Fuel price hike: 20 sen increase will burden the people, say group”, the increase was inevitable; the government should plug the leakages in the system before placing the burden on consumers. Petrol is the main fuel for vehicle such as cars, buses and motorcycles. Supply is defined as the quantity of product or service that will be offered for sale at a given period of time assuming other things remain the same. When price fall, quantity supplied will also fall and vice versa.

Demand is the quantity of various good that people are willing and able to buy at a particular time and at given range of prices. The law of demand states that the higher the price, the smaller the quantity demanded. The government’s decision to increase the price of RON 97 petrol and diesel by 20sen will effect the lower-income groups. For example, the price of petrol (RON 97) is RM2.10 per liters and the total revenue of 20 liters is RM42.00. So when the prices increase to RM2.30 per liter, the quantity demanded of petrol will fall to 18 liters. At last, the total revenue will increase from RM42.00 to RM46.00. The result of total revenue shown the businesses of petrol had been increase RM4.00. So, mean that an increase in price will lead to an increase in total revenue since the quantity demanded is less sensitive to the price changes.[pic 1]

1. Consumer Behaviour

Consumer choices are based on the prices of goods and services. Quantity demanded by consumer goes down as the price of goods increase. Relation between the price of goods and quantity demand to purchase goods is represented in demand curve. It shows the quantity of goods that consumers will purchase at the given price.

Petrol hike gave a big impact on the price of other goods and at the same time it is over expected to increase in the cost of living to consumers. Besides, consumers had a specific level of budget constraints. By using the limited income, how would consumers get their daily goods since the price of goods increased. Government must take part to monitor the increase in price of goods that will give impact in cost of living among Malaysian remained at reasonable level.

1. Cost Theory

There are two types of costs that involves in measuring the price for production; fixed costs and variables cost. Fixed costs are those that do not vary with output and typically include rents, insurance, depreciation, set-up costs, and normal profit. Variable costs are costs that do vary with output. The changes in costs will usually directly effect the price of goods. When the costs incurred, it will lead to supplier to increase the price especially if the goods have high demand.

In this article, its stated that fuel price hike has had little impact on the price of raw foodstuff. When the fuel price hike, it will lead to the increasing in the transportation cost especially to the supplier where they need to supply the raw foodstuff to retailers or buyers. Besides, fishermen use fuel for their boat. When the price of the raw foodstuff increase, the most effected are the consumers. As the raw foodstuffs are always high demanded, it will effect the consumers ability to buy.

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