BACHELOR OF ACCOUNTANCY

AC220

ECONOMICS
ECO 415

ASSIGNMENT 1

NAME: SAIDATUL RAHIMA BINTI MOHD HALIM

Price (RM)

Pₑ e

25 Price ceiling

Shortage
D Quantity of three-ply
face mask (ear
Qs Qₑ Qd loop/head loop)(Q)

The diagram 1 shows the demand and the supply curve during unexpected event
unexpected event like Covid-19. The demand curve (D) intersects with the supply curve (S)
at equilibrium point (e) with a price of (Pe) and quantity of (Qe). In this situation, the price
ceiling of RM 25 is set below the equilibrium price by the government. The government
believe that equilibrium price in market is high and unreasonable. In economics point of
view, the quantity demanded under the price ceiling will somehow exceeds the quantity
supplied that is creating shortage in 3 ply mask (ear loop/ head loop) supply.

In reality, 3 ply mask (ear loop/ head loop) were scarce in Malaysia due to Covid-19
that happening nowadays. That is why the government impose price ceiling to prevent traders
or producers who will hike up the prices unreasonably. The government also want to ensure
that the welfare of the consumer is protected.
Question 2: Why do the government need to do the price ceiling for the face masks?

Price ceiling is a legal maximum price for particular goods and services. Price ceiling
is imposed by government to certain product where the seller could not sell at any
unreasonable price.

The reasons of the government impose price ceiling policy is to protect the consumer
welfare. By impose the price ceiling policy; it can help the consumer to obtain the face masks
in lower price whereby the supplier might take opportunity to sell it at higher price. It is also
will help the low income earners to spend less money on face masks.

The next reasons why the government imposed price ceiling is to control inflation.
Inflation exists when prices rise but the purchasing power fall. In this situation, the price
ceiling can control inflation by lowering the price of face masks below market price, so
people can purchase the masks without affecting their cost of living.

In conclusion, the price ceiling policy should be applied in this situation to protect
consumer welfare and prevent inflation.
Question 3: Based on what you have learnt, explain the demand for face mask during
the unexpected even (eg haze and covid-19)

Demand in the definition of economics is the ability and willingness to buy or obtain
certain goods and services in given period of time at particular price. Whereby supply is the
willingness for producers to sell goods. The figure below simply illustrates the changes in
demand due to covid-19. Assuming the price of the face masks per box (P0) remains the
constant.

Price (RM)

Shift rightward

P0

D1
D0

Quantity demand of
Qd0 Qd1 face masks (Qd)

During the unexpected event such as covid-19, the demand of the face masks will
increase. As shows in the diagram above, the original demand curve (D0) with price of (P0)
and quantity of (Qd0) will shift to the right to new demand curve (D1) with price of (P0) and
quantity of (Qd1) due to covid-19 .This is because the people need the face masks to prevent
them from being infected with the Covid-19 and prevent them from spread the virus to
another person. Furthermore the demand of the face masks increase during Covid-19 because
of the front liner that on their duties need the face masks to prevent them from infection.
Question 4: If government lifted the price ceiling policy, discuss what is expected to
happen to the quantity and price of the face masks during unexpected event?

Historically, the price ceiling policy is imposed by government to protect consumer

In this situation, by lifting the price ceiling, the quantity demand of the face masks will
increase because the consumer willing to buy more masks due to Covid-19. The price for the
face masks also will be increase too. This is because the producers or traders will use this
opportunity to increase the price so that they can earn higher profit.

The price of the face masks will increase and that will lead to surplus. This is because
of the inflations which is people are unable to buy or obtain the face masks due to high price.
This also would be unfair to consumer who willing to buy the face masks at higher price.
Furthermore, it also would be unfair to taxpayer because the money that have been paid by
them are used to buy surplus or impose production restrictions in an attempt to reduce the
surplus.

In conclusion, the government should apply price ceiling policy to protect consumer
welfare and control inflation.
Question 5: What are the disadvantages for imposing price ceiling to face masks?
Explain.

Price ceiling refer to maximum price set by the government to protect consumers.
While they make staples affordable for consumers in the short term, price ceilings often carry
long-term disadvantages.

First, by imposing the price ceiling there the quantity demanded will exceeds the
quantity supplied of the face masks or shortages will result. This is because consumers can
obtain the face masks with a lower price. The consumers desperately purchase the face masks
to prevent themselves from having an infection of Covid-19.

Next, the disadvantages of the price ceiling will lead to lower supply of the face masks.
This is because the price of the face masks must be lower than the current market price or
equilibrium price which is lead them to earn low profit. Therefore, there may be less
incentive to supply the goods and the number of properties on the market declines.

In addition, by imposing the price ceiling also will lead to poor product quality of the
face masks. This is due to the producers need to cut the cost of production so the face masks
can be sold with a lower price.

Next, the maximum price set by the government will lead to the emergence of black
market. This is because people try to overcome the shortages of face masks. Furthermore, in
this situation, the irresponsible producers will use this opportunity to get higher profit since
they will sell the face masks with higher price. Besides that, the irresponsible consumers will
resell the face masks with unreasonable price because they know that some of people willing
to buy the face masks with high price.