PETRONAS
started supplying petrol to all Malaysian since 1974 and ever since then, all
Malaysian have been able to use cheaper fuel compare to neighbouring country.
Fuels are natural resources aging back to centuries and
it is a non-renewable resource, furthermore it is used mainly as a power source
for most vehicles in the world therefore its demand is very high.
Unfortunately, fuels are limited resources whereas demand for fuel are
unlimited therefore creating some serious problem in the fuel price.
Oil
supplies are considered necessity good now days and are resources that is
depleting while the price are on the rise. With the resource depleting, the demand
for fuel still grows continues to grow at a rate of 4% a year, therefore
increasing the chance of changing the country into a pure importer country in
the near future. According to the data above, we can conclude that this is an
inelastic demand curve because the percentage change in the quantity demanded
is smaller than the percentage change in the price ([RM2.70/RM1.92]*100), therefore making the quantity
demanded for a product to barely respond or respond very little to the changes
in the price of the product.
Since this is an inelastic demand
curve in addition to the fact fuel is a necessity good and it is an oligopoly market
in Malaysia, whereby only a few firms such as Petronas, BHP and Shell controls
a large market, suppliers have the higher hand because they could manipulate
the price all they want while the demand of fuel will not change much because
the substitute for fuel is hard to find. Even though substitute such as hybrid
cars uses very little fuel which is an alternative way to solve the fuel
problem, the price for these vehicles are very high, not to mention the spare
part that will cost them a fortune when a system breaks down. Furthermore,
after some research that I’ve done, I realise that consumers only hear that these
hybrid vehicles run on a special battery which cuts down fuel consumptions,
what they don’t hear is that these special battery are required to be change
after 100,000 miles of travelling, required constant maintenance and the cost
for these batter is around $15,000. We can now safely conclude there are little
substitute to the fuel problem in the market therefore forcing all consumers to
purchase fuel even though the price are high in order to fulfil their daily
activity.
In
order to protect the public interest and to ensure the public are not over
charged, the government intervention is necessary to helps the citizen by
subsidising the fuel and imposing a price ceiling for fuel sale within the
country. I believe the effort taken by the government will help the locals a
lot by just maintaining a 30-sen per litre discount from market price(RM3.00)
and imposing a price ceiling for fuel, in other words, the maximum price sale
of fuel would be at RM2.70 a litre. With those actions, the government are now
aiding the middle income and lower income people which could use the excess
money to buy more necessity good to increase their daily living standard.
Furthermore, the fuel not only
causes problem to individuals, it also causes problem to big companies such as
the Penang Freight Forwarders Association (PFFA). Many people know fuel is the
main “money generator” for Transportation Company, thus making me to conclude
that the Penang Freight Forwarders Association (PFFA) was one of the many
victims which were affected by fuel problem and the recent Europe Crisis. The
reason why PFFA has to worry so much about the fuel price increase is because when
prices of fuel increases, all transportation companies such as PFFA will have additional
operational costs and some of this cost might be passed on to its customers thus
making some of PFFA business partner and customers to have a thought of
withdrawing due to the increase in operational cost and decrease in revenue.
According
to the graph above, we can conclude that PFFA will decrease its’ supply to meet
the new market equilibrium. If PFFA tries to maintain at the old equilibrium, a
surplus will occur between the old market equilibrium and the new market
equilibrium as the demand for PFFA service drops along with the supply of PFFA
service.
Furthermore, PFFA main cargos are
electronic chip, and with the recent Europe crisis which has seemingly no end,
thus making the demand for these chips to “drop like stones” and pulling down
PFFA profits. Electronic chips are used in electronic equipment such as laptop
and ultra-book and with the Europe crisis pulling down so many companies; it
directly causes a sudden drop in many citizens’ salary which leads to the
decrease in demand for electronic chips. In my opinion, when salaries go down, it
turns computer into a luxury good; when demand of a luxury good drops, sales of
all complementary good such as electronic chip of computer will drop as well.
As this is a well proved situation, I believe that as long as the Europe crisis
continues, demand for PFFA service will continue to drop because the incomes for
many thousand people are on the fall.
Overall, according to my point of
view, I think it is safe to assume that the increase in fuel price will affect many
parties. Governments need to take action against the people responsible for
causing the sudden increase in fuel price because fuel is widely used to
accomplish daily activities. Government could help supplier by approving their
loan and giving financial aid; imposing price ceiling to help consumer to
survive from conditions that could make necessity product unattainable.
Original article link: http://thestar.com.my/news/story.asp?file=/2008/6/5/nation/21461533&sec=nation
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