Labour

Organizations always have a plan to maximize profit. All decisions can be placed into two time frames: short run and long run.

In the short run, the capital (firm’s plant), building a new factory, buying a new land, are all fixed costs, in which the plan cannot be changed in a short period of time. But for the resources used by the firm, such as labor, raw materials and so on, they can be changed easily. The resources used that can be changed is called variable cost. The short run decisions are easily reversible.

While in the long run, all resources are variable. Plant size, hiring new employees and all other variable costs, all of them can be changed any time. But the decisions are not easily reversible. This is because the sunk cost for reversible is too high. A firm needs to pay a high cost for the reversing decisions.

Labor is a variable cost in the long run. But, how about in the short run?

In the short run, labor is still a variable cost. As I said before, labor is a decision which can be change easily. For example: a company XYZ found that there lack of human resources this month. So they are hiring 10 new employees to the company. But after two months, Company XYZ realized that 10 employees are over-hired. The output is not efficient and effective. So they decided to fire 7 of them. What we can see that, every single decision can make or rejected.

But if let said we discuss about the plan size, company XYZ want to increase the plan size. It cannot set a plan and apply the plan in a short period. Company must take a long time to do research and data analysis to make sure that the plan size is really needed for the company. Once the plan is set, company XYZ must try to achieve the goal. So plan size is the fixed cost in the short run.

How short run of labor related with the long run?

The Total Fixed cost add with the Total Variable Cost will get a Total Cost (TFC+ TVC=TC). Total Cost divided by the number of input will get the Average Total Cost.

In a year, a company will have few ATC curve. Linked all the minimum of ATC curve, you can get a Long Run ATC curve.

What is Long Run Production Cost? Does Labor related with it?

Long Run production Cost is explain the long run ATC with economic of scale, constant returns to scale and diseconomies of scale. No only labor, all variable cost in short run and long run related with it. This is because all the variable cost is linked to create a Long Run ATC.

When we apply labor specialization in the short run and long run, the stage 1 of Long Run ATC will show a economies of scale. This is because the labors keep repeating do a same job, and become expert in the work. The quality and quantity of output will increase. Less workers but still can produce lots of output. The Total cost is decreasing. Hence, the ATC will decrease.  

After few months, labors reach the maximum quality and quantity of output. No matter how to push them, they will not produce more output. The total cost maintains the same. Hence, the ATC remain constant also. This is stage 2, Constant Return to Scale.

But due to the repeating of works, labors will few boring. Some of the worker will quit from the job some more. So the output will decrease. In order to get profit, company will hire new employees. As a result, the AVC increased. Hence ATC increase at the same time. This is the stage 3, Diseconomies of Scale.

As a conclusion, labor is a variable cost in the long run and short run. Although labor is one of the variable cost in the short run, but it still affected the Long Run ATC and the Long Run Production Cost.



Reference list:
http://economics.about.com/cs/studentresources/a/short_long_run.htm

Vengedasalam, D. and Madhavan, K. (2007) Principle of Economic.Malaysia: Oxford Fajar Sdn. Bhd.
Taylor, J.B. and Weerapana A. (2010) Principle of Economic. United Stated of America: South-Western Cengage Learning.

http://yourbusiness.azcentral.com/specialization-labor-9939.html

http://smallbusiness.chron.com/specialization-labor-3890.html

North Korea: The command economy system

Ever wondered what is the situation in North Korea and the type of economic system it has? 

North Korea is one of the world’s most centrally planned and least open economies. North Korea follows the command economy system. The basic questions: 1) what gets produced? 2) how is it produced? and 3) for whom it is produced? are all answered by their government. Their government basically owns most of the resources the country has and makes most of the economic decisions.

There are disadvantages of a country having command economy system. One major setback of command economy system is that the country is unable to efficiently allocate their resources because of the limited knowledge by the government. When the government can’t allocate their resources efficiently, there will be either shortage or surplus for a product. This situation is shown in North Korea. According to a website from Thomas Reuters Foundation, they wrote about North Korea facing chronic food shortage. They highlighted one reason for the food shortage to happen is that the government misallocated the country’s resources and instead spent on the military because of their country’s ‘military first’ policy. Due to the food shortage, many people in North Korea have died. This shows that their government is inefficient in allocating their resources.

Furthermore, country with command economy system lacks innovation to create new things/solutions because there is no incentive given to innovate. In North Korea, there is very little innovation because the government will not give incentive to innovate as the government only wants the essentials only. The government would rather spend on their military instead because of the ‘military-first policy’. The lack of innovation makes the standard of living in North Korea to be very low.

Overall, North Korea faces a lot of problems because of their command economy system. The people in North Korea are not living in a good condition. In my opinion, North Korea should not follow the command economy model/system because of the disadvantages command economy system has. They should instead follow their neighbour country, China who has been successful in the world's economy after they moved away from following a purely command economy system. Beginning in the 1970's, China’s economy has both the element of a command and a free market economy system. Although China’s political system is still very centralized, their economy is much more decentralized now (Taylor and Weerapana, 2012, p.15). This has caused China to have a rapid economic growth in recent years. Therefore, North Korea should emulate China and have an economy system which has both elements of command and free market economy system so that the North Koreans will have a better living condition.

Written by

Loo Tungwye (0315235)

Reference:

Taylor, J.B. and Weerapana, A. (2012) Principles of Economics. 7th ed. Canada: South-Western Cengage Learning.

Thomas Reuters Foundation (2013) North Korea hunger. Available from: http://www.trust.org/spotlight/North-Korea-hunger/?tab=briefing [Accessed 8 July 2013].

Price Elasticity of demand

Price Elasticity of demand is a measure of the relationship between a change in the quantity demanded of a particular good and a change its price. (Investopedia, 2013) 

There are different types of price elasticity of demand one of the elasticity is Elastic Demand. Demand is elastic if a specific percentage change in price results in a larger percentage change in quantity demanded. Demand is inelastic if a specific percentage change in price produces a smaller percentage change in quantity demanded. (Mcconnell, Brue and Flynn, 2013, p.113) Unit elastic demand is defined as given in percentage change in price, there will be an equal percentage change in quantity demanded. Goods and products such as, candy, carbonated drinks, branded handbags are elastic because when the price of these goods fall or decrease, the quantity demanded will rise. On the other hand, necessities like rice, water, fruits are inelastic because we use it in our daily life.

Example, petrol is inelastic in Malaysia because nowadays the amount of car usage is increasing and quantity demanded increase. Eventhough, the price increases, the quantity demanded will decrease but not that much because petrol has become a necessity and hence the consumers are not sensitive to the changes in prize.

 Not only prices affect quantity demanded. There are few determinants of price elasticity of demand, such as Substitutability. Generally, the larger the number of substitute goods that are available, the greater the price elasticity of demand. (Mcconnell, Brue and Flynn, 2013, p.117) If you have a car, there are no alternatives to buying petrol. This is why the increased price of petrol has failed to reduce the demand for petrol.

Do you think petrol will become an elastic demand when hybrid electric vehicles are fully in used?

In my opinion, petrol will not become an elastic demand. Hybrid electric vehicles might not launch the same amount as the amount of petrol car launched due to insufficient resources of producing hybrid cars. Futhermore, cost of making a hybrid car is much costly and expensive compared to petrol car, and there are some low income groups that unable to afford hybrid car. On the other hand, hybrid electric vehicles will be an elastic demand because when the price of hybrid electric vehicles fall, the quantity demanded for it will rise. 

List of reference

1. Mccconnell, C. Brue, S. and Flynn, S. (2013) Economics. New York: McGraw-Hill
2. Investopedia (2013) Price Elasticity of Demand. Available at:

http://www.investopedia.com/terms/p/priceelasticity.asp (Accessed 9 July 2013)

Written by : Loh Skyll (0315386)
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Tax Revenue of Malaysia

Tax is the main revenue for the government of Malaysia. It is vital for economic growth.

According to Bloomberg, taxes contribute to around 70% to the total government revenue.

Direct tax is constituted by petroleum income, companies and individual taxes; meanwhile indirect tax consists of sales tax and excise duty.

How to Increase Tax Revenue of Malaysia?

Currently, the Malaysian government is trying to implement Goods and Service tax (GST) to replace the existing Sales and Service Tax (SST).

What is GST?

GST is charged and collected on all taxable goods and services produced in the country including imports. The difference between GST and the present consumption tax is in terms of its scope of charge. GST is a more comprehensive tax charge which includes the manufacturing and distribution stages as well as providing a tax credit claim for GST paid on business inputs.

Should GST be implemented?

The GST is a more transparent, effective and business-friendly tax system. GST is able to overcome cascading tax, double tax and pyramiding tax and tax erosion. This eases the government to monitor and collect tax from tax payers.

Besides, the government can benefit from GST in terms of higher tax collection. This is an effective strategy in offsetting its budget deficit.

According to Datuk Seri Idris Jala, Minister in the Prime Minister's Department, this system will increase tax revenue by RM20 billion to RM27 billion.

"At maturity, is when, every Malaysians starts to contribute towards the GST. It must be implemented as soon as Malaysians are ready to accept the mechanism," he added.

Therefore, from the government point of view, GST is beneficial and should be implemented.

How will it affect the people?

GST will widen the wealth gap. 

This is because the government is shifting this tax burden from the wealthy to the people of all income levels due to the flat tax rate of 4% imposed.

For example, SST is only chargeable in luxury goods and services such as imported cars, hotels, restaurants and fast food restaurants and alcohol. These are usually demanded by the upper social.

However the extent of GST has a wider coverage. 

It now causes the low income people who once enjoyed the privilege of not paying tax to pay tax. This will be a burden to this group of people.

Though necessities such as rice is not GST taxable, however, the materials (fertilisers, pesticides, transportation fuels) used to produce rice is taxable. 

So, will price of rice actually increase?

According to Lim Guan Eng, Chief Minister of Penang, the implementation of GST will lead to inflation.

This is because this tax is imposed on every transaction, which means no matter who you are, young or old, rich or poor, this tax must be paid in consuming goods and services.

So, do you think GST should be implemented? 

Any Alternatives?

Besides implementing GST, one of the ways is to combat the black market. Black market will cause massive tax revenue losses to the government.

A good way to diminish the black market is by legalising sports betting and prostitution.

Sports betting

According to industry officials, illegal sports betting in the nation total up to RM20 billion. If government approve licensing in this field, they could increase collect tax collection by RM4 billion annually, according to the former Deputy Finance Minister of Malaysia, Chor Chee Heung.

Prostitution

According to Havoscope, the prostitution market in Malaysia is valued at RM3 billion.

In our very own opinion, not to be offensive to anyone against our point, the government can consider legalising this industry since many developed nations has already implemented it. This could also increase tax revenue for our country. For example, the United States government is receiving US$ 6 billion from the US$ 18 billion market. In addition, they collected US$ 2 billion in licensing rights.

Another major source that reduces the possible tax collection in Malaysia is the growing extent of money laundering and dirty money.

According to Global Financial Integrity, Malaysia lost RM200 billion in 2010 and from 2001 to 2010, we lost roughly RM915 billion to money laundering and dirty money. This is even higher than the total revenue of the Malaysian government of RM159 billion in 2010.
If money laundering can be wiped out, it increases the taxable money the country can collect, since the money will be in circulation in our country.

The government should reduce the occurrence of tax evasion.

All these reasons can be related to one word – corruption.
Therefore, the government, through Malaysian Anti-Corruption Commission (MACC), needs to be more efficient in tackling this issue.

As a conclusion, there are alternatives for the government to increase the tax revenue for the government.

Written by:

Michael Yeo (0314238)
Lim Foong Kien (0315622)

Gold

Gold is a natural element that is non-renewable and limited. 

It is often used to symbolise wealth. The value of gold has escalated over the years. Gold is special in the sense that it is actually the true currency.

Price is closely related to demand. The higher is the demand, the higher the price will be.

So, what determines the demand for gold?

Factors influencing the demand of gold include level of income.

The higher the level of income, the higher is their purchasing power. 
They not only purchase gold for jewelleries and gold-made accessories, but they also invest in gold. This is because they expect that the future price of gold will increase. They can gain profits from this investment but there are risks in it. People invest because gold has a good record of being a good investment alternative since the price of gold has multiplied over the years.

Therefore, this increases the demand for gold, hence shifting the demand curve to the right.

The other factors affecting the demand of gold include the economic situation.

 When the economy is experiencing a recession or during times of inflation, the demand for gold will increase. This is due to fear that their currency’s value will depreciate. Therefore, gold will act as a protection against such risk. Besides, political instability and social turmoil such as political power struggle, public demonstrations, or times of emergencies and wars will lead to a higher demand for gold for the same reason.

 These reasons will result in a rightward shift of the demand curve. As a consequence, the equilibrium price of gold will increase.

 From the graph, the equilibrium price has increased from the blue spot to the purple spot.

The price of gold is also closely related to the US dollar.

There is an inverse relationship between gold price and value of US dollar. When the value of the US dollar drops, gold price will increase. This is because the exchange rate of Ringgit Malaysia and US dollar decrease.

As a conclusion, the price of gold is determined by its demand. This applies not only to gold, but also other goods and products. This is in compliance to the Law of Demand.

Reference:

http://mcxniftycalls.hubpages.com/hub/Gold-and-Dollar-Relationship-What-is-the-Effect-of-US-Dollar-Index-on-Gold-and-Silver-Price

Written by:

Michael Yeo (0314238)
Lim Foong Kien (0315622)

 

The monopolization of Genting?

Genting Group, is one of the few Malaysian conglomerate. Genting Berhad is the parent company to a few subsidiaries engaged in different industries. One of the most commonly known is the casino industry. When the word casino is in mind, the only place in Malaysia one could think of is Casino de Genting.

Why people only think of Genting? 

This is because Genting is monopolizing the casino market of the country. 

The high barrier of entry into this industry awarded Genting such a prestigious status. 

 

One of the reasons is government directive. New firms have a very minimal chance of entry because the government is strict and conservative in awarding another casino licence.

Currently, Genting Malaysia Berhad is holding the sole legal casino licencing.

Even if there are no government interventions, another reason that might discourage other firms from entering the market is that other firms are aware that Genting is a large firm. 

They currently holds a market capitalization of US $6.8 billion in the leisure and hospitality business, in which casino is the major business activity. They have a massive 200000 sq ft gaming space at Genting Highlands. 

Besides, the numerous awards they received added the prestige of Genting. 

Therefore, if new firms would like to enter this industry; they need a huge initial investment to stay competitive in the market, besides finding massive difficulty to match Genting’s branding.


For these reasons, new firms are also discouraged from entering this industry.

Since Genting is a monopoly, they are price-setters. 

In this case, they can fix the minimum bet for each type of gaming. Even if they increase the minimum bet, it will not deter people from visiting and gambling in the casino.

 This further exemplifies the characteristics of a monopoly.

This monopoly makes it possible for Genting to earn supernormal profits. This is mainly due to the high barriers of entry mentioned earlier.

From the graph, the area in green shows the supernormal profits earned by monopolistic firms, which in this case indicates Genting. 

There are two sides to a coin. A monopoly also brings disadvantages such as complacency. However, Genting is not in such position. Though being the sole firm in the industry, they still strive to improve themselves. Just recently, Genting revealed they are planning a whopping RM3 billion facelift for their casino resort in Genting Highlands. This is planned in an effort to double their earnings. This massive plan proves that not all monopolists are complacent.

Should Genting continue to monopolize the Malaysian casino market?

One of the major setbacks by the monopolization of Genting is the creation of a black market. Black market causes the shrinkage of the formal economy and causes tax losses for the government. Black market will also increase borrowings from loan sharks, fighting and other crimes.

In my opinion, the government should approve more casinos licensing in the country to combat the black market. This would allow a much higher tax collection for our debt-ridden country.

Besides, it creates job opportunities.

New firms will need employees to operate the casinos, hence, reducing the unemployment rate of the country.

A better use of police resource

The police force can reduce their budget on tackling illegal casinos, since more legal casinos can shrink the black market. Instead, they could focus their resources on more serious crimes such as murder, kidnapping and rape.

Competition may benefit the economy

With competition, firms are more prone to improve themselves in terms of consumer benefits and welfare in the face of competition. Though a firm may not be able to be a strong competitor for Genting, but they can at least reduce Genting’s market share. Hence, firms will try to innovate to give casino in Malaysia new perspective.

As a conclusion, Casino de Genting is an example of a monopoly in the country. If the barriers of entry remain high, the chances of monopolization of Genting in the casino industry will be high.

List of reference:
http://www.gentingcasino.com/about-us/genting-malaysia/

http://www.economicshelp.org/

http://www.theedgemalaysia.com/highlights/241734-exclusive-genting-mulls-rm3b-facelift-for-genting-highlands.html

http://yogonet.com/

Written by:

Michael Yeo (0314238)
Lim Foong Kien (0315622)