Perfect Competition

Perfect competition is an industry which contains a lot of buyers and sellers and it has no barriers to entry which means it is an open market or industry for competitors to enter freely. For example, the people who are selling fruits, vegetables, or meat in the competitive market. This industry is free for anyone to come in as anyone who is interested to enter this industry is able to do so because there are no brands to their products as they are homogeneous. Like fruits has no brand. You can only differentiate it from their names or which supermarket can you get them from.

On the other hand, perfect competition is an industry which is a price taker. That means the industry has no right to adjust the price of the products as the price must be set according to the equilibrium market price. The demand of these products is perfectly elastic since each firm’s or market’s outputs are perfect substitute with one another. Then, the sellers have to know their profits and losses in terms of short-run and long-run. So if the sellers or firms are earning economic profit, they may enter new industry to maximize their profit whereas if they are earning economic loss, they may have to exit the industry.

So as you can see in your local supermarket and especially wet markets, competition is fair and healthy. You can also tell that the price is determined by an equilibrium market price by going to different markets in a particular area. You will find that the price do not vary as much.

Monopolistic competition

Monopolistic competition in SHAMPOO area.

Monopolistic competition is an industry which has large number of sellers and it is easy to entry and exit. This industry produces differentiated products and they are price-maker.

For instance, shampoos have several kinds of brands in the market. There are shampoos for men, women and even young children like Head & Shoulders, L’Oreal, Sunsilk and many more. 

These firms are competing with each other by using tricks such as different packaging, scent, product attributes and vitamins, to have buyers differentiate between the competitive products. The companies as a whole are the price-maker because an equilibrium market price is non-existent as they might follow their competitors’ price or their cost of production to set the price. For instance, if L’Oreal set their price at RM13.99 per bottle then Sunsilk may opt to follow the trend or increase the price by a little, they may even drop the price a little. 

Apart from that, in this industry, the firms are earning three types of profits when they’re in the short run, supernormal, subnormal and normal profits. Supernormal profit means that the firms are earning more profit, subnormal profit basically means that the firms are having economic loss whereas normal profits means that there is no increase or decrease in the firms’ profits. If Head & Shoulders are having supernormal profit that means the firm are earning more profits in the short run.

The graph above shows that the price set is higher than the cost of the product as the quantity produced remains the same. So, that means Head & Shoulders is earning profits in the short run.

Moreover, in the long run, the firms will only make normal profits due to easy to enter and exit.

The graph above shows that in long run, the firm has no difference between the cost and price so they’re just having normal profits, no gain no loss.

Microeconomics? Macroeconomics?

MICROECONOMICS vs MACROECONOMIC

Microeconomics is a branch in economics that examines the use of individual market or industry and the behaviour of individual decision making units such as business firms and households. Microeconomics includes the studies of individual markets such as the market for coffee, ice-cream, food and so on. Furthermore, it explains why the price of Apple iPhone is maintained at a certain level.

Then, it explains how the change of the price of McDonald’s burgers will affect the price of burgers in KFC as they’re the most well-known competitors in the market of fast food like we also have the competition between Pizza Hut and Domino Pizza. The prices change in any of their competitors like McDonald and KFC will definitely affect one another.

Macroeconomics is a branch of economics that deals with human behaviour and choices as they relate to an entire economy. It studies the aggregate or total demand for goods and services, output or inflation. For example, instead of looking on individual firm’s output, we look at the national output. There are many individual firms in each state in Malaysia such as Adidas so in terms of macroeconomics, the national output of Adidas is concerned. 

What is the difference between MICRO and MACRO? The difference is that as far as microeconomics concern is only individual market and individual decision making whereas in macroeconomics, it deals with human behaviour and choices which relate to the entire economy. 

SUCCESSFUL ENTREPRENEUR !

Ever dream to become a successful entrepreneur?

Most of us do have dreams to appear up in the Forbes list next to the big boys. To duplicate footsteps of successful entrepreneurs like Bil Gates, Warren Buffet, and Mark Zuckerberg. We've got to admit, most of us applaud their achievements and aspire to be them. But not to forget, our country (Malaysia) does have a few entrepreneurs who are really successful.

                                               

Now, we would like to talk about one of our very own “Malaysian Hero” who believes “EVERYONE CAN FLY”--- Tony Fernandes. This guy introduced the first ever budget no-frills airlines (Air Asia Sdn. Bhd.) in Malaysia just when travelers in the region most needed it. He, who was once an accountant, later turned to music producing while being an apprentice to the icon Sir Richard Branson. 

In recent years, he also started a hotel chain (Tune Hotels) with a no-frills concept as well.  Now the Air Asia Airlines Company is based in Kuala Lumpur International Airport (KLIA).

With all the staggering profits and revenues raked in by the TUNE group of companies, Tony Fernandes has contributed a lot to the Gross Domestic Product (GDP) of Malaysia (in terms of taxes and services). GDP is a measurement of all the total market value of all final goods and services produce within the nation. It is including goods and services which produced by citizen or foreigner. It a monetary measure.

Besides, Tony Fernandes has also help the country in achieving Macroeconomic growth’s goals:

Full employment

Company Air Asia has provided a lot of employment opportunities. It helps utilize the labour resources in Malaysia.

Economic Growth

It is stated that Air Asia has helped in increasing the GDP of Malaysia, so the economic growth in Malaysia is taking an up-turn. So the citizen in Malaysia can live a better life.

Sources:

http://www.investopedia.com/terms/r/realgdp.asp

TNB is the "BOSS" in the field of electricity.

TNB is the monopoly in Malaysia

A monopoly happens when there is only one producer in a market and there are no close substitutes that produce or sell the same product as the monopolist. In the game monopoly, the player’s goal is to own all of the properties of the same colour therefore the rent for each properties will increase altogether. This is a similar scenario in the economic world where it is termed as a player having a monopoly of properties in a particular area which also means they will determine the price to the consumer which normally is hiked up.

In Malaysia, the bluntest example to this is Tenaga Nasional Berhad who is the heart and soul of the nation’s energy sector supplies electricity throughout Malaysia. Tenaga Nasional Berhad has been given the role to be the sole supplier of electricity in Malaysia thus giving the company a monopolist status. Though many companies would like to share the profits totalling up to an average of 2.5 billion in a financial year raked in by TNB, it is not possible for any such companies to tap in to this market because of the legal barriers to entry set up by the government of Malaysia. License and necessary patents are mandated to TNB to be the only company supplying electricity to the consumers directly.

Most of the time monopolies will lead to a higher consumer price, for example Astro, a Media cable company that is a natural monopoly in Malaysia charges at a very high price only because they have no competitors to challenge their price offers. But in this case having a competitor will create many complications in the market and most likely increase in the price of electricity. If TNB were to have a competitor, this also means the amount of power plants will increase up to double the ones available now, the power cables throughout Malaysia will also increase, and this will lead to a higher production cost thus lead to a higher price for electricity consumers. In addition to that, TNB is also given the rights to gain monopoly of scarce material to produce electricity. This means TNB gains access to coal in Malaysia. It is an important effort to further reduce the price of production.

Though monopolism is more commonly known to be a bad market structure, but it is proven here, that sometimes measures such as this has to be taken for the good of the economy and welfare of the people and government.

Are you a smoker?

Are you an addicted smoker? 

The Malaysian government has announced the increase of cigarette prices to a record high RM 10.50 in efforts to stop reduce the number of smokers in the country. The increment in the price for a box of cigarettes has gone over the price of what teenagers cannot afford. But it seems that the general public are still smoking, unfazed by the changes. It is proven that cigarettes have an “inelastic-demand change”

Have you ever wondered? Why people never quit smoking even when the taxes keeps rising ever so frequently??

According to the studies of economic, there are few determinants of elasticity of which will cause the smokers to have an inelastic demand for cigarettes.  Here's an example:

• Cigarette addicts would pay any amount for a fix (Habitual)

Habitual smokers will never stop smoking in regards to the price, apart from a ridiculous "cut-throat" amount. So the demand for cigarettes is “inelastic” to prices due to the fact that there wont be much of a change in demand for cigarettes when the price is increased. That is proven when demand is not normally responsive to changes in prices.

• Percentage of income spent

The price of a pack of cigarettes a day is still affordable for working individuals. 1 pack of cigarettes costs RM10.50 and the total spent for a month is roughly only RM305. The average Malaysian wage is around RM3000. So the expenses for cigarettes for an average Malaysian is around 10 % to their monthly income. So its not that big of a problem for those who are already addicted to tobacco smoking.

Sources:

http://www.thestar.com.my/story.aspx?file=%2f2013%2f6%2f2%2fnation%2f20130602203309