UNEMPLOYMENT

Unemployment which is also known as joblessness, occurs when people are actively seeking work and without work. It refers to those individuals who are willing and able to work but have not been able to find employment.

Unemployment Rate

The unemployment rate is the fraction of the labor force that is unemployed. It is a measure of the percentage of unemployment individuals in a country’s workforce who have lost their jobs or unsuccessfully finding one and are still actively seeking work.

The formula for unemployment rate:

Unemployment Rate = Number of Unemployed / Total Labour Force

Labour Force

Normally, the labor force of a country consists of everyone of working age which is above 16 and below retirement. This included the people that are working and those who are not working but are looking for work. People that are not counted as labour force included housewives, retired people, prisoners, students and others.

*Malaysia Unemployment Rate

The unemployment rate in Malaysia was last reported at 3.3 percent in September of 2012, it was the highest since October 2011. Historically, from 1998 until 2012, Malaysia Unemployment Rate averaged 3.3 percent reaching an all-time high of 4.5 percent in March of 1999 and a record low of 2.8 percent in March of 2012. There were around 413,900 unemployed individual in the country at the end of September, higher than about 347,200 recorded in August. The unemployment rate can be defined as the number of people actively looking for a job as a percentage of the labour force.

Why does this matter?

Employment is an important source of personal income and has a major influence on the consumer spending and overall economic growth. To the unemployed, they may have to suffer a loss of status, experience nervous breakdown, bad health, divorce, and are more inclined to attempt suicide than the rest of the adult population. Also, long period of unemployment could reduce the value of human capital too. As for the society, with higher employment, people can enjoy fewer goods and services that they could have consumed.

Thus, the unemployment rate can provide considerable information about the state of the health of a particular business sectors or the economy. Conversely, fall or lowing unemployment may reflect an expanding economy and also, unemployment data can point to changes in certain industries. For these reasons, the unemployment rate is one of the most widely followed economic indicators.

WHY the unemployment rate is increasing???

There are three type of unemployment. 

Let’s take a look :)

1)   Frictional unemployment

-This type of unemployment arises because it takes time for workers to be matched with suitable jobs but some of them will feel it is hard to find a work suitable for them. WHY?? It is because teenagers nowadays are required too much. They wish have a high wages and a short working time. Besides that, workers also not fully informed about what jobs are available to them.

2)   Structural unemployment

-This type of unemployment arises from changes in the pattern of demand and supply in the economy. This is because some people are not good in using the high technological and cannot follow the technological up to date. Firms will always finding the employee good in skill. If the people not good in skill or technological things then they will hard to find a job. This is why the employment rates getting higher.

3)   Cyclical unemployment

-This type of unemployment is sometimes called as demand-deficient unemployment.  It arises because the economy is in recession. Economists describe cyclical unemployment as the result of businesses not having enough demand for labour to employ all those who are looking for work. The lack of employer demand comes from a lack of spending and consumption in the overall economy.

Price Elasticity

Elasticity supply

Definition : Measures the responsiveness of supply to a given change in price.

Formula for calculating price elasticity of supply :

Price elasticity of supply = % change in the quantity supplied / % change in the price

If the figure is greater than one then the product is described as elastic or supply is sensitive to changes in price. This implies that the change in the quantity supplied by firms will be proportionately larger than the change in price. However, if the value is less than one then the good has an inelastic supply curve. Therefore, a change in price will have very little impact on the quantity supplied by the firm.

Table for rice - monthly price

As shown in the table above, in September 2012, the price of rice in the market is $590.50 per Metric ton which is an increase of 1.31% from $582.87 in August. However, in October the price of rice drops to $584.74 which is a drop of 0.98%.



Perfectly Inelastic supply curve
If the value of the price elasticity of supply is zero, then the curve is described as perfectly inelastic and the curve is completely vertical.

The price elasticity of supply is calculated by dividing the percentage change in supply by the percentage change in price. Since there is no change in supply whatever the price change, then supply is perfectly inelastic.

What is Perfectly Inelastic Supply ? 

The elasticity of supply is defined as its ability to change when the surrounding market forces change. Thus, if other forces lead to a drastic change in supply, then it is deemed more elastic, but if the supply is relatively unaffected it is known as inelastic supply. As shown in the graph above, The X-axis denotes the quantity of a good and the Y-axis denotes the price. The curve is a straight line which is parallel to the Y-axis. This means that the supplied will be exactly the same no matter what the price is. Hence, the supply is completely inelastic and unresponsive to any changes in other factors except for price.

In Asia, rice is a community good and the staple food. It's price is being controlled by the government and the price is expected not to be too high. In this special case, the price of rice in August rose because the government intended to help the farmers.

As for the price of rice in October, the price dropped is because the price of rice is set too high in August and affects the international market. Thailand government promised the farmers a fixed price for their rice harvest which had indirectly the earnings of secondary agents that sell off the rice to the international market. However, the price of rice in October dropped since they had to sell out the rice before it spoiled. In the effort of helping the farmers to boost their income, the government starts to pay the farmers. This has cause Thailand to be a less competitive party in the rice industry in 2012 due to the high price that are being charged by Thailand.

Posted  by: Siew Pitt Jing

INFLATION IN INDIA

Inflation In India

                                      

The Truth, Analysis and Happenings.

Inflation in India is increasing especially in the month of May 2012 which is the out of expectation. The  inflation is due to the fuel and food prices. The rate of increase in non-food manufactured goods in April 2012 was calculated at 4.77% and then it increased to 4.86% in May 2012. Also, the price of vegetables had also increased by 49% compared to 2011 and 11.5% for power and fuel.


According to Anup Pujari, the Director General for Foreign Trade of India who provided provisional statistics at a media briefing session held in New Delhi, India had exported goods and services worth 25.68 billion US dollars in May 2012. Compared to May 2011, this amount has increased dramatically at the reduction of 4.16%. Same goes to import, imports have come down to 41.9% billions US dollars which was a decrease of 7.36%.

What are the factors of inflation rate in India?

• delayed rains and its effects the agricultural sector and reduction of production by companies to bring down its level of stocks.
• relative lack of growth in investments and the gradual decrease of investment goods. 

HENCE,

The inflation that occurred in India had affected the prices of goods and services to increase and causing the consumers to become poorer. When the consumers have no sufficient income for purchases, they would reduce their consumption on goods and services. Hence, they will lose their purchasing power and it affects the aggregate demand to fall. Also, the rising of the price of goods causes the decrease in exports and increase in imports as the foreigners would possibly choose a lower price of goods. To be more serious, if the inflation is in a very critical condition, competition between firms or companies may occur and this would bring to the unemployment of workers. 

To study and understand more about the topic related to the article, read the notes below. 

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Aggregate Demand and Supply

What exactly is aggregate demand in macroeconomics?

Aggregate demand is the total desired purchases by all buyers in an economy. It is also the quantity demanded of all services and goods by the economy at different price level which also can be known as ceteris paribus. Unlike normal demand in microeconomics as aggregate demand includes businesses, governments and consumers who are willing to spend on goods and services at difference price level.

Aggregate demand can be represented in a curve which is called as aggregate demand curve and that it is downward sloping due to several reasons.


                                             

The curve above shows the downward sloping of aggregate demand. 

The real GDP can represent the amount of goods and services purchased. As you can see, the relationship between the price level and real GDP is inversely proportional(downward sloping) due to three factors :-

 a) Real wealth effect

As the price level falls, the wealth of the economy increases causing consumers to be able to purchase more goods and services. This means that the purchasing power increases and then causing the consumption to increase as well. Hence, the more the consumption is, the higher the aggregate demand/aggregate expenditure.

b) Interest-rate effect

As the price level falls, consumers do not need to borrow money to purchase goods and services. A reduction in demand for borrowings would reduce the level of interest rate causing the cost of borrowing to reduce. By then, firms will start to risk to make more investments and this causes the aggregate demand to increase. 

c) Foreign purchase effect

As the domestic price level falls, the level of exports will increase as our goods and services are much cheaper than the foreigns' and that they are attracted by the difference price level. At the same time, the level of imports will decrease as local buyers would rather purchase a cheaper goods and services locally. Therefore, the net export will rise causing the aggregate demand to rise as well. 

note: net export= value of export-value of import

Movement along the Aggregate Demand curve

The cruve shows the movement along the AD curve.

The movement along the AD curve is affected by only one factor which is the change in price level. 

Shifting in the Aggregate Demand Curve

The curve shows the shifting of the AD curve.

Shifting of the AD curve is not affected by the change of price level. Instead, other economic variable such as :-

a) Consumer spending/Expenditure

The AD curve will shift to the right when

• consumer expectations- consumers expect higher price in future.
• consumer wealth- consumers are getting wealthier.
• personal taxes- personal taxes drops as income increases. 
• household borrowing- consumers can easily get financial aid and then they will spend more.

b) Investment Expenditure

• future business conditions
• degree of excess capacity
• business taxes
• technology

c) Government Expenditure

The government expenditures will be autonomous, independent on the level of income. 

d) Net Exports

If the level of exports rises, the AD curve will shift to the right. This means that foreigners have more real income and are willing to purchase imports. 

Though, Demand Shocks will cause the changes in these four economic variables.  

What exactly is aggregate supply in macroeconomics?

Aggregate supply is the total desired sales by all producers in an economy. It is also the quantity supplied of all services and goods(real GDP) at different price levels(ceteris paribus).

There are two types of aggregate supply curves which is short-run aggregate suppy curve and long-run aggregate supply curve. 

The curve above shows the combination of aggregate supply in short-run and long-run.

Short-run aggregate supply

A period that begins immediately when the price level increases as well as the input prices with the same proportion.

• Input prices fixed- prices paid to the provides of services and goods; rent paid to landowners, wages paid to workers, prices paid to suppliers. 
• Output prices variable
• Real profit changes

Long-run aggregate supply

A period when the input prices that have completely adjusted to the price level of final goods. Meaning, the aggregate supply is not affected by the changes in price level. 

• All prices variable
• Full employment GDP
• All prices adjust

Changes in Equilibrium

As the equilibrium changes, the economy will experience inflation or unemployment. 

Posted by Liew Pei Jiun.

MONOPOLY OF TNB (TENAGA NASIONAL BERHAD)

Tenaga Nasional Berhad (TNB) is a monopoly company in Malaysia. It is the LARGEST electric utility company in Malaysia with almost RM73 billion in assets. TNB has a monopoly on the electricity supply of Malaysia. It simply controls the price of their goods (electricity). All houses and businesses in Malaysia must pay TNB to get their electric. The company serves over seven million customers.

While having a monopolist in an industry will enable it to utilize the full potential of the resources available and thus, reducing average total cost, which in terms, means less price needed to be pay by the consumers. However, this could mean the other way round though if a particular monopolist decides to raise price with an aim for gaining more profit.

We all have already witness the on-going rise of price for electricity in Malaysia, which is also clear evidence too. They on their trump, complain about rising cost for producing energy and utilities, giving excuses for a rise in price, in the end, the consumers will suffer.

TNB Raise Price Tariff

Effective from 1st June 2011, government announced the increment of electricity (TNB) tariff with average of 7.12%. TNB raise the electrical tariff as an excuse to compensate for increase in fuel prices. The increase is contributed by:

   -      Average 5.12% increase due to the 28% upward revision of natural gas price to the power

          sector from RM10.70/mmBTU to RM13.70/mmBTU;

         -      Average 2.0% increase to partly recover for the increase of electricity cost of supply since June
                2006.

The increase of electricity tariff was based on the following reason stated by TNB, such as increase in gas price, increase in electricity cost of supply, in line with Renewable Energy (RE) Act, to be used in development of RE projects.

HOW IT AFFECTS YOUR POCKET
Consumption Band (kWh)	Existing Monthly Bill (RM)	New Monthly Bill (RM)**	% of Bill Increase
0 - 200	0 – 43.60	0 – 43.60 0 %	(0%) (No increase)
201 - 300	43.93 – 77.00	43.93 – 77.00 0 %	(0%) (No increase)
301 - 400	77.33 – 110.40	77.40 – 117.00	0.1% - 6.0%
401 - 600	114.69 – 180.80	117.40 – 198.80	2.4% - 10%
601 - 800	181.19 – 259.20	199.23 – 285.10	10%
801 - 1000	259.62 – 345.50	285.55 – 375.80	8.8% - 10%
> 1000	345.95 and above	376.25 and above	Up to 8.8%

* Old and new electricity tariffs

The Importance of Electricity!

With the advancement and technology development of the society, electricity is very important to people nowadays. Electricity runs everything in our everyday life. For instance, gas stations can’t pump gas without it.  Businesses have to close because their cash registers won’t work without it.  Restaurants can’t cook food without it.  Everything in our world today depends on having the power to keep them running. In our house, everything we need and enjoy is plugged into a wall socket and requires electricity. Our lives almost come to a standstill without electricity.

However, TNB has no fear of charging a high electrical tariff, because no one can live without it. It is their food, their soul, their energy to survive on! This will bring financial burden to the low income group due to the soaring prices of electricity. Even they are poor but they still required electric to survive.

This is why Monopolists tend to extend their funds into their pockets and neglect consumer beneficial programs. This results in a major hog down on complains by the consumers but were left with no choice in the end as they only have 1 source to look for their needs.

Should government take over TNB ?!

How government can help us? In my opinion, I think government should take over TNB in order to protect consumer from the high tariff of electricity.

Referring to the diagram below, Private Monopoly (TNB) reach Point E when curve MR=MC, and produce products at Point A with price of P_m and quantity of Q_m.

Government monopoly should get involved with the monopoly in this case by taking over the electric utility company. The advantage is that it may lead to lower prices for consumers and reduce the burden of high electrical tariff on consumer.

There are 2 methods on controlling the price in order to protect the consumer.

Government should set a new price at point:

      1)     P = MC  (to produce at socially optimal price level) which is Point B

                or

   2)     P = AC  which is Point C

As a result, by setting a new pricing, consumer can used a higher quantity of electricity by paying at a lower price.

As a conclusion, I strongly agree that government should take 

over TNB.

EXTRA INFORMATION

- A monopolistic market is a market structure that consists of a single seller that sells a unique

   product that does not have a close substitute, and there are barriers to block the entry of new
   firms into the industry.

- Socially Optimal Price is when P=MC on a monopoly graph.

Reference List

1)   Tenaga Nasional Berhad, 2011, Pricing and Tariff, [online], Available at: < http://www.tnb.com.my/residential/pricing-and-tariff.html >, [Accessed on 20 November 2012]

2)  Sharidan M. Ali, 2011, All eyes on impact of electricity rate increase on consumers, [online], Available at : < http://biz.thestar.com.my/news/story.asp?file=/2011/5/31/business/8787840 >, [Accessed on 18 November 2012]

3)   Jeeva Arulampalam, 2010, Electricity price increase, if any, likely to be 1%-2%, [online], Available at : < http://biz.thestar.com.my/news/story.asp?sec=business&file=/2010/12/10/business/7593182 >, [Accessed on 18 November 2012]

Posted by Chua Yi Jing. 

Market Equilibrium

Market Equilibrium

When markets are free to choose a price and quantity, then the result will be an equilibrium. If, in the opinion of government decision makers, the resulting for the equilibrium price is too high or too low, then the government may intervene to the market by imposing price controls. Government will decide exactly how high is too high or how far a price can fall before it’s too low for a product.

Price Ceiling

Price controls are important because they can alter the behavior within a market. For example, if government is think that the price for a product is too high then they will set a price ceiling and restrict the price from rising above the point of price ceiling. The government sets the price ceilings as a way to protect consumers. The price ceiling is the maximum price that can be charged for a good.

 

The Price Ceiling set on Petrol

Petrol is a key factor in household budgets and transport industry costs and rising prices can severely damage economic activity. In general, the higher crude oil price will cause the petrol price increasing. The price of the premium RON97 petrol in Malaysia went up 10sen to RM2.90. It make consumer who has the low income feel troublesome and no have ability to bear it. Consumer had complaint it and requirement to the government. In order to make people spend more cash in hand, help to stimulate economic growth and activity so the government has set the ceiling price for petrol to RM 2.70 per liter.

In my opinion, I strongly agree that government should set the ceiling price on petrol because it is useful. Why it is important???

 

         Because:  1.) Petrol is used as fuels in car / vehicle.

                    Nowadays, every home has a car. Even that is a poor families, they don’t have car but they still have a motorcycle in their house. Motorcycle also need petrol to launch.

                2.) Petrol is also used to run several factory machinery.                                                                             
               3.) Petrol used in chemical methods of separation of gases.

Posted by: Lee Yuan Nee