East Malaysia Higher Than In Peninsular Economics Essay

The cost of living in east Malaysia is higher than in peninsular because of the expensive things in Sabah and Sarawak. The things are very expensive in Sabah and Sarawak because of the government rule. The national cabotage policy brings this situation to East Malaysia. In Caboatge policy registered vessels only allowed to loading cargoes in the ports of Malaysia. The Port Klang is the main center for port in Malaysia. All cargoes must go to Port Klang before entering other ports. The ships which entering other ports must registered under Malaysian government. Sabah and Sarawak needed the services from Port Klang. The distribution charges of the owners not controlled by the government. Kota Kinabalu is 1500km far than Port Klang. Ships from foreign country not allowed using cargoes in Kota Kinabalu even though Sabah closer to those countries. The difference in products in East Malaysia and Peninsular is because of this Caboatge policy. This make down the East Malaysian’s economic growth. The East Malaysian’s price is higher as 20 to 30 percent compare with Peninsular.

The second reason is because of the government taxation and subsidization. Government tax for household products items for example rice is higher than in Peninsular. This causes the traders to increase the price of the items. There are a lot of taxes government fix in East Malaysia such sales tax, good and service Tax, income tax and personal income tax. The government earns more on these taxes. Political parties are request to decrease the taxes rates, government refuse to do because its cause big decline in government income. Government withdraw fast the subsidization which given to East Malaysian countries, for example sugar. This causes the price of the goods increase. Traders keep the items for long term and sell it again for a high price. This causes the living of East Malaysians to be more expensive.

Reference: 1. www.wikipedia.com/caboatge

2. Cabotage Policy-http://dapmalaysia.org/english/2012/apr12/bul

Part 2

(a).

Graph 1: Price under perfect competition and monopoly

Graph 2: The industry supply curve is the industry MC curve, which in turn is the sum of the firm MC curves.

Graph 3 : Price (Pm) and output (Qm) for the monopoly.

Under perfect competition, price is determined for the industry and for the firm by the intersection of demand and supply, at Pc in graph 1.The perfectly competitive industry is also the marginal cost (MC) curve of the industry as seen in supply curve S in graph 2. Suppose now that the industry is taken over by a single firm and that both costs and demand are initially unchanged. It follows that the marginal cost curve remains in the same position; also that the demand curve for the perfectly competitive industry now becomes the demand and AR curve for the monopolist. The marginal revenue (MR) curve must then lie inside the negatively sloped AR curve. The profit-maximizing price for the monopolist is Pm, corresponding to output Qm where MC = MR. Price is higher under monopoly than under perfect competition (Pm p Pc) and quantity is lower (Qm ` Qc). This criticism of monopoly is additional to the fact that, as its noted from Graph 3 output is not at minimum average total cost and price does not equal marginal cost, breaking the respective conditions for productive and allocative efficiency. However, these criticisms of monopoly may not be as strong as they first appear. We have already seen that the increased size which underpins monopoly power may yield economies of scale, both technical and non-technical. Where these economies of scale are significant, with the firm now able to move to a lower short-run average cost curve and with it a lower marginal cost curve. In graph 1, if economies of scale were sufficiently large to lower the MC curve to MC, then the profit-maximising monopoly price Pm and quantity Qm would be identical to those achieved under perfect competition. If economies of scale were even greater, lowering the MC curve below MC,, then the monopoly price (Pm) would be below that of perfect competition and the monopoly output (Qm) would be higher than that of perfect competition.

The monopolies are always against the public interest. This is due to some disadvantages of the monopoly which create this situation. The first reason is lower output and higher price. Firms under perfect competition and monopoly face same situation, but monopolist always produce higher price at lower quantity. The second reason is it is inefficient allocate. When a competitive firm and monopolist have the same cost, the competitive price and output are not like the welfare loss under monopoly which is shown by a deadweight loss of producer and consumer. The other reason is it’s inefficient productive. The presence of barriers of entry allows the monopolist to earn abnormal profits in long term. Unlike the perfect competitors, monopoly is productively efficient.

Reference: Alan Griffiths and Stuart Wall, 2005. Economics for Business and Management. Prentice Hall.

(b).

There are some negative externalities of road transport on society. This are including of congestion and pollution. In road transport sector, current market prices not reflected under these externalities. There are two types of instruments offered by economics as an address for the problem of transport externalities. There are incentive based policies and command and control.

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The command-and-control policies are to force consumers and producers under government regulations to change people behavior. This policy greatly used as policy instrument. The examples are fuel standards and vehicle emission also driving or parking restrictions in some main countries. Cost of implementation by government through these instruments is small. But the presence of political restriction makes this policy fail to achieve

The incentive based policies functions within an altered market. The incentive-based policies allocate permits to emitters by aggregate amount of the externality such as carbon emissions. The emitters deal their authorization amongst them. Even the market efficiency gratified by an auction, the permit allocation mechanism is important and political impact normally favors historic emissions based of allocation of proportional. Discussion on EU ETS as an example, there is no any policy for Co2 emission has been implemented in road transport until today.

Like command and control, the cheap and easy implement of fiscal instrument greatly used in road transport. The gap between private and social costs is bridge by them which including the use of charges and taxes and its lead to an effective market solution. There are several implementations of ownership, emissions, parking and congestion charges, fuel, registration and usage taxes in many countries around the world. Subsidies can give to buy the fuel-effective vehicles and scrapping old cars. There are implementations of congestion charges in certain cities, such as London and there are introduction of occupancy lanes in many states in United States. Other possibilities include other usage charges and pay as you drive insurance. Because of the imperfect knowledge of the market, the scope and size of subsidies and taxes controlled by governments, and its outcome is ineffective.

Reference: http://www.smithschool.ox.ac.uk/wp-content/TShirvani-Road-Transport-2010.