Tobacco growers wait for WHO decision

Based on the recent news "Tobacco growers wait for WHO decision" reported by New Straits Time, Kelantan’s tobacco grower and curers are protesting against the World Health Organisation (WHO). WHO is coming out with a plan that would threaten the livelihoods and jobs of the people in Kelantan. After doing a critical analysis on this particular topic, I am able to analyze and predict that WHO’s decision does not only cause the people in Kelantan to lose their job but to cause a serious impact on the tobacco market.

If WHO’s plan is approved, this one of the factors that would affect the tobacco market is the number of suppliers of tobacco will decreased. In the supply and demand graph of the tobacco market, the decrease of number of tobacco suppliers will cause the supply to decrease thus causing the supply curve to shift to the left. When all the factors of production are ceteris paribus except the price, there would be a movement along the curve. If there is an increase in quantity supplied, the price would be increased. However, the market equilibrium in the tobacco market would change due to the shifting to the left.

Figure 1.1

Based on the figure 1.1 of the tobacco market in Malaysia, we are able to observe that when there is a decrease in supply the supply graph would shift to the left. The shifting to left of the supply would cause a shortage in the original price, consumers and suppliers would then negotiate again until they reach market equilibrium. What will be affected is the market equilibrium price. The equilibrium price of tobacco will increase to RM2.5 per tobacco from RM1.5 per tobacco and the equilibrium quantity of tobacco will decrease from 10 million quantity of tobacco to 5 million quantity of tobacco.

When resources are not used efficiently, there would be a market failure in the tobacco market. The labors in the tobacco market in Kelantan are worried about their future and some even went to protest against World Health Organization. Labors who went to protest against WHO would cause an inefficiency to produce tobacco because they are absent for work and the maximum production would be affected, this is known as underproduction of tobacco. A market failure would then cause the government to step in to the situation to solve the problem.

But what will the government do in order to solve this? The government would set up a price ceiling which is to regulate the price and quantity of the tobacco market.

Figure 1.2

As seen in figure 1.2 of the tobacco market in Malaysia, a price ceiling prevents the suppliers to charge consumer at the price higher than a specific level set by the government, which is the area above the price ceiling. The government puts the price ceiling below the equilibrium price of tobacco, because it will have a powerful effect as it forces the supplier to set its price at a lower level so that consumers are able to enjoy the goods. Therefore, suppliers are not able to charge the consumers at RM1.50 when the quantity supplied and demanded is 10 million of tobacco per week. They are only able sell at RM1.00 when quantity supplied is 5 million of tobacco per week.

When the price ceiling is imposed, a shortage would actually arise in the market of tobacco because suppliers of tobacco are not willing to sell when the price is too low and consumers are willing to buy more when the current price for tobacco is low.

Figure 1.3

Based on figure 1.3, price ceiling would actually encourage the existence of a black market. Black market is illegal and it works along with the legal market when governments impose a price ceiling. Due to the shortage, tobacco consumers would be very desperate and are even willing to pay a higher price in order to get the product as seen in Figure 1.3 where the maximum black market price per tobacco is RM 2.20. This would then further encourage the arising of a black market because suppliers are able to earn more.

However, when the law in Malaysia is enforced by the authorities, the appearance of a black market would actually be at a very low rate. When the authorities start to arrest people who deal in the black market, people would be afraid to be involved in the black market. Besides, the loyalty of the people towards the country can also affect the black market. When the people in the country are against the black market and obey the law of the country, the likelihood of a black market to arise is very low.

Some consumers would actually search for other alternatives of tobacco instead of wasting their time on search activity. They know with the shortage around, it is hard to look for tobacco and suppliers would to tend charge a higher price and try to cheat their money. Therefore, instead of wasting time, they would turn to the closest substitute of tobacco which is cheaper. This causes the demand curve to shift to the left due to the substitution effect.

Figure 1.1

Figure 1.4

In figure 1.1, the supply curve shift to the left due to the decrease in supplier, after the shortage arises.it caused the black market to arise. Consumer starts to look for alternatives because of the shortage, therefore in figure 1.4 the demand curve shifts to the left due to the substitution effect.

When both the demand and supply of curve of tobacco shifts to the left, the equilibrium quantity would decrease. However the tobacco’s change in equilibrium price is left uncertain because when there is decrease in demand lowers the equilibrium price of tobacco and the decrease in supply raises the equilibrium price of tobacco in the tobacco market. Consumers and suppliers would then start negotiating until both parties agrees to the price, which means opposing forces balance each other.

However at the end of the day, it all depends on whether WHO’s decision would be approved which would affect the tobacco growers and curer. If it does, then this would be the consequences of their action and the effects on the suppliers and consumers of the tobacco market.

Penulis : Unknown ~ Sebuah blog yang menyediakan berbagai macam informasi

Artikel Tobacco growers wait for WHO decision ini dipublish oleh Unknown pada hari Saturday, October 27, 2012. Semoga artikel ini dapat bermanfaat.Terimakasih atas kunjungan Anda silahkan tinggalkan komentar.sudah ada 11 komentar: di postingan Tobacco growers wait for WHO decision