Elasticity
of Sugar and Clothes
According to the news “20 sen more for sugar” which posted at http://thestar.com.my/news/story.asp?file=/2011/5/10/nation/8649957&sec=nation and the article “Minimum impact from fuel and sugar” which posted at http://thestar.com.my/news/story.asp?file=/2011/12/12/nation/10078389&sec=nation and “Year-end sales help consumers stretch
their ringgit” which posted at http://thestar.com.my/news/story.asp?file=/2012/4/3/parliament/11034602&sec=parliament, it has given a brief idea on the elasticity of sugar and
clothes.
The price elasticity of demand is a units- free
measure of the responsiveness of how the changes of price of a good effect on
its quantity demanded when all other influences on buying plans remain the
same. In economics concept, there are 3 types of demand elasticity which are
elastic, inelastic and unit elastic. When demand is elastic, a 1 percent
changes in price will causes more than 1 percent changes in quantity demanded.
When demand is inelastic, 1 percent of changes in price will cause less than 1
percent changes in quantity demanded. When demand is unit elastic, 1 percent
changes in price will cause 1 exactly 1 percent of changes in quantity
demanded.
In last year, Malaysia
government declared to raise the price of sugar by 20 cents to RM2.30 per kilo.
(Kong, 2011). The ministry secretary explained that rises of sugar price
purposed to reduce government sugar subsidy by RM116.6mil from RM400mil per
year. “The exercise is done in line with the Government’s long-term strategy to
rationalize the sugar subsidy in stages.” (Dom 2011). However, the increase of
sugar price has not much influence the demand of sugar. The Deputy Minister of
Consumer Affair pointed out that although the sugar price increased, it did not
give a big effect because each household only used an average 5kg of sugar a
month. The deputy noted after calculation, each household only cost RM1 extra
per month after the price raised. Relatively, the demand of sugar will not have
much change due to price increase.
In this case, the price
elasticity of sugar is inelastic. When the price of sugar increased, the demand
of sugar has not changed very much. Means that the percentage of changes in
price is more than percentage changes in demand and this is to prove that sugar
is very inelastic. Explanation could be the practicality of sugar. As we know,
sugar is a basic need in every household and it does not have any substitutes.
Sugar can even be the basic raw material in all types of foods and beverage. In
this sense, even though the price of sugar had to increase, consumer would not
have much choice as sugar is the compulsory good in daily life. The example in
last year has given us a clearly view of how inelastic is the demand of sugar
by showing a small impact of rising the sugar price to the demand of it. Even
the year before last year, cases of sugar price increased had happened for
several times. For example in year 2010, price of sugar increased 20 cents in
January, 25 cents in July and 20 cents again in December. After few times of
increasing, the price of sugar could increase again in year 2011. It shows that
the price elasticity of demand in sugar is very inelastic because the addition
of price would only affect less of the demand than the percentage increase in
price.
As we had discussed the
case of inelastic product, we are now going to discuss the elastic product. An
elastic product refers to a good that will be affected very much if its price
increases. Let’s say a cloth is selling at RM50 normally and the demand is 10
unit per day, but now due to year-end-sales it only selling at RM40 and the
demand jump from 10 unit to 30 unit per day. The above example has shown the
percentage changes in price are less than the percentage changes in demand.
Therefore the price elasticity is inelastic.
Months ago one of the
clothes brand, Padini has held an annual stocks clearance promotion. The result
in it was a huge wave of consumers queuing up at the cashier with bunch of
clothes and shoe carried on their hands. One of the brunch manager declared
later, the sales of company has increased rapidly compare to normal period. He
also mentioned that during normal day, company sales are 50 percents on
average, but because of the sale promotion, company sales increased 20 percents
to 70 percents. A single newspaper
author published that 78 percents of Malaysian purchase items when they are on
sale according to survey. (Rahim, 2011). Director of retail measurement
services also said that Malaysian is the most popular country among other 51
countries to look for sale. (Tripathi, 2011). According to online survey, 78
percents of online respondents declared that they purchase items when the
products are on sale. (Rahim, 2011).
It is very clear from
the issue above, consumer do have a choice on clothes. When clothes are in low
price or the price decreased, the demand will increase numerously. To explain
why this did happened, we can use the economic way. Unlike sugar, clothes are
not stapler goods like sugar. A household can live without extra clothes but it
can’t live without sugar. If the price of clothes are high, consumer do have a
choice not to buy it as they do not need extra clothes since they already have
in exist. Therefore the price elasticity of clothes demand are elastic because
a slightly changes in price may cause a huge changes in quantity demanded. When
it comes to stapler goods like sugar, consumers do not have much choices
because sugar is compulsory needed in every household. When the price of sugar
is high, consumer can’t decide not to buy because it’s not an option. Sugar is
a product that will finish day by day but clothes isn’t. Clothes will remain
the same amount even days passed by.
After all kinds of
discussions, all we can say is, there are so many types of products in the
market but every product has its own price elasticity of demand. Some of them
may undergo a huge effects of quantity demanded due to a price change but some
will only experience a small effects. Therefore economist will have to study
about the product elasticity to find out how would the market react to the
product.
Malaysia should produce their own sugar so that the price of sugar could be lower!
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