Causes and effects of labour shortage in palm oil field

The article is about the shortage of the labour and the problem that lead from the shortage of the labour. Most of the labour that work in palm oil plantation field in Malaysia are from Indonesia but now according to The Star, the palm oil in Indonesia are booming and it lead to the shortage of labour in Malaysia palm oil field as they will get higher paid if they work in their own country. The technology of the machine now is not high enough for example the cantas, fresh fruit bunches harvesters and many other different machine. Cantas is a machine that are able to help to harvest the palm oil fruits but cantas today only can reach five meter so it is unable to harvest on the palm oil fruits or fruits that are grow on above five meter so it still need labour to help on harvesting as there many palm oil tree that are taller than five meter. Palm oil tree that are below five meter is consider as the young palm oil tree and for those palm oil tree that are over 15 years all are above five meter high and the cantas today are unable to help to harvest the palm oil.

http://biz.thestar.com.my/news/story.asp?file=/2012/5/29/business/11372483&sec=business

The main reason that causes shortage of the Indonesia labour is because of the booming of palm oil in Indonesia. The substitution for the Indonesia labour can be the labour from other country such as Bangladesh, Myanmar and other country that do not have many palm oil field. Local people and the machine that can help in palm oil sector can be the substitution of the Indonesia worker too. Based on what I observed, the demand for the Indonesia labour is more elastic as there are many substitutions for it. Besides that, the supply of Indonesia labour in this situation is shortage.

The supply of the palm oil will decrease as the producers do not have enough workers to work for them due to the shortage of the labour. The market of the palm oil will not reach the market equilibrium as the supply are not able to reach the demand of the market and I think it may make the price of the palm oil increase as there is a shortage.

Government should interfere in the labour shortage problem by making agreement with other country to ensure that their citizen get a good and fair treatment in our country even they work as labour in our country. This will give the easement to the producers that need to employ foreign workers. There are many cases that the Indonesia labour do not get fair treatment in our country as they are given a lot of work but only get very low paid same goes to the cases of the Indonesia maid being torture in our country. Besides that, the foreign labour are being paid less than what actually they worth as they actually worth more. It is not fair for the Indonesia labour as they work very hard in our country. Besides that, government should ensure that our country will be in safe condition if many of the foreign labour comes to our country as there are quite a lot of criminal cases happened due to the foreign labours.



Furthermore, Malaysia government has set a minimum wages at RM 900 for the salary of all the foreign workers to ensure that the foreign labour able to get the paid they should get which mean there is a price floor for the salary for the foreign labour so more labours are willing to work in Malaysia. The rate of minimum wages increases then the unemployment will increase too as the basic salary for the foreign labour is higher and the employers are not willing to employ more labours as they need to pay more for the labours if they employ more labours. In this situation, the market failure will occur too as the supply of  labours in Malaysia will decrease due to the shortage of labours as the employers are not willing to employ more labours this will affect the supply of the palm oil to decrease as there are not enough of labour working in the palm oil sector. This will cause the shortage of the labours in the market and this will make the market of the labours could not reach the market equilibrium as the quantity demand will exceed the quantity of supply.





Price that under the price floor is the black market which means it is illegal. Black market occurs in this situation also as the foreign labour do not employed by the employers so they do not have work because of the minimum wages that set by government. The foreign labour will become illegal labour to work in our country so that the employers do not need to follow the minimum wages rule by employing the illegal labours. Besides that, large amount of money need to be paid by the employer for the procedure on employing the foreign labour and to employ the foreign labour so there are many illegal foreign labour in the market today as the employer can save more money if they employ the illegal foreign labour. Besides that, some of the legal foreign labours do not get high paid in their current work so they willing to change their work and become illegal workers to get higher paid in other places and this occurs the black market. If there is the illegal worker in the market then the black market will occurs.

Lastly, government should also invest more on increasing technology so that those company are able to come out more machine that got no or lowest limitation that able to fully replace the foreign workers or labour workforce. Government can find more expert or professor from oversea to invest new machine that are very high technology and able to replace and solve the problem of shortage of labours. For example come out with new cantas that able to harvest every fruit on higher tree like 15 to 20 meter height tree.

Cigarette price increase

The article is about the minimum price of cigarettes of RM7 for a pack of 20 cigarettes is not a new measure and has been in place since January 2010. More than half of the minors (53%) said they buy their own cigarettes, while 30% got them from friends in Malaysia, 55% of the adolescent smokers smoke less than 10 sticks per day in Kelantan, 95% of shops sold cigarettes to minors without verifying their age. There are over 80,000 retail outlets selling cigarettes throughout the country and are located near schools. About 31% of teenage boys and 5.3% of girls are smokers. Australia and Singapore have high tobacco tax and successfully reduced smoking among adolescents as a pack of cigarettes costs A$15 (RM38) and S$12 (RM29.80) respectively.

http://thestar.com.my/news/story.asp?file=/2012/9/12/focus/12008752&sec=focus

When a price floor is set, there will be a market failure because that will be an underproduction. Even the price floor is set but it will not easily affect the demand and the supply of the cigarette as smokers will not just stop smoking because of that. A price floor makes the buying price and the selling price results in inefficient underproduction. If the market is underproduction then the surplus problem in the market will be solved. The underproduction will make losses to the social is because it do not satisfy the need of people in the market.

                                       Graph of price floor at RM 10.20

Before this, the market equilibrium of the cigarette is at RM10 and starting from 22 October 2012, government set a price floor for the cigarette at RM 10.20 so all of the suppliers of cigarette must set the price at that level and the market equilibrium now changes. Besides that, there will be a market failure even the government set the higher price floor for the cigarette because government could not stop the smoker from smoking even if the price floor for cigarette is set higher as the smokers will not stop smoking just because of a higher price for cigarettes as smokers are addicted to it and they think that it is a necessity goods.

Graph of perfectly inelastic

The demand and supply of the cigarettes will remain unchanged even if the price of the cigarettes increases. This is due to the fact that smokers are already addicted to it so cigarette has a perfectly inelastic demand. Even if there is a 1% change in price, the quantity sold of cigarette will still remain the same. The demand curve will remain unchanged and the supply curve will remain unchanged also. It is because the demand will still be there as the smokers cannot quit smoking just like that.  

Graph of demand

However, things will change if there is an anti-smoking campaign and a large population of Malaysian participate. Smokers maybe influenced by the campaign and decided to quit smoking. Besides that, government could advertise on the harm that cigarette brings to human no matter whether you are a smoker or second hand smoker. This will increase the awareness of the smoker and they would know what the consequences to them and people around them if they continue to smoke. This may help some of the smoker to stop smoking. In this situation, the demand curve will shift to the left as the demand of the cigarette decreased. If a lot of the smokers join the anti-smoking campaign then there would be a surplus because the demand will shift to the left as the campaign may change the smoker’s mind to quit smoking and the demand of the cigarette will decrease. Furthermore, government should interfere in those cigarette sellers as there is an age limit that set by the government for people who buy cigarette. Government stated that, the cigarette seller are not allow to sell any cigarette to teenagers who are below 18 years old but many of the cigarette seller do not follow the rule and according to The Star, 95% of the cigarette seller in Kelantan do not follow the rule and sell cigarette to any age of people. Government should set some serious punishment to those sellers that are against the rule so that the sellers will follow the rule and the amount of teenagers smoking will be reduced also. Government should make the inspection on them in anytime without informing those so the seller dare not to sell the cigarette to teenager that are below 18 years old. This may make the supply of the cigarette on teenager below 18 decreases and the supply curve will to the left in this situation.

There are no other substitute goods for cigarette as smokers only will buy cigarette as they couldn’t find other thing that able substitute the cigarette. Weed is too heavy to substitute the cigarette so it cannot substitute the cigarette and shisha also couldn’t substitute the cigarette as people who like to smoke shisha doesn’t mean that they must be a smoker and the smokers doesn’t mean that they like to smoke shisha. Besides that, some people are addicted on shisha only but some are only addicted on cigarette. Most of the people will only be addicted to either shisha or cigarette but not both so there are very few substitute goods for cigarette so in this situation, the demand for cigarette is perfect inelastic.

Tobacco taxes increases smokers still demand on it. The cigarette company are able to earn more as the taxes of tobacco increases but people still demand for it. The increase of the taxes will not affect the quantity of people demand for the cigarette. Besides that, the daily cost of the smoker will increase as the price of cigarettes increase but they still buy it. I think this will cause the criminal cases to increase also if the smokers unable to cover their daily cost and they are force to do illegal stuff to get more money for example rob. Furthermore, the black market will happen if the taxes of tobacco are increased.

There will be a black market occur also as the smokers that have lower income will buy the cheaper cigarette that sell in the black market. The black market cigarettes are selling cheaper than normal cigarette as the black market cigarettes are not taxed. It may make some of the smokers to buy those cigarettes in the black market as it is cheaper so the demand for the cigarette in black market will increase and so the demand curve shifts to the right. When the smokers are going to buy the cigarette in black market, they will try different type of cheaper cigarette see which is suitable for them and this make the opportunity cost to happen as they need to spend an amount of money to buy the cigarette to try first before to see which cigarette they like then only they really buy the cheaper cigarette. Vice versa as it happen on the black market cigarette seller also as they need to spend an amount of money to see who are interested on their cigarette before they are able to sell their cigarette.

Ron 97 increase to RM 0.20?

http://thestar.com.my/news/story.asp?file=/2011/5/5/nation/8611879&sec=nation

PETALING JAYA: The price of premium petrol RON 97 will be increased by 20 sen to RM2.90 per litre today.

Malaysian Petrol Dealers Asso­ciation president Datuk Hashim Othman, who confirmed this, said the price hike would be effective at midnight May 5.

In the article, President Datuk Hashim Othman states that the global natural disaster and the political instability is the main reason to increase the price of the crude oil. For example, crude oil prices drop slightly after the death of the Osama bin laden. 

There are so many factors can affect the curve shift to left or right, one of the reason state is natural disaster, time factors, income affect, substitute affect and political instability but there are more factors that can easily affect the demand and supply curve. For example, change in the price of related goods, change in consumer expectations, changes in income, changes in buyer taste and more. The price petrol will increase 20 cent onwards but the demand and the supplier of the petrol will not decrease because petrol is a substitute goods. The substitute goods of the petrol are electric cars. When the price of the petrol decrease, consumer or supplier will not willing to produce or purchase transport.  

The table shows that a graph of the petrol market equilibrium following a natural disaster. This figure illustrates an automobile fuel market's adjustment to equilibrium following natural disasters. The vertical axis is price and the horizontal axis is quantity. S and D map the quantity supplied by producers and demanded by consumers, respectively, given the market price. Q₀ and P₀ are the equilibrium supply and price before the disaster. The supply schedule state “S₀ ” drops to “S₁”, because the price of petrol increase so don’t have any producer willing to produce transport to consumer. As cost of petrol are lower, more producer are able to produce more transport to market, and the consumer will willing to buy transportation rather than taking bus. When the cost of petrol increase, the demand of the cars will decrease, it’s a negative relationship.

As the cost of petrol increase, the sale of normal cars will drop but the sale of hybrids will increase. This is because hybrids with normal cars are substitute; when one is in high demand of hybrids the other products demand will drop. So its means, petrol has a direct relationship with hybrids where if the price of the product increase, quantity demanded will also increase. A hybrids car will not fall into the petrol complementary category because hybrids are a “green” car, it using energy sources to start the engine. Hybrids only using small amount of petrol to drive so when the price of petrol increase, more producer and supplier will see the earning so they will willing produce more hybrids to the market.  Increases of the petrol will cause more people willing to buy hybrids car rather than buy normal cars so it will cause waiting list in hybrids cars. A waiting list means that demand is too large to keep up with supply, therefore the equilibrium was not at its most efficient; there was a shortage. Supply is the product or services which producers are willing or able to sell to consumer. A shortage is caused when quantity demanded is greater than quantity supplied. If suppliers want to produce more products, price will have to increase because the price is controlled by government so there will be a shortage until the price adjusts. A shortage is usually short terms; the equilibrium is a state supply and demand must be balance. The graph below shows that the, petrol market, oil market. Hybrid market and car market

In graph one, as price of petrol increase, demand in the market of hybrids car will increase from A to B and there was no increasing in supply. It is difficult for producer to supply because the supply curve is inelastic; if the increase in supply is smaller than the increase in price then the price elasticity is described as inelastic. When it is inelastic; more people are willing and able to buy hybrids cars. In graph two, it show that the price of the petrol decrease, demand in the market of hybrids car will drop from B to A and there was increasing in supply, It is easy for producer to supply because the supply curve is elastic. When the graph is elastic, more and more people are not willing and able to buy hybrids cars. This is because the demand is more than the resources they need to use in produce the hybrid cars.

The increases of petrol affect people not willing to drive out and mostly they will choose carpooling with friends or take bus to work or study. Carpooling, also known as sharing vehicles with friends and it can save us money on petrol. As we know that in the article shows that the price of premium petrol RON 97 will be increased by 20 cent to RM2.90 per litre today onwards. The benefit of carpooling is more than drive out alone so the demand of car will decrease and people had no able to buy or sell. Hence, there may also have been increase in substitute modes of transport such as rail transport and buses. Finally people may travel long distance to work as a result of a general move to the suburbs. Maybe in the future, the price of the petrol decrease people are willing to drive out their own cars rather than choose to carpooling with others and yet supplier able to sell all the cars to consumer. So the demand curve will shift to left when the costs of the petrol increase just like the graph below.

In conclusion, there are negative and positive relationships in between petrol with other products. When the costs of petrol increase we will make changes to prevent spent more money in petrol. For examples, carpooling, hybrids and more. 

Tax of the cigarette increase and will it affect the sales of the cigareete?

http://thestar.com.my/news/story.asp?file=/2012/10/21/nation/20121021213418&sec=nation

KUALA LUMPUR: British American Tobacco Malaysia (BAT Malaysia) has announced a 20sen increase on the prices of all its cigarette packs effective Monday.

In the article state that, They are informed by the Royal Malaysian Customs to increase the price of the cigarette to RM 10.20. There are six factors may can affect the changes of the supplier, example, resources price, technology, taxes and subsidies, prices of other goods, producer expectation and number of seller. Why the taxes and subsidies are can affect the changes of supply? This is because businesses treat most taxes as costs. As the tax of the service or product increases so does the production costs. Hence, subsidies are “taxes inverse”. If the government subsidizes the production of a good, it in effect reduces the production costs and increase supply.

Based on Royal Malaysians Customs demonstrated that in 22 October 2012, government will increase the cigarette tax from 26% to 58%. There are few examples of income taxes in Malaysia; personal income tax, payroll tax, corporate income tax and excise taxes. Households are the key elements in the income taxes as we calling income receiver. Hence, households are both of consumer and people (everyone), everyone seeking to stratify unlimited wants and needs. Households is categorized the income receiver by how it was earned and by how it was divided.

 When cigarette tax increase, it will reduce household income, as it takes more money out to spent and buy a box of cigarette but when cigarette tax decrease in the country, it will increase disposable income, because it make households earn more money and more willing to spent into it. Hence, if the cigarette price went up, the sales of the cigarette will not decrease because cigarette is some kind of a ‘drug’ addict. For those who are chain smokers, they will willing to buy cigarette for themselves and not care for the price so the tax won’t change the sales of the cigarette. But somehow Income taxes will affect supply and demand curve will shift to left and right. Tax on a good is added to the marginal cost of seller of the goods. A increase of the tax graph below can explain the shift supply and demand curve. $1 of tax on one product will change the supply curve due to the amount of tax. The shifts in the supply curve, the equilibrium of price and quantity will also change because of tax. Eventually the impact on quantity and price will depend on the price elasticity’s of demand and supply.

This graph shows the supply and demand curves for products. The examples of equilibrium price are 400 and 460 thousands console which the demand curves and the supply curve joint together but there is a 32% (RM0.20) tax on the supplier. This means that the supplier must pay RM0.20 to government for each product they had produce to the consumer. Therefore, there is a RM0.20 tax in each product that they need to produce; suppliers will be less willing to produce any product at every price they stated so there is not just a movement on the supply curve, it will shift to left side of the cure. It means the production of the product decrease due to the taxes that government apply it. For chain smokers, they would not care about the price and they are willing to afford to buy whether the price higher than old times is.

When the price of the product increased from $10 to $10.20 consumers are still able to purchase cigarette. At the previous equilibrium point, there were 460 products had been sell but at the higher price, there are only 400 products sold. So there are 60 fewer products sold. The products that are no longer sold are gains from trade no longer they made, or dead weight loss. This means the blue area on the graph. But for chain smokers, they are not able to afford to smoke for every day. It will cause them smoke less and won’t make them quite immediately.  For examples, for one chain smoker he everyday must have one pack of cigarette and it cost him RM10.20 for one days. When end of the month he had spent RM316.20 on cigarette box. 

Although the sales tax is a direct impact on the supply, it has only an indirect influence on consumer demand. In addition to the changes, which need to be considered demand equilibrium price, sales tax, but also affect the purchasing power of consumers. When the sales tax rate is high, consumers spent more money in taxes and spend less on additional goods. In a poor demand market, they will force the companies to reduce prices in order to maintain a stable demand.

The sales tax will cause the supply curve shift inward, it has a secondary effect in equilibrium price for a product. The equilibrium price matches the price of the manufacturer's supply and consumer demand in a stable price. Since sales taxes increase the price of goods, it leads to a decline in the equilibrium price. This may mean that it becomes more difficult for corporate profits, sales of goods and consumers to change their buying behaviour to purchase more expensive goods or luxury goods.

 

Lastly, Sales tax affect supply and demand, and the form of the impact depends on how companies merge their sales tax and the extent of its pricing structure. When a national government increased the sales tax, companies may choose to leave their prices and earn lesser per sales of the profits. Enterprises can also choose to pass the tax along to customers through higher prices, which can significant the supply and demand. Governments to examine these issues before the imposition of new taxes and the flexibility of the enterprise work, subtle changes in the price structure of total sales tax rate.

 

Did Minimum wage affect on government economics?

 http://articles.cnn.com/1999-11-08/politics/minimum.wage_1_minimum-wage-minimumwage-lowwage-workers?_s=PM:ALLPOLITICS 

This article is related to how minimum wage affected on governments economic as well as the advantages and disadvantages on workers. An important example of price floor is the minimum wage. A minimum wage law states that the lowest price for labor that any employer may pay. Everyone has to get jobs from labor market, so the wages we earn or the types of job we want are influenced by the market.

So who exactly will benefit from an increase on minimum wages? Well, it will help those vulnerable workers and prevent employee turnaround and put more money in the pockets of people who spend all of their income on the cost of living. However, in today’s very high demanded market, an increase on minimum wage would help those people who wash cars, wash dishes. However, some employees are not willing to pay more money on that level of work ability.

A minimum wage brings unemployment. When the minimum wage is above equilibrium wage, the quantity of labor supplied exceeds the quantity of labor demanded, this result a surplus of labor. (a) shows a free labor market, (b) shows a labor market with a binding minimum wage.

This graph explains that, at the equilibrium wage, the quantity demanded of labor equals labor supplied. In a market, when the wage rate is at the equilibrium level, the quantity of labor supplied equals the quantity of labor demanded. This will result a neither a shortage of labor nor a surplus of labor.

This graph illustrates the effect of minimum wage above equilibrium wage cause an unemployment. The horizontal red line shows the minimum wages set at $7 an hour. A wage rate below this level is illegal which the region that is coloured gray is. At the minimum wage rate, 20 million hours of labor are demanded and 22 million hours of labor supplied, so 2 million hours of available labor are unemployed.  With only 20 million hours demanded, someone is willing to supply that 20 millionth hour for $5. Frustrated unemployed workers spend time and other resources searching for hard-to find jobs. This is related to search activity. Search activity is costly. Workers have to use their time, resources, and phones in order to search the information for jobs. However, they could have used that period of time to do other things which perhaps will benefit them more. The opportunity cost is occurred.

This graph has shown the inefficiency of a minimum wage. The minimum wage $7 per hour is above the equilibrium wage which is $6 per hour and the quantity of labor demanded and employed which is 20 million hours is less than the efficient quantity 21 million hours. Because the quantity of labor employed is less than the efficient quantity, their result a deadweight loss, which showed by purple coloured region. The firms’ surplus shrinks to the top blue region colour and worker’s surplus is shown by the bottom blue region. The pink region showed the potential loss from increased job research, which is borne by the workers.

Is the Minimum Wage Fair? I basically think is unfair. The reason is because only those people who have the jobs and keep them benefit from the minimum wage. The unemployed end up worse off than they would be with no minimum wage. For those people who search for jobs and they ended up worse off, because the increased cost of job search they incur.

The minimum wage has the greatest impact on market for teenage labor. The equilibrium wages for teenage are low. This is due to teenagers with lack of working experience as well as limited skills. Moreover, teenager will accept a lower wage. Many teenagers have never worked before, most likely is first time for them to try work in a particular place. No matter how much the employees offer, they will accept, because is the first salary they have earned. Or some of the teenagers work part-time jobs, just want to get some extra spending money.  As a result, minimum wage is more often binding for teenagers than for other members of the labor force. In additional to altering the quantity of labor demanded, the minimum wage alters the quantity supplied as well. Because the minimum wage raises the wage that teenagers can earn, it increases the number of teenagers to who choose to look for jobs. For example in U.S.A, when the minimum wage raises, teenagers are still studying in school, and some of them will choose to drop off from school and take the jobs. These new dropouts displace other teenagers who had already dropped out of school and they will become unemployed.

Even though an increase on minimum wage has big impact on market, there are still some good reasons about it. For instance, those with highly skilled and experienced workers are not affected because their equilibrium wages are well above the minimum. It is good for family, with more family income, some people might choose to retire early, or continue education, travel around the world, and so on. Therefore this will offer more opportunities for other people who needs job. Furthermore, it helps ensure employees are rewarded for their hard work and boosts the income of low-wage workers. For example, if you increase just little amount on their wage for low wage workers, they will be very happy and satisfy. This also built up more confident on them, therefore they will perform better. Increase on minimum wage is also a good way to motivate workers.

In conclusion, an increase on minimum wage has positive impact as well as negative impact. It all depends on markets and labors force. For low-waged workers should get more educated in order to have better paid. However, the government should pay more attentions to these lower income citizens, should have made more policies in order to protect their benefits.  

Raises taxes on alcohol and tobacco.

According to the article, http:news.bbc.co.uk/2/hi/business/8449252.stm  This article talks about in country Greek, How raises taxes on alcohol and tobacco are affected on country’s debt as well as the effects on consumers. taxes are often a source of heated political debate. A tax raises the price buyers pay and lowers the price sellers receive. For example in country Greek, tax per liter of alcohol rises from 11.4 euro to 13.7 euro. For a pack of cigarettes rise from 57.5% to 70%. Form these figures clearly shows that there is a dramatic increasing in taxes. This can be illustrating graphically. This is a graph on a tax on sellers.

The quantity for a pack of cigarettes per day is on the X- axis, and price of cigarettes is on the Y-axis. With no tax, the equilibrium price is at where the blue line intersects with demand curve. A tax on sellers is like an increase in cost, so it decreases in quantity supply. However, if we want to determine the new supply curve, we add the tax to the minimum price that sellers are willing to accept for each quantity sold. In which the supply curve is shifted leftward, where it became the red Supply + tax curve. This will established a new equilibrium price, where the red curve intersects with demand curve. This new equilibrium price is much greater than the original equilibrium price. The black arrow pointing upwards shows an increase in price, and the black arrow pointing leftward shows the decrease in quantity.

            

The tax revenue the government collects equals T*Q, the size of the tax T times the quantity sold Q. Thus, tax revenue equals the green area between the supply and demand curves. The government enacts taxes to raise revenue and that revenue earned must come from someone’s pocket. From revenue raising perspective, higher the tax rates would be justified if the demand for alcohol and cigarettes were relatively inelastic. For instance in this article it talks about country Greek, they are no substitutes for cigarettes and alcohol for smokers and alcohol drinkers, in this case alcohol and cigarettes are considered as necessities. Even though the price increases, the consumer still is buying the products, because they are no other goods which can be replaced with. Moreover, each country has own culture. In country Greek, drinking and smoking are part of their culture, everyone is doing them as their interests. So it’s a necessity for them. In comparison to country Malaysia, due to they have different races. Some of them cannot take alcohol, therefore its elastic for them. In Greek, since the demand of a cigarettes and alcohol are relatively inelastic, the deadweight loss of a tax is small. A tax has a deadweight loss because it induces buyers and sellers to change their behavior. The tax raises the price paid by buyers, so they consume less. At same time, the tax lowers the price received by sellers, so they produce less. This graph will show how the size of tax looks like.

According to The Finance Ministry said, the increase taxes on alcohol and cigarettes would deter consumption, ‘to the benefit of public health’. I strongly agree with is statement. When people smoke cigarettes, toxic ingredients such as carbon monoxide and nicotine will enter their body, it damages red blood cells, high risk of getting lungs cancer, as well as affect their immune system. For alcohol, it slows the function of brain; this might leads to car accidents. In additional, higher tax rate might cause crimes. When people cannot afford to purchase alcohol and cigarettes, they tend to do whatever in order to get more money. For instance, robbing a bank, stealing others valued goods, and drug trafficking.

As the taxes on drink are based on their alcohol concentration, therefore the tax on spirit is much more than beer and wine. People around the world recognize there are essential difference between high-strength spirit drinks like Everclear, Bacardi, than low-strength drinks like beer and wine. In order to create a high alcohol percentage spirit, an additional process is needed, which is distillation. This process requires lots energy and equipments to do so as well as lots supply of raw materials. The costs of production will be increased automatically. Also for the costs for the packages and the design of the bottles are also the elements that affect the price. Most high-strength spirits are selling in the pubs, which mean there is a higher opportunity for high-classed people to consume more, therefore the government would make more money out of them.  In order for Greek’s government make more profit, a higher tax for spirit is much effective than higher the tax on beer and wine.

When a tax drives a wedge between the buying price and the selling price, this will be result an inefficient underproduction. A tax makes the marginal social benefit exceed marginal social cost, it shrinks the producer’s surplus and consumer’s surplus, and therefore it generates a deadweight loss. This graph shows that the inefficiency of a tax on cigarettes. The demand curve shows the marginal social benefit. As well as the supply curve shows the marginal social cost. Without a tax, the market produces the efficient quantity. With a tax, the supply curve has shifted leftward, which will produce an inefficient quantity.

Is people paying taxes is fair? Well, it depends. For these people who are willing to pay tax, at the same time they will receive the service provided by government. Then this arrangement is fair because it means these who benefit most pay the most taxes. This is actually applied to The Benefit Principle. For these who can afford high taxes are mostly rich people, therefore the rich people might have benefited more. On the other hand, people can also pay the tax according to their ability. It is obvious that a rich person would have more ability than a poor person. A higher rate of tax increases along with people’s income. 

Factors of rent control

            Based on this article, http://topics.nytimes.com/top/reference/timestopics/subjects/r/rent_control_and_stabilization/index.html  what I can conclude is American was facing high rent problem although government have taken action against this such as rent stabilization.  In my opinion, I would like to include some related topic about this article. There are housing shortages, increased search activity, black market, and inefficiency of a rent ceiling.

Rent ceiling also known as rent control is defined as laws or ordinances that set price controls on the renting of residential housing. It functions as a price ceiling. Rent control exists in approximately 40 countries around the world. Rent control laws vary from one country to another, and may vary from one jurisdiction to another within some countries. Although the political debate over rent control is far-reaching, as described below, the purposes and provisions of such laws are intended to be limited in scope. They define which rental units are affected, and may have only larger or older rental complexes covered by the law. The frequency and degree of rent increases are limited, usually to the rate of inflation defined by the Consumer Price Index or to a fraction thereof.

            First of all is housing shortage. At the equilibrium price, the quantity demanded equals the quantity supplied. In a housing market, when the rent is at the equilibrium level, the quantity of housing supplied equals the quantity of housing demanded and there is neither a shortage nor a surplus of housing. But at a rent set below the equilibrium rent, the quantity of a housing demanded exceeds the quantity of housing supplied-there is a shortage. So if a rent ceiling is set below the equilibrium rent, there will be a shortage of housing. When there is a shortage, the quantity available is the quantity supplied and somehow, this quantity must be allocated among the frustrated demanders. One way in which this allocation occurs is through increased search activity.

            Next is increased search activity. The time spent looking for someone with who to do business is called search activity. We spend some time in search activity almost every time we make a purchase. When you’re looking for apartment for rent, and you know which apartment is acceptable, how do you find which apartment has the best deal? You spend a few minutes on the Internet, checking out the various prices. In some markets, such as the housing market, people spend a lot of time checking the alternatives available before making a choice.

            When a price is regulated and there is a shortage, search activity increases. In the case of a rent-controlled house market, frustrated would be renters scan the newspapers, not only for housing ads but also for death notices. Any information about newly available housing is useful, and apartment seekers race to be first on the scene when news of a possible supplier breaks.

            The opportunity cost of a good is equal not only to its price but also to the value of the search time spent finding the good. So the opportunity cost of housing is equal to the rent plus the time and others resources spent searching for the restricted quantity available. Search activity is costly. It uses time and other resource, such as phone calls, automobiles, and gasoline that could have been used in other productive ways. A rent ceiling controls only the rent portion of the cost of housing. The cost of increased search activity might end up making the full cost of housing higher than it would be without a rent ceiling.                                                                                                    

            Moreover, a black market or underground economy is a market in goods or services which operates outside the formal one(s) supported by established state power. Typically the totality of such activity is referred to with the definite article as a complement to the official economies, by market for such goods and services. The literature on the black market has avoided a common usage and has instead offered a plethora of appellations including: subterranean; hidden; grey; shadow; informal; clandestine; illegal; unobserved; unreported; unrecorded; second; parallel and black. This profusion of vague labels attests to the confusion of a literature attempting to explore a largely uncharted area of economic activity. There is no single underground economy; there are many. These underground economies are omnipresent, existing in market oriented as well as in centrally planned nations, be they developed or developing. Those engaged in underground activities circumvent, escape or are excluded from the institutional system of rules, rights, regulations and enforcement penalties that govern formal agents engaged in production and exchange. Different types of underground activities are distinguished according to the particular institutional rules that they violate. Graph below shows the black market.

            Goods acquired illegally take one of two price levels; they may be cheaper than legal market prices. The supplier does not have to pay for production costs or taxes. This is usually the case in the underground economy. Criminals steal goods and sell them below the legal market price, but there is no receipt, guarantee, and so forth. They may be more expensive than legal market prices. The product is difficult to acquire or produce, dangerous to handle or not easily available legally, if at all. If goods are illegal, such as some drugs, their prices can be vastly inflated over the costs of production. Black markets can form part of border trade near the borders of neighbouring jurisdictions with little or no border control if there are substantially different tax rates, or where goods are legal on one side of the border but not on the other. However, not all border trade is illegal.

            Last but not least, inefficiency of a rent ceiling. A rent ceiling set below the equilibrium rent results in an inefficient underproduction of housing services. The marginal social benefit of housing exceeds its marginal social cost and a deadweight loss shrinks the producer surplus and consumer surplus. Because the quantity of housing supplied is less than the efficient quantity, there is a deadweight loss. 

            To conclude this, rent ceiling in USA still a major concern although government try to help this off.