Foundation in Business | Principles of Economics | Section Five

Aminath Ainy Nasheed Muhammed Aqil Bin Suhaimi

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Part 1 : Introduction

The article chosen was extracted from the Channel News Asia (CNA) website that is
written by Amir Yusof. In the article, Amir Yusof reported that the price of vegetables has
increased due to higher demand because of the upcoming Chinese New Year (CNY)
celebrations. During the festive period, farmers are faced with an increase in demand and are
needed to rush for export shipments of vegetables. Moreover, due to the gap in the supply
chain, prices of vegetables are expected to rise in the coming days. There is a supply chain gap
because suppliers from Malaysia and China are on holiday as CNY gets closer and certain types
of vegetables may face a shortage. As a result, if there is a shortage, prices of vegetables will
increase (Yusof, 2020).
Part 2 : Supply, Demand and Elasticity

Supply and demand are an essential concept that is applied in the world of economics
and it forms the foundation of any market economy (Hubbard and O’Brien, 2015). A product
can be either a good or a service. Demand illustrates the quantity of a product that consumers
are willing and can afford to buy whereas supply demonstrates the quantity of a product that is
produced and sold the market. Both concepts are shown in the demand and supply curve to
showcase price and quantity within a certain market as well as the equilibrium point in which
the quantity demanded for a product is equal to the quantity supplied. A market’s supply curve
is determined by the resources available for production and the number of sellers in the market.
For instance, a variable which can shift the supply curve is the change in the prices of the
factors of production, also known as an input (Blanchard and Quah, 1993). An input is
described as anything that is used during production process of a good or service.

Based on the article that we have chosen, prices of vegetables are anticipated to go up
because of a gap in the supply chain in the market for vegetables. According to theory, a supply
chain can be defined as the sequence of processes which involves the production and
distribution of a product to the final buyer (Chopra and Sodhi, 2004). As mentioned in the
article, Mr John Liew, who is the operator of Sunrise Farm added that the unpredictable
weather conditions for the past several weeks since December 2019 has affected the crop yield
to reduce by thirty to forty percent. For example, plants are not able to grow and
photosynthesise suitably due to the lack of sunlight. Additionally, fungus starts to grow on
plants which causes the crops to rot and become damaged because of the high humidity in the
air. During the monsoon season which happens in the Northeast part of Malaysia every
December till March, farmers are more concerned with the unpredictable weather conditions as
they are faced with higher uncertainty.

These reasons have certainly impacted the supply chain of vegetables and preparation
for the upcoming Chinese New Year. Hence, quantity supplied of vegetables will reduce and
the supply curve will shift towards the left. This leads to a shortage to occur when the amount
of quantity demanded by consumers is higher than the quantity supplied by producers. This
scenario occurs when there is a surplus of demand for goods or services in which demand for
goods or services are beyond its supply in the market (Blanchard and Quah, 1993). Due to this,
some consumers may not be willing to purchase vegetables at its current market price. In a
situation of a shortage, producers may realize that they can increase the price of vegetables to
maximise profits.

Additionally, as the price of vegetables goes up, it will concurrently step up the amount
of quantity supplied. Therefore, the amount of quantity demanded will fall until a point where
the market equilibrium is achieved. When the market equilibrium is at a competitive state, all
consumers who are willing to purchase the goods at the equilibrium market price could buy as
many goods as they wish. On the other hand, all suppliers who are willing to accept the
equilibrium price in the market could sell as many good as they wish. As a matter of fact, a
change in price is typically a result caused by the shift in the demand curve or supply curve
either to the left or to the right.

Furthermore, products such as vegetables are significantly affected by the amount of

quantity demanded of consumers in the market and by the amount of quantity supplied by the
producers. In this case, the prices of vegetables have increased due to the decrease in quantity
supplied of vegetables in the market because of the gap in the supply chain. When a gap in the
supply chain happens, producers would reduce their volume of production because they are
faced with higher uncertainty. According to the article, the information obtained states that the
uncertain weather conditions have raised concern among farmers especially from October to
March during the monsoon season that takes place every year in the Northeast part of Malaysia.
As a result, the supply of vegetables will fall, and its supply curve will shift to the left.
Therefore, the prices of vegetables increase.

Elasticity can be alluded to the responsiveness where consumer or suppliers change the
amount of quantity demanded or quantity supplied of a product according to a change in its
price (Nievergelt, 1983). Elasticity is calculated with values greater or lesser than 1.0. If the
value is less than 1.0, it suggests that the demand is inelastic and insensitive to price. However,
if it is greater than 1.0, it reveals that it is in fact elastic and sensitive to price.

An elastic demand or supply curve shows that the quantity demanded or quantity
supplied responds to changes in price in a greater than proportional manner. Contrarily, a
demand or supply curve that is inelastic indicates that a given percentage change in price will
result in a little percentage change in quantity demanded or supplied. Inelastic refers to when
the price increases or decreases, buyers’ purchasing habits remain slightly the same. In a
scenario where vegetables are elastic, the number of consumers buying the vegetable is less as
the price of vegetable hike up.
Part 2 : Supply, Demand and Elasticity

Furthermore, the export demand for vegetables produced domestically is elastic due to
the competitive market production for vegetables around the globe. For example, if the price of
domestically produced vegetables goes up, it can be easily substituted with imported vegetables
from other countries. In a situation where imported vegetables become trendy in the market,
consumer will substitute local products with imported products. Hence, quantity supplied of
domestic vegetables will decrease drastically.
Part 3 : Diagram and Explanation

A gap in the supply chain in the market for vegetables causes an overdrive to farmers in
Cameron Highlands before the Chinese New Year celebration. During the festival, vegetables
are presumed to increase intern of prices because of the gap in the vegetables supply chain.
Theatrically, a shift in the supply curve happens when a change in supply occurs. When there is
a change in the determinants of supply that is other than the price of the good, the supply curve
will shift. Based on the article chosen, a gap in the supply chain in the market for vegetables is
the determinant that causes supply to decrease and the supply curve to shift to the left from S to
S1. Quantity of vegetables has also decreased from Q to Q1. As a consequence, there is now a
shortage in the market for vegetables due to the demand being greater than supply which makes
the price of vegetables to go up from P to P1.
References

Blanchard, O.J. and Quah, D. (1993), ‘The Dynamic Effects of Aggregate Demand and Supply
Disturbances,’ The American Economic Review, 83 (3), pp. 653–658.

Chopra, S. and Sodhi, M.S. (2004), ‘Supply-chain Breakdown,’ MIT Sloan Management
Review, 46 (1), pp. 53–61.

Hubbard, G. and O’ Brien, T. (2015). Economics. 5 ed. England: Pearson Education Limited,
th

pp. 133-138.

Nievergelt, Y. (1983), ‘The Concept of Elasticity in Economics,’ Siam Review, 25 (2), pp. 261–
265.

Yusof, A. (2020). Gap in Vegetable Supply Chain Puts Cameron Highlands Farmers in
Overdrive Before CNY [online] Available at:
https://www.channelnewsasia.com/news/asia/singapore-vegetable-prices-malaysia-cameron-
highlands-supply-12263042 (Accessed 28th January 2020).