ECO 415 Assignment 1

PART A QUESTION 1 More Import Permits If Not Enough Chicken

JITRA The go!ernment "i## issue permits to import chicken on#$ if there is % short%ge& 'eput$ Agricu#ture %n( Agro)*%se( In(ustr$ Minister '%tuk Joh%ri +%h%rom s%i( this "%s unnecess%r$ %t the moment %s there "%s % sufficient supp#$& ,There %re enough chickens to meet (em%n( for the f%sting month %n( -%ri R%$% ., he s%i( %fter h%!ing sahur /pre(%"n me%#0 "ith !i##%gers in 1%mpung Te#uk M%#ek here $ester(%$& The #oc%# chicken f%rms pro(uce *et"een 1&2 mi##ion to 1&3 mi##ion *ir(s per (%$ %n( (em%n( for chicken is #ess th%n 1&2 mi##ion (%i#$& The go!ernment "i## monitor the supp#$ of chicken to %!oi( %n$ short%ge in the m%rket. especi%##$ (uring the festi!e se%son& -e s%i( the f%rm price of RM2&45 per kg impose( since the *eginning of the f%sting month "%s re%son%*#e. especi%##$ "hen comp%re( "ith price in neigh*oring countries& -e %((e( th%t tr%nsport%tion costs %n( incre%se in (em%n( "ere the contri*uting f%ctors to price incre%se& A(%pte( from Ne" Str%its Times. August 16. 7515

a) What is market equilibrium? With the aid of a diagram, explain how it is determined? Market equilibrium is a price a which the quantity demanded equals the quantity supplies for example demanded of Fried Chicken is !unit but quantity supplied of Fried Chicken is only "unit#
)rice per 'nit &*M(

Surplus

Supply !urve

Shortage
$

+emand !urve %uantity &'nit(

If the market price is above the equilibrium price, quantity supplied is greater than quantity demanded, creating a SURPLUS. Market price will fall for example Hakim ried !hicken, have a lot of ried !hicken that cannot sell Hakim ried !hicken will give discount or giving a lower price. "nce Hakim ried !hicken lower the price or give discount of ried !hicken, Hakim ried !hicken quantity demanded will rise until equilibrium is reached. #herefore, surplus drives price down. If the market price is below the equilibrium price, quantity supplied is less than quantity demanded, creating a SHORTAGE. #he market is not clear. It is in shortage. Market price will rise because of this shortage. or example Hakim ried !hicken is always out of stock of ried !hicken. So action that Hakim ried !hicken do is increase the price of ried !hicken "nce Hakim ried !hicken raise the price of ried !hicken, Hakim ried !hicken quantity demanded will drop until equilibrium is reached. #herefore, shortage drives price up. If a surplus exist, price must fall in order to entice additional quantity demanded and reduce quantity supplied until the surplus is eliminated. If a shortage exists, price must rise in order to entice additional supply and reduce quantity demanded until the shortage is eliminated.

$" marks) b) With the aid of a diagram, explain the effect of an increase in demand for chicken in the domestic market# $" marks) c) %xplain three $&) factors that may influence the supply of chicken in the domestic market# $' marks) d) What happens to the price of chicken in the domestic market if our go(ernment issue more permits to import chicken? )raw a diagram to support your answer# $& marks) e) %xplain any two $*) possible factors that may influence the demand for chicken# $& marks)
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