Diploma in Accounting

Diploma in Finance

BE4023 MACROECONOMICS

STUDENT NAME COURSE STUDENT ID

HO PEI NI DFIN SCKL19063783

NG SHI MIN DACC SCKL19074681
GOH KAI XIN DFIN SCKL19080159
CHEE WOON CHING DACC SCKL19023373
 The inflation can be defined as a quantitative measure regarding to the rate which the
average price level of the selected goods and services in an economy which increases over a
period of time and it is a common phenomenon in every country due to many factors.
However, there is a common disadvantage which could bring by the inflation which is
causing economy recession. The inflation is a constant rise in the general price level where a
unit of currency could buys less than it did in the prior periods and it is also one of the main
factors that will be considered in the fundamental of financial management which stated that
money has time value.

As time goes by, the value of money will become lesser and the money is worth more
the sooner it is received and one of the main reasons will be due to inflation that can
depreciate the money’s values. The inflation often measured and expressed in percentage and
the higher the inflation will be indicating that the decrease of purchasing power of a nation’s
currency and as the price increased, a single unit of currency has losses value because it can
be only used to buy fewer goods and services. The loss of the purchasing power of nations
will impact the general cost of living and this will further lead to deceleration of economic
growth because when purchasing power drop, people tend to buy lesser goods and services
and they are demotivated on purchasing and shopping due to high pricing, particularly for
those who has lower income. Most of the time, the inflation took place is due to the nation’s
money supply has grown rapidly which overtook the economic growth and when the money
supply is too much in the market, the value of money will be depreciated because everyone
has money to buy goods and services, hence the pricing of goods and services will be
increased. In order to counter the inflation, central banks which represented the nation’s
monetary authority has to take necessary measures to keep inflation within the permissible
limits to ensure the economy running smoothly and avoiding the economy fall into embarrass
condition.

Many factors could lead to inflation in a country, it is necessary to find out the factors
that will cause inflation so that the monetary authority and government can implement the
appropriate strategies to reduce the inflation rate. When the inflation rate went up, people in
the country will suffer from high living costs and lead to low purchasing power. When the
purchasing power is low, people tend to shop less frequent and hence the merchants and other
business entities will suffering due to significant sales dropped and lead to the financial crisis
that will cause high unemployment rate when the merchants bankrupts. Therefore, the
economists and monetary authorities in the country will always observe and monitor about
the economy condition in the country to prevent the economy situation goes worse.

Inflation rates in a country can have a significant impact on the value of the country's
currency and foreign exchange rates with other countries' currency. In 2005, the 7-year-old
peg linking the ringgit’s value to the U.S. dollar at an exchange rate of RM 3.8/U.S. $1.0 was
removed by the government. Peg of the dollar was replaced by a basket of managed floating
exchange rate system. The new exchange rate policy aimed for keeping value of RM more
broadly stable and avoiding uncertain currency swings that could hurt exports. Since the year
of 2010, the inflation rate in Malaysia has been increasing with the Government pointing to
the weakening of the ringgit. This is due to external factors such as the main driver behind the
upwards trend. According to the Economic Report 2018-2019 on November 02, 2018, value
of RM in depreciation during the period of 2010-2018. The main reason is that the external
factors, such as trade war, as well as the outflow of foreign reserves, because of
normalization of interest rates in the developed economy.

Based on the newspaper The Star on Friday, 13 Nov 2015, Tan Sri Zeti Akhtar Aziz,
governor of the Bank Negara, said the ringgit remained "significantly undervalued" and that
the risks of economic expansion were unlikely to materialise with exports still strong. Value
of RM does not reflect fundamentals related to the country's current account in surplus,
unemployment is around 3% and within the long-term average inflation rate in Malaysia.
“Malaysia export growth remains fairly strong and it does not meet our expectations. In
September, our country exports and industrial production exceeded economists’ estimate. In
2015, Global funds have withdrawn RM17.4 billion from Malaysian equities and RM16.2
billion from bonds. “We believe investors after they reassess their investment portfolios, will
tend to growth area, we are one of them," Zeti said. Mention the exchange rate difference of
Malaysia and the United States, Malaysia is mainly oil producers and even 80% of the
economic manufacturing and service factors affect the ringgit. According to Bloomberg
News, Bloomberg News survey of economist median estimates that last quarter Gross
domestic product probably increased 4.7%.
 This image shows that exchange rate on November 2015 to December 2015.

This image shows that exchange rate on March 2016 to April 2016.

Based on this scenario, we know that Malaysia was having exchange rate depreciation in
2015 and exchange rate appreciation in 2016.
 In 2015, Malaysia was having the weaker currency and leading to inflation. Currency
depreciation directly affects the domestic prices of imports, some of which are included in the
consumption basket that marks up the price index. Firms must pay more for the imported
goods in local currency. It increases the price of imported products such as essential raw
materials and components. This will cause higher production costs and it is likely to be
passed on to consumers through higher product prices. Lastly, depreciation may also lead to
inflation through the supply side, as the prices of imported goods become more expensive.
This leads to a fall in aggregate supply, AS shift to the left and cosh push inflation happened.
Therefore, exported goods increase and imports goods decrease. Domestic firms can benefit
from increased sales because exported goods become cheaper and export revenue will
increase. Foreign consumers will prefer our exported goods rather than imports goods. This
will lead to the balance of payments surplus and surplus on the current account.
(Export>Imported) However, depreciation in exchange rate can reduce the unemployment
rate.

Above in cost push graph.

 In 2016, Malaysia was having strengthens the currency and leading to inflation.
Currency appreciation directly affects the price of imported goods. An appreciation in
Malaysia economy will increase the value of RM. The price of imported goods are cheaper,
consumers are willing to purchase imported good rather than domestic goods. This improves
the consumer’s confidence and purchasing power. This scenario is demand-pull inflation of
imported goods and will lead to import expenditure decrease. Therefore, imported goods
cheaper, we expect the quantity of imported goods increase. The price of raw material
decreases because of the import price is cheaper. When the cost of production decrease, firms
will supply more goods and services this will lead to productivity increase and GDP increase.
Aggregate supply will increase and AS shift to the right. At the same time, exported goods
become more expensive and export revenue will decrease. This will worsen the balance of
payments and bigger deficit on the current account. (Export<Imported) However, an
appreciation in exchange rate can help higher living standards and improved competitiveness
in Malaysia.

Above is demand-pull graph.

 When strengthens currency, demand-pull inflation happens. Exchange rate increase,
price of exported goods increase and price of imported goods decrease. This leads to less
demand for Malaysia exported goods. The real output decrease because of supply decrease.
The reduction in export revenue and the rise in import spending will worsen the economy’s
trade balance. (Trade deficit increase) Overall balance of payments position worsens because
of outflow of money. Economic growth restricts and unemployment rate increase. In the long
run, it can lead to slow down economic growth. This is because most companies find it better
to outsource to other countries' weaker currencies, so fewer jobs opportunities left for locals.
A strong currency, Central Bank more willing may provide higher interest rates. Higher
interest rates affect the currency rise even more. If Central Banks think it is rising too fast and
they may cut interest rates to reduce the value of the currency.

When the currency become weaker, cost pull inflation happens. Exchange rate
decrease, price of exported goods decrease and price of imported goods increase. This leads
to more demand for Malaysia exported goods and demand becomes more elastic. As a result,
demand for exports has increased even more. The real output will increase because of supply
increase. The reduction in import spending and the rise in export revenue will strengthen the
economy’s trade balance. (Trade deficit decrease) Overall balance of payments is surplus
because of inflow of money. In the long run, it can improve economic growth. This is
because demand of labour increase, most companies scare factor of production (labour) to
increase the supply, so many jobs opportunities provide for locals. Unemployment rate
decrease
This image shows that fixed exchange rate applied.

Methods that past government policy to improve depreciation of exchange rate is fixed
exchange rate, it is an exchange rate system where the value of a currency is fixed, such as
gold or another currency. The purpose of using fixed exchange rate is to maintain the value of
currency against its secured currency. In capital controls, fixed exchange rate regime
regarded as a tool. Therefore, fixed exchange rate could be seen as a means to adjust the
inflow and outflow from capital markets of the country. Under normal circumstances, the
government maintains fixed exchange rate through on the open market to buy or sell their
own currency. This is the reason government stables reserves of foreign currencies and gold.
Reserves kept to settle international debts and to influence the value of the foreign exchange
rate. Fixed exchange makes trade and investment between the two countries easier and more
predictable, especially for small economies whose foreign trade accounts for a large part of
their gross domestic product. Advantage of fixed exchange rate is stable which encourages
investment and trade and makes long term planning easier. Disadvantage of fixed exchange
rate is government must have sufficient reserve about 80%. Central bank has to keep store
reserves of foreign currency and gold for intervention purpose to stable the value of our
currency.
This image shows that managed float exchange rate applied.

The methods that past government policy use to improve depreciation of exchange rate is
to manage the float exchange rate known as dirty floats, it is used to influence the exchange
rates through buying and selling currencies by central bank regularly when exchange rates are
permitted to float. Change in policy interest rates is to affect the net flows of short term
banking money (hot money). Ordinarily, central bank would set a range in which the value of
our currency could float freely from day to day. If the exchange rate falls below the floor of
the range or growth exceeds the upper limit of the range, the central bank takes action to
bring the value of the currency within the range. The form of buying or selling large amounts
of our currency usually managed by the central bank to provide price support or resistance.
For instance, if the value of Malaysia currency is higher than its range, central bank will sell
some of its reserves to put more money supply in circulation and lower the value of a
currency. Managed float exchange rate is to allow central bank intervene to adjust it and
reduce the risk of harmful effects due to the competitive exchange rate fluctuations, the
characteristics of the floating exchange rate system. Managed float exchange rates adjust
automatically to economic conditions enable a country to contain shocks and foreign business
cycles. Economists believe that managed float exchange rate is preferable to fixed exchange
rate in most cases.
 Tobacco is the second leading cause of death worldwide, causing nearly 5 million deaths
each year. Estimates indicate that if the current trend is not reversed, 10 million people will
die prematurely each year by 2020. Tobacco is the only legal product that kills half of the
average user. This means that 650 million of the 1.3 billion smokers will die prematurely.

Smoking harms the health of smokers and non-smokers; most people already know this.
According to a report by the World Health Organization, cigarette smoke contains more than
7,000 chemicals, of which at least 400 are harmful to the human body and at least 60 are
carcinogenic to non-smokers. In addition, little is known about the health hazards of "third-
hand smoke," especially children with weaker resistance. Third-hand smoke is a chemical
that remains on clothing, walls, furniture, carpets, cushions, and even hair and skin. These
nicotine toxic substances can stay on the surface for weeks. Even if smokers turn on the fans
and windows while smoking, the harm of third-hand smoke cannot be eliminated.

The WHO Framework Convention on Tobacco Control was unanimously adopted by the
Fifty-sixth World Health Assembly in May 2003. The WHO Framework Convention on
Tobacco Control ended its signature on June 29, 2004, with 168 signatories (including the
European Community). The first 40 States parties to the WHO Framework Convention on
Tobacco Control are: Armenia, Australia, Bangladesh, Bhutan, Brunei Darussalam, Canada,
Cook Islands, Fiji, France, Ghana, Hungary, Iceland, India , Japan, Jordan, Kenya,
Madagascar, Maldives, Malta, Mauritius, Mexico, Mongolia, Myanmar, Nauru, New
Zealand, Norway, Pakistan, Palau, Panama, Qatar, San Marino, Seychelles, Singapore,
Slovakia, Solomon Islands, Sri Lanka, the Syrian Arab Republic, Thailand, Trinidad and
Tobago, and Uruguay.

Since November 30, 2004, the following countries have also deposited instruments of
ratification or corresponding instruments: Botswana, Denmark, Finland, Germany, Honduras,
Latvia, Lesotho, Lithuania, Marshall Islands, Netherlands, Peru, Senegal, Spain, East Timor,
Turkey, the United Kingdom and Vietnam. The relevant provisions of the WHO Framework
Convention on Tobacco Control set international standards on tobacco prices and increased
taxes, tobacco advertising and sponsorship, labelling, illicit trade and second-hand smoke.

People smoke because they like it and can afford it. Cigarette rates and disposable income
influence the decision they make to purchase. Economists define affordability as a percentage
of a worker's income or hours spent buying a product. Malaysia signed the WHO Framework
Convention on Tobacco Control as early as 2005 intending to become a smoke-free country
by 2045. Malaysia's health ministry has been struggling to reduce the number of plus-size
smokers and to remind Malaysians of the dangers of smoking. For this Malaysian ministry of
health has made a lot of effort, also introduced many new measures, such as continuously
raise the price of cigarettes, expand and increase the non-smoking section, and so on. The
government also launched an anti-smoking campaign in 2004 at a cost of about RM 2 million
per year. The current legal age to buy cigarettes in Malaysia is 18 and all supermarkets and
merchants are not allowed to sell cigarettes to teenagers and children under 18 years old.

Government authorities have also been making various efforts to advise people not to
smoke or to minimize smoking. Therefore, the number of smokers has not fallen. Malaysia
government try continuous release of educational news and special reports on the harmful
health of smoking through the news media. The increase of public places that restrict
smoking, social education exhibitions and health seminars, heavy taxes on cigarettes to force
cigarette prices, and Cigarette companies have regulations on roadsides and crowded public
places such as "nauseous pictures" of smoking that are harmful to health, health warning
signs on cigarette packs, various non-smoking activities, and school "no smoking" education
billboards. At the same time, government departments and civil society have also been
organizing various activities to educate the public not to smoke, and they can do almost as
much as they can, but the effects seem to be inconsistent and have not achieved the expected
goals.

According to the national disease and disease survey report of Malaysia, as of June 2016,
it is estimated 5 million people are smoking in Malaysia, accounting for 22.8% of the total
population of 30 million people; compared with 23.1% in 2011. 5 million people who smoke
directly, 50% are over 30 years old, 40% are over 19 years old, and 10% are under 19 years
old. As for Malaysian adults who are forced to smoke second-hand at home, there are 7.6
million (or 4 out of 10); 2.3 million (or 4 out of 10) are forced to smoke second-hand in the
workplace; 8.6 million (or 7 out of 10) are forced to smoke in public places such as
restaurants. Every year, about 10000 Malaysian citizens participate in the smoking cessation
treatment program held in 486 hospitals and clinics across the country, and about 22% of the
10000 people quit smoking successfully every year.
 Governments must be aware that the most important policy tool for reducing tobacco use
(example, taxes that raise real tobacco prices) may no longer be effective. Although cigarette
prices in high-income countries are significantly higher, the average price of cigarettes is
affordable due to higher income. Cigarettes generally become more affordable in low-and
medium-income countries as economies grow and the income per person rises. The rise in
average income has significantly increased cigarette demand. If real income grows faster than
real prices for cigarettes, cigarettes are cheaper. It is predicted that cigarette consumption will
rise. Tobacco taxes and costs would also rise to reduce cigarette prices. Tobacco tax increases
have led to an increase in cigarette rates. Increased prices of tobacco reduce consumption of
cigarettes, enable smokers to stop smoking and discourage young people. Increase
consumption tax. Tobacco products, especially cigarettes may lead to higher consumer prices,
and will may increase CPI. Inflation undermines the purchasing power of money, and the
effect is considerable. Of course, for the super-rich, the impact of inflation is not obvious,
because their incomes and wealth far exceed their expenses or expenditures.

In Malaysia, the increase in tobacco retail prices has surpassed the rise of the excise tax.
Tobacco companies must take other factors into account, including market profits, royalties
and inflation. At 3 November 2015, according to a message from Commercial Markets and
Distributer Sdn. Bhd, domestic brands of cigarettes will start to increase prices on November
4, 2015! Domestic brands of cigarettes, such as Dunhill, Ken, Lucky Strike, Pall Mall, Peter
Stuvesen and Bensen & Hed. As the government suddenly raised domestic finances by more
than 40%, British American Tobacco Malaysia (BAT) reset started to increase all brands of
cigarettes tomorrow. An unprecedented tax adjustment was made suddenly because the
government suddenly imposed a tax of up to 40%

The tobacco industry has suffered a 12% surge in domestic taxes on November 4
2014, and then began to levy a GST on April 1, 2015. The cigarette market has shrunk by
10% year-on-year in September this year. Such a sudden increase in domestic taxes would
seriously hit the economy, and consumers will be affected.

Malaysia's tobacco sector has raised cigarette taxes three times between 2013 and
2015. The government raised the tax on cigarettes by 14 percent for the first time in
September 2013, followed by a 12 percent increase in November 2014 and a 36% increase in
November 2015. The government may look to raise cigarette taxes again this year (2016 ) to
raise revenue, helping to meet its deficit target of 3.1% of gross domestic product, with "evil"
products such as cigarettes an easy target.

Guilherme Silva, general manager of JT International Bhd (JTI Malaysia) believes the
government's tax rate is too high because he believes the move will only encourage more
smokers to buy smuggled cigarettes. He noted that after the government raised cigarette taxes
last November, sales of legal cigarettes have fallen by 20% in the past three months. - It was
Silva's first media interview since taking the helm of JTI Malaysia on 2016 January 1.

Malaysia section 11 (1) of the Tobacco Control Act 2004 provides that hospitals,
clinics, elevators, public toilets, gas stations, air-conditioned restaurants, schools, nurseries,
public transport, school bus stations, shopping centers, religious sites, bus stations, No one is
allowed to smoke in the pier, sports center and park. Due to the government legislation has
designated multiple public places as no-smoking areas, law enforcement officers often ban
smoking and impose fines on smokers. If the person receiving the fine refuses to pay the fine,
he will be prosecuted in court and face imprisonment of no more than RM10,000 or no more
than two years.
Tax category Project Taxation (RM100 million)
2016 2017 (Estimate) 2018 (Estimate)
Income tax 29.05 30.08 30.22
  Alcoholic 1.4 1.34 1.35
beverage
Cigarette 0.35 0.37 0.37
Car 6.39 5.91 5.94
Others 20.91 22.46 22.56
Domestic tax 117.05 118.06 123.34
Alcoholic 17.86 19.22 20.88
beverage
cigarette 35.34 39.41 41.17
Car 63.62 59.31 61.96
Others 0.03 0.12 0.13
2017 Federal Government Revenue Budget Report 2018 by the Ministry of Finance

The decline in cigarette sales does not represent a decrease in the number of smokers.
Twenty cigarettes sell for 12 to 17 ringgits in the legal market but only 3.5 to 4 ringgits in the
illegal market. Smokers turned to smuggled cigarettes.
 Malaysia's high tariffs have had an enormous impact on the legal industry as illicit
cigarettes have risen at the expense of legitimate goods, according to the report, it said that
this resulted in illegal cigarettes surpassing the Malaysian cigarette industry's market,
accounting for 52.3% of the market.

The illegal trade in cigarettes is estimated to be worth between RM2 billion and RM3
billion a year and cost the government more than RM4 billion in lost tax revenue. If the
government of Malaysia takes great importance to the immense loss of revenue incurred by
smuggling activities and cracks down on smuggling activities and illicit trade, it will not only
increase government income but also provide a fairer business environment for domestic
companies.
 At 31 December 2015, Singapore government intends to strengthen tobacco control
by extending the legal age of cigarettes and smokers from 18 to 21, thereby implementing
uniform packaging for tobacco products to reduce their appeal. The Singapore Health
Promotion Board (HPB), the Ministry of Health (MOH) and the Health Science Agency
(HSA) jointly issued a statement on December 29, saying that a 12-week public consultation
will be launched to discuss possible tobacco control measures, which may be implemented
locally Public comments to stop Singaporeans from smoking and encourage smokers to quit.

Measures proposed by the authorities include: unifying the packaging of tobacco

products to reduce the attractiveness of tobacco products; enhancing the health prediction
images of tobacco products; restricting the sale of different flavour of tobacco products; the
legal age to purchase, own and use tobacco products locally is 18 To 21 years old. According
to the World Health Organization, people who do not smoke before the age of 21 are usually
not addicted. To relevant tobacco control measures, the smoking rate in Singapore is 13.3%,
which is also one of the lowest in the world. Singapore aims to reduce the smoking rate to
12% by 2020.

When 14 February 2019, the ministry of health has introduced new tobacco control
measures for five consecutive years since 2015. Previous measures have included a ban on
the sale of new tobacco products, a ban on public displays of tobacco products, higher
tobacco taxes and a rise in the minimum legal smoking age.

Singapore's health ministry said that from 2020, all cigarette products imported into
the country or distributed and sold legally in Singapore would have to be packaged in the
same way, including enlarging the image of health warnings on cigarette packs from half to
three-quarters of the packaging. Cigarette packs shall not be printed with trademarks, and the
fonts and colors of all brands and trade names, as well as the printed positions, shall be
uniform. The cigarette packs are all coated in drab brown, or the mud-green Pantone 448C
that was voted the world's "ugliest color." The cigarette case must be opaque and dull, and the
glue used must be transparent and odorless. Each Cigarette also has a uniform, single or set of
colors, and can only be printed with an SDPC (Singapore duty-paid Cigarette). Among those
affected are cigarettes, cigars, traditional hand-rolled cigarettes called beedi and all tobacco
products, including homemade cigarettes, commonly known as red cigarettes.
 Edwin Tong Chun Fai, the senior executive minister of the Ministry of Health and
Justice, said that unified packaging is expected to bring huge public health benefits to
Singapore, including reducing smoking rates, and Singapore's long-term goal is to move
towards a "smoke-free society." "The amendment also includes adjustments to the maximum
fines, such as the unauthorized import or sale of tobacco products, and the maximum fines for
first offenders and reoffenders have been doubled, respectively S $ 10,000 and S $ 20,000.
This is similar to others compare penalties to ensure that penalties remain deterrent.

Conversely, raising the minimum age of smokers can restore a more effective
reduction in smoking rates. Studies show that 95% of Singaporean smokers start smoking
their first cigarette before the age of 21, and 45% of smokers are between 18 and 21 years
old. According to the Ministry of Defence, about 14 soldiers who completed full-time
military service in 2016 % are smokers. Therefore, raising the minimum age of smokers will
cover most national service workers, which will help reduce the number of young smokers.

In 2017, Congress revised the Tobacco Law further strengthen the regulation and
marketing of tobacco products. Gradually, the government set up non-smoking areas to
expand to cisterns, parks, higher institutions and private schools. Permanently sell tobacco
products in conspicuous places.

In addition to enacting laws, the government is encouraging people to stay away from
or quit smoking by promoting and increasing tobacco taxes, both hard and soft. However,
after the adult smoking rate fell to 13% in 2014, it seems to have bottomed out and cannot be
further reduced. In 2012, the government set a goal to reduce smoking to 10% by 2020.
However, actual smoking rates hover between 12% and 14%. In 2014, the government raised
this target to 12% in order to be more realistic.

The Singapore government aims to reduce the smoking rate to 10% by 2020. Thus, at
1 January 2020, Singapore legal purchase or use of tobacco products minimum age from 19
to 20 and on January 1, 2021, the minimum legal age for smoking will be increased to 21.
Businessmen who violate the smoking ban will be fined up to S $ 5,000 (approximately
RM15,000) and their driving license will be revoked, while repeat offenders will be fined up
to $ 10,000.
 If the public smokes on any young person under the legal minimum age, the first
offender will be fined up to S $ 500 (about RM1,500) and convicted offenders will be fined
up to S $ 1,000 (about RM3,000). For young people who buy cigarettes, first offenders will
be fined up to S $ 2,500 (about RM 7,500) and repeat offenders will be fined up to S $
5,000.Lianhe Zaobao, of Singapore, quoted health sector figures. The smoking rate in
Singapore was 18.3 per cent in 1992, fell to 12.6 per cent in 2004, and rose to 14.3 per cent in
2010. Singapore planned to reduce the smoking rate to 10% by 2020 and then raise it to 12%.

Malaysia’s policies compare with Singapore policies, if Malaysia government use

same policies like Singapore, the smoking rate will reduce not just increase indirect tax on
cigarettes. When higher indirect tax, duty on cigarettes increase, Sales and Service Tax (SST)
increase, that means the cost of production increase. Since, increase the cost of production,
producer want to recover back the profit, producer will increase the price of selling. It will
cause aggregate supply decreases, aggregate supply curve will shift to left. This called cost-
push inflation.

Malaysian’s government can try extending the legal age of cigarettes and smokers
from 18 to 21. Penalty can heavier, but not rise indirect tax in cigarettes. Because, inflation
rate will be higher and higher and cannot solve the problem to make Malaysia in smoke-free
country by 2045. Malaysian inflation expectations have a small impact on current consumer
behaviour, but their income and price "moods" influence consumer behaviour. If high
inflation is predicted to increase excessively this could really warm up future inflation. A
round of price increases, driven by inflationary economics, will cause further cycles of price
increases. Therefore, to provide the right medicine, the Central bank needs to understand
precisely the inflationary mentality of the people.
 On 8th December 2019, the first new Coronavirus had been confirmed in Wuhan
hospital. It can cause respiratory diseases in people. This usually occurs through respiratory
droplets when someone infected with the virus coughs or sneezes, then you inhale it. It can
spread from person to person. A detailed investigation found that SARS-CoV was transmitted
from cats to humans, while MERS-CoV was transmitted from humans to unimodal camels.
Several known coronaviruses are spreading in animals that infect humans. In more severe
cases, the infection can lead to pneumonia, severe acute respiratory syndrome, kidney failure
and even death.

As of  February 13, 2020, Wuhan's new coronavirus (2019-nCoV) outbreak has now
been diagnosed with a total 60,392 cases and 1,369 deaths. As concern about the new
coronavirus (2019-nCov) increase, people are beginning to worry about their health. The
nationwide demand for masks and hand sanitizers will increase rapidly. The world is facing
the problem of supplying masks and hand sanitizers, so these two items have been out of
stock. In Malaysia, people buy masks and hand sanitizers in large quantities in order to
prevent the virus. Because the market is in short supply, unscrupulous sellers will take the
opportunity to raise price just to earn profit or produce low quality masks sell to consumers,
regardless of the severity of the consequences. Watson, Guardian, Caring, Wellness, and
other pharmacies for almost three weeks, consumers are increasingly worried about when
they can restock and start selling. 
 At the beginning, the equilibrium price and quantity is the intersection of  D1 and S1.
D1 shift to D2 due to the presence of coronavirus, demand increase. However, demand >
supply, which means supply not enough to cover the quantity of demand, unscrupulous
sellers will take the opportunity to raise the price just to earn profit, price level move to P2.
When P2 increases the price, it will lead to inflation. Even though the price of P2 increases,
the quantity remains the same because there is not enough supply. After a few weeks, supply
has enough time to produce more, so S1 will shift to S2, and the price will decrease because
the supply becomes more leads to the price decrease, so P1 and Q3 will be the new
equilibrium quantity.

In the beginning of the past two weeks on January 25, authorities inspected 2,103
wholesale and retail premises selling face masks. Datuk Seri Saifuddin Nasution Ismail,
Minister of Domestic Trade and Consumer Affairs, said that the daily checks were done in
the wake of increased demand for face masks following the 2019 novel coronavirus outbreak.
He said that since Sunday (February 9), law enforcement officers of the ministry have
inspected 2,103 commercial premises and found a total of 17 illegal acts, with a combined
value of RM57,400 and confiscation of RM 4,255.50. Fourteen cases were sold above the
highest price, and three were cases without a price. "I want to emphasize that under the Price
Control (Controlled Price) Order 2009 and the Price Control (Maximum Pricing) (No. 2)
Order 2009, masks are regulated price items." This means that anyone who sells masks that
exceed the gazette price will be punished under the Price Control and Anti-Profit Act 2011.
nCoV has been included and ensured that masks will not be sold for more than controlled or
unreasonable prices.

In this note, he urged consumers if they find that the sales price of masks exceeds the
controlled price, they can complain to the ministry through its nine complaint channels,
including WhatsApp at 019-2794317. The maximum price of ear loop one layer-type face
mask is at RM7 per box containing 100 pieces; two layer-type ear loop face masks at RM10
per box and cost 20 sen each; three layer type head and ear loop is at 80 sen each; three layer
type tie-on face mask at 80 sen each and the N95 mask at RM6 each. If any merchant or
retailer found to have violated the directive will be punished with up to RM100,000 or up to
three years in prison, or both, or paid RM50,000 for the compound.

Regarding resolving the shortage of masks, Saifudin said that the Ministry of Health
had held meetings and had contact with relevant manufacturers, importers, wholesalers and
retailers to understand the actual situation of the supply of masks and the sources of supply in
the country. “We have also visited face mask factories and talked to the manufacturers on
how to increase production beyond the normal output,” he said, He added that some
manufacturers had increased their production in the near future."The ministry will continue to
work closely with the industry to address any challenges and constraints to ensure that the
supply of masks on the market can meet consumer demand." Few days ago, the ministry had
advised the public not to buy masks in a panic. The supply of the item has been reduced due
to the outbreak of the 2019-nCoV, as such actions will cause uneasiness and tension.
According to reports, Amrahi Buang, chairman of the Malaysian Pharmaceutical Association,
said that many people do not know that only those who deal with patients can wear masks.
He added that it is good for ordinary people to maintain continuous personal hygiene, such as
washing hands with soap.

To suggest another policy, Malaysia government can learn from Thai government that
has listed masks and alcohol dry cleaners as price controls. Accumulating or raising prices
may result in 7 years in prison or a fine of 140,000 baht. Failure to comply may result in 5
years in prison or a fine below 100,000 baht. Many other countries in Asia, such as Thailand,
have also imposed heavy penalties on hoarding products. South Korea has been sentenced to
two years in prison or 50 million won. Malaysia can be fined up to 100,000 ringgits and
imprisoned for three years, and companies can be fined 500,000 ringgits. Malaysia does not
include hand sanitizers in price controls. It is conceivable that if alcohol hand sanitizers are
needed by as many people as masks, the inflation rate will increase. There will be businesses
taking advantage of this opportunity. The Malaysian government should learn like the Thai
government and also include alcohol hand sanitizers in price control.

In short, price control in Malaysia has been on the rise since DrM became Prime
Minister. There is no indication that it belongs to database management. Price control is
inefficient in achieving economic or welfare goals for a number of reasons. First, it distorts
resource allocation. Second, it eliminates the services of the price mechanism, which
provides a cost-free way to coordinate extremely complex and natural economic activities.
Third, the beneficiaries cannot be targeted, and therefore ultimately benefit those who should
not receive any help. Often those who deserve help are just a small group, and there are other
more effective and fair ways to help them (such as income transfer). Fourth, price controls
encourage illegal and unethical activities, including bribery, corruption, smuggling and illicit
manufacturing.