f) Using Extract 4, discuss the measures taken by the Malaysian government to curb the price of

cooking oil. [10]

8 level marks + 2 evaluation marks

● Question type: Policy

What the policies mentioned in Extract 4?

f) Using Extract 4, discuss the measures taken by the Malaysian government to curb the price of
cooking oil. [10]

8 level marks + 2 evaluation marks

● Question type: Policy

● Start point: Policies mentioned in Extract 4 (Subsidy & Price ceiling)
● End point: Effectiveness of policies enacted by the Malaysian
government to curb the price of cooking oil
● HAL approach
[How — Advantages — Limitations]
Evaluation for
Policy-type
questions:
FIRST
f) Using Extract 4, discuss the measures taken by the Malaysian government to curb the price of
cooking oil. [10]

INTRODUCTION
Brief overview / definitions
Keep it short and succinct

● The aim of the government is to keep the price of cooking oil (which
is a necessity) low to relieve the burden of the lower income group.
● This essay aims to discuss the policies which the Malaysian
government implemented, including subsidies and price ceiling.
f) Using Extract 4, discuss the measures taken by the Malaysian government to curb the price of
cooking oil. [10]

What is the policy? According to extract 3, the “Malaysia Government had started
[with extract evidence] subsidising cooking oil since 1992”

HOW does this policy Subsidies are direct financial aid provided by the government
work? (ie. mechanism to producers to lower cost of production. This would cause the
with economic analysis) supply of cooking oil to increase. The supply curve to shift to
the right resulting in a fall equilibrium price and increase in
equilibrium quantity.
+ Diagram

What are the Evidence: According to extract 4, the purpose of the subsidy is
ADVANTAGES of this to “push down the price of cooking oil” to benefit domestic
policy? consumers.
Economic analysis: Given that the demand for cooking oil is
relatively more price inelastic given its high degree of
necessity, the incidence of a subsidy will be enjoyed more by
the consumers P0 to P1 as compared to the producers P0 to
P1+ s. Therefore, meeting the government’s objectives
of relieving the burden of consumers. [Effectiveness]
f) Using Extract 4, discuss the measures taken by the Malaysian government to curb the price of
cooking oil. [10]
f) Using Extract 4, discuss the measures taken by the Malaysian government to curb the price of
cooking oil. [10]

What are the Evidence: However, according to extract 4 “in reality, 30% to
LIMITATIONS of this 35% of the subsidised cooking oil often goes into the wrong
policy? hands - restaurant operators, hawkers and small-scale
food-based industries” and not domestic consumers. In
Intermediate EV addition to this, “Some also claimed that 10% of the total
domestic subsidised cooking oil quota was smuggled
into neighbouring countries.”

Economic analysis:
- [Effectiveness] This suggests that the subsidy has failed
to meet the objectives of the government which is to
increase equity by making cooking oil more affordable to
the poor.
- [Side effects] High strain on the government budget and
high opportunity costs involved as the Malaysian
government could have redirected resources to other
sectors of the economy, such as other developmental
expenditure (i.e. education and healthcare). This also
increases the burden of taxpayers.
f) Using Extract 4, discuss the measures taken by the Malaysian government to curb the price of
cooking oil. [10]

What is the policy? According to extract 3, “The ceiling price of cooking oil in
[with extract evidence] Malaysia has been fixed since 1997 and includes 1kg
polybag
(1.85 ringgit) and bottle packaging ranging from 0.5kg
(2.50
ringgit) to 5kg (13.35 ringgit).”

HOW does this policy A price ceiling is a legal limit on the highest price a
work? (ie. mechanism producer can charge for a good or service.
with economic
analysis) [Effectiveness] The objective of a price ceiling in this
context is to “to curtail the increase in price to relieve the
burden of the lower income group”. Hence the government
What are the has attempted to keep prices of basic foodstuffs at
ADVANTAGES of this affordable levels by imposing price ceilings.
policy? + Diagram
f) Using Extract 4, discuss the measures taken by the Malaysian government to curb the price of
cooking oil. [10]
f) Using Extract 4, discuss the measures taken by the Malaysian government to curb the price of
cooking oil. [10]

What are the Evidence: According to extract 4, an issue which often crops up is that
LIMITATIONS of this “whenever a festive season is approaching, there will bound to be a shortage
policy? in cooking oil despite Malaysia being one of the world largest palm oil
producers and the raw material is plentiful the whole year through.”
Intermediate EV
Economic Analysis:
* Note: limitations may or - [Feasibility] A price ceiling does not eradicate a shortage and the above
may not be mentioned in suggests that there could be problems with rationing measures.
the extracts, so you have - [Side effects] Furthermore, black markets could arise where sellers
to think on your own ignore the government’s price restriction and sell illegally above the
legal maximum price. As seen from the diagram above, some domestic
consumers might be willing to pay beyond PMAX to consume the goods.
If sellers (such as small-scale food-based industries) are able to get
hold of QMAX amount of goods, they would be able to sell QMAX amount
of goods at Pb. This means that the price ceiling would be ineffective
in curbing the price of cooking oil.
- In addition, if demand is price inelastic, such as during festive seasons,
this would make the black market price Pb even higher.
f) Using Extract 4, discuss the measures taken by the Malaysian government to curb the price of
cooking oil. [10]

SUMMATIVE CONCLUSION
Stand + Justifications

● Both policies have their limitations and will not be effective

individually. Hence, the Malaysian government should continue to
utilise a multi pronged approach in curbing the price of cooking oil.
The subsidy complements the price ceiling by helping to alleviate the
shortage as producers will be incentivised to produce more cooking
oil.
● However, the Malaysian government may want to consider a
long-term solution to the problem by engaging in or promoting R&D
on cooking oil to ensure prices remain affordable in the future.