FAKULTI PERNIAGAAN DAN PENGURUSAN

COURSE:

MICROECONOMICS (ECS10203)

GROUP 5

REFERENCE JOURNAL:

Chawananon, C. (n.d.). Factors Affecting the Thai Natural Rubber Market Equilibrium:
Demand and Supply Response Analysis Using Two-Stage Least Squares Approach.
DigitalCommons@CalPoly.

PENSYARAH:

NORAZLINA BINTI ABDULLAH

DISEDIAKAN OLEH:

NAMA NO MATRIK

MUHAMMAD RAFIQIN AKMAL BIN MOHD ZAIKANI 077186

MOHAMAD ALIF AIMAN BIN ROSLI 079273

MUHAMMAD RIZAL BIN CHE MOOD 079260

MUHAMMAD NASRUDDIN BIN MOHAMAD ZAID 078579

 TABLE OF CONTENT

THE ISSUES/PROBLEMS OF THAT COUNTRY ...................................................... 1

ECONOMICS METHOD ................................................................................................ 2

LITERATURE REVIEW ................................................................................................. 3

THE OUTCOMES AND USEFUL OF THIS RESEARCH TO PRACTICE IN ANY

ECONOMIC SITUATION .............................................................................................. 4-5

RESEARCH SUGGESTION ........................................................................................... 6

CONCLUSIONS ............................................................................................................... 7
 1. THE ISSUES/PROBLEMS OF THAT COUNTRY
The journal discusses the natural rubber industry in Thailand. It highlights several
microeconomic issues that can impact economic actors, rubber farmers, and the rubber
market in the country.
I. Price Elasticity Challenges:
The article emphasizes the vulnerability of Thailand's rubber sector to downturns in
the world economy, suggesting possible problems with price elasticity. Rubber prices
are declining due to oversupply, which indicates that the market may be very elastic—
that is, changes in supply have a significant effect on prices. Farmers have difficulties
as price takers in the world market since there's a chance that the demand for rubber
won't be strong enough to offset surplus supply.

II. Global Economic Impact on Demand:

The world economic crisis is a big problem for Thailand's rubber sales. This means
that not many people want to buy rubber when the whole world is having money
troubles. It is making life hard for the farmers. So, we need to look at why people
worldwide buy less rubber and how it affects the rubber market.

III. Government Interventions and Market Equilibrium:

The story talks about how the government in Thailand is trying to do things to change
how rubber is sold. They have projects like the One Million Rais2 Project and
promise specific prices to help farmers keep prices steady. But sometimes, these
actions might have unexpected problems. It's critical to comprehend how government
actions alter the relationship between the supply and demand for rubber. If it is not
done correctly, it might cause unnatural fluctuations in the market.

IV. Structural Changes in Supply:

More places like China, Laos, and Cambodia are now growing rubber, which was
unusual before. It makes it challenging for the traditional areas in Thailand that
usually grow rubber because it will cause too much rubber to be available. It is also
important to figure out what is causing these changes and how they make things
difficult for the rubber industry.

V. Trade Liberalization and Price Volatility:

Because of trade agreements, Thailand must accept whatever the world market
decides. The falling prices of rubber and having too much rubber around show that
the prices might keep changing a lot. So, understanding how these trade rules affect
Thailand's rubber sales and why prices are going up and down is important. Finding
solutions that work well for a long time could be challenging if we do not figure this
out.

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 2. ECONOMIC METHOD
Price Elasticity Problems: One way to solve price elasticity problems is to figure out how
people react when prices change. It can be helpful to have policies that encourage rivalry,
openness, and educating consumers. For example, making sure that more people can get
important goods and services might mean subsidising them to lower their price elasticity.
Effects of the global economy on demand: During economic downturns or crises, boosting
demand is very important. Governments often use economic policies like tax cuts, spending
on infrastructure, or direct cash handouts to get people to spend more. Central banks may also
use monetary strategies, such as changing interest rates, to get people to borrow money and
spend it. Researchers first looked at other studies and magazine papers to choose the
exogenous variables for this study. The United States and Japan are used as factors in demand
models to look into Thailand's rubber demand. This is because Thailand's main customers are
China, the United States, and Japan. It was linked to faster economic growth when the GDP
per capita went up. Asia-Pacific Economic Cooperation (n.d.) says that a rise in the GDP per
capita will help sales and production of cars in that country. In 1987, Suwanakul and Wailes
said that the United States is the most important country that buys rubber.
Changes in the Structure of the Supply: Dealing with changes in the structure of the supply
often needs long-term plans. Putting money into infrastructure, technology, and research and
development can help supply lines work better, get rid of bottlenecks, and raise output.
Educating and training programs that build a skilled staff can also help businesses adapt to
changes in the supply chain. In theory, crops do compete for the same amount of land. In
Thailand, rice is grown instead of rubber. Lands that used to grow rice and other crops now
grow rubber because it makes more money. The results from 2002 to 2007 showed that the
area of paddy fields had shrunk by 29% and turned into a Para rubber area by 24%. The
weather and the price of rubber have caused these changes from rice areas to other cash crop
farms. If the price of rubber went up, farmers would start making rubber instead of other
things (Rongdate, 2008).
Leasing up on trade: Taxes and quotas that make it hard for countries to trade with each other
must be taken away to promote trade liberalisation. Countries can get more market entry
through free trade deals and talks, boosting economic growth and efficiency. But these
policies must be balanced to protect local businesses and job markets.
The way to help prices go up and down is by hedging the value and stock of commodities and
the futures markets, in addition to taking part in circulation regulations and strategic reserves,
which can control changes in services and goods.

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 3. LITERATURE REVIEW
Several factors need to be examined in detail by the rubber industry, namely the price of
rubber and the supply of rubber; this is very important because it helps the price and quantity
achieve balance in the market, ie, demand and supply are equal.
Rubberqt D indicates how much Thai natural rubber is exported, whereas Rubberqt S shows
how much it produces. The price of rubber in Thailand, especially ribbed smoked sheet
rubber (RSS), usually reflects the global price. Rubber prices negatively affect demand,
according to economic theory. Lower prices increase demand, whereas higher prices increase
output. However, with the limitation of data, the form of simultaneous equation functions of
natural rubber used in this study takes the following form:
Rubber Demand functions: Rubber qt D = ƒ (Rubberp t, USAgdp t, USCarsales t, Ɛt)
Rubber Supply functions: Rubber qt S = ƒ (Rubberp t, Ricep t, Rainfall t, µt)
This study examines earlier studies using exogenous variable selection. Thailand's rubber
demand is linked to China's, the U.S.'s, and Japan's GDPs, according to Jaitung (2011) and
Manachotipong (2012). GDP per capita indicates how well people live and how rapidly the
economy is rising, impacting automobile sales and rubber consumption. As Suwanakul and
Wailes (1987) demonstrate, the U.S. is a big rubber consumer. United States GDP per capita
(USAGDPt) and U.S. automobile sales (USCarsalest) are used to highlight how the U.S.
economy and auto industry effect Thailand's rubber needs. In Much, Tongpan, and
Sirisupluxana's (2013) supply model analysis, agricultural prices matter. Rubber and rice
compete for land in Thailand. Weather and rubber prices induce land use changes from rice to
rubber plants, demonstrating competition. Rice prices (Ricept) negatively correlate with
rubber supply, as predicted. More rice farms become rubber fields as rubber prices rise.
Mesike, Esekhade (2014), and Kannan (2013) found rainfall crucial. Adding nutrients and
water to the soil helps plants flourish, which boosts rubber production. The normal amount of
rain in southern Thailand, a key rubber producer, might hurt supply since it impacts
collection.
This literature review explains how Thailand's rubber market's multiple elements interact. It
shows how economic statistics, land use changes, and environmental factors impact rubber
supply and demand.

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 4. OUTCOMES AND USEFUL OF THIS RESEARCH

I. Economic Responses
● Economic Incentives
Rubber farmers in Thailand are likely to alter their production practices and
decisions in response to changes in economic factors. These economic
incentives could include factors such as market prices, government policies,
subsidies, or other financial incentives that influence the profitability of rubber
cultivation. Farmers are sensitive to economic signals, adjusting their planting,
harvesting, and selling decisions based on factors that impact their financial
returns. For example, if rubber prices increase, farmers may be motivated to
increase production to capitalize on higher profits.

● Production Practices
Economic and environmental factors can influence various aspects of
production, including the choice of crops, planting density, harvesting practices,
and investment in technology or inputs. Understanding how farmers respond to
economic and environmental factors provides insights into the adaptability and
resilience of the rubber industry. It also informs policymakers and stakeholders
about potential areas for intervention or support to enhance the sustainability
and profitability of rubber farming.

● Market Dynamics
Economic responses may also involve considerations related to market
dynamics, such as demand for rubber products, international trade conditions,
and competition with alternative crops. Farmers adjusting their practices based
on market dynamics reflects a strategic response to changing economic
conditions. This adaptability is crucial for maintaining competitiveness in the
global rubber market.

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II. Government Policy Recommendations

● Controlling Rubber Production to Prevent Oversupply

The study suggests that rubber supply is elastic to price, indicating that there is
spare production capacity for rubber in Thailand. However, this elasticity also
implies a risk of oversupply in the market, which can lead to downward pressure
on prices and negatively impact the income of rubber farmers.

● Promoting Downstream Productions and Increasing Domestic Consumption

The study recommends promoting downstream productions and increasing
domestic consumption to prevent oversupply and add value to natural rubber
products. This strategy can help diversify the use of rubber products and reduce
dependence on international markets.

III. Tax Policy based on Elasticity of Demand and Supply

● Elasticity of Demand and Supply

In this context, the study suggests that the elasticity of demand and supply for
rubber in Thailand has been considered. If demand or supply is elastic, it means
that a percentage change in price will result in a larger percentage change in
quantity demanded or supplied.

● Deadweight Loss and Inelastic Demand

The study mentions that the quantity of rubber demanded is inelastic. In the
context of taxation, an inelastic demand implies that consumers are not likely to
reduce the amount they demand significantly even if prices increase due to the
tax. Therefore, the deadweight loss (the loss of economic efficiency) associated
with the tax is greater for consumers than for producers.

● Government Tax Policies

The inelastic character of the rubber market can be considered when
policymakers design levies. For example, taxing rubber goods might enhance
government income since customers are more unlikely to cut back on
consumption in reaction to price rises drastically.

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 5. RESEARCH SUGGESTION
The study shown is the first step in researching the factors that affect Thailand's natural
rubber market balance. However, it is based on the small sample size and the absence of
information about the country-specific characteristics. That is why future research could
further examine the impact of the climate on rubber production, which could be a critical
aspect. Other than that, future research should also deepen the understanding of the social and
political factors that affect the equilibrium of the Thai natural rubber market.

First, the impact of climate on rubber production needs to be realized. That is because
Thailand's natural rubber industry truly depends on the country's weather patterns. Not just
that, we need to understand how climate change can influence rubber yields to predict future
market equilibriums. It will be an important point in future investigations if we can analyze
the resilience of rubber plantations and identify potential adaptations in cultivation methods
during climate change.

Lastly, social and political factors also play an important role in shaping the equilibrium
of the Thai natural rubber market. Future research could examine the socioeconomic
conditions of rubber farmers. For example, their access to resources and the effectiveness of
government policies in supporting the industry. The reason is that understanding the role of
political stability and regulatory frameworks in the market economy can provide important
information about the long-term sustainability of the natural rubber sector. This research
could aid in formulating policies that ensure a balanced and resilient equilibrium for the Thai
natural rubber market that will benefit both producers and consumers.

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 6. CONCLUSION
The demand and supply model of natural rubber production in Thailand is looked at in this
study, focusing on how its factors affect economic rewards. The information from 1977 to
2012 came from several places, such as the Thailand Office of Agricultural Economics, the
Bank of Thailand, Ward's Automotive Group, the Food and Agriculture Organisation of the
United Nations (FAO), and the World Bank. The data showed a link between the demand for
rubber and the U.S. GDP per capita. For every 1% change in the U.S. GDP per capita, the
need for rubber changed by 1.4%. There was a positive link between the availability of rubber
and the expected price but a negative link between rainfall and the cost of rice.
The study discovered that demand for rubber is almost perfectly inelastic to price, which
means that people will buy it no matter how much it costs. The U.S. GDP per capita affects
the amount of rubber that Thailand needs since the U.S. is the third biggest buyer of Thai
rubber. The U.S.'s growing car business can help the country's rubber production, leading to
more people wanting rubber.
Thailand has a lot of extra rubber output potential because it has a lot of elastic rubber. On the
other hand, small farmers can't cut back on production because it's their only source of
income. This suggests that the government must make a policy to control rubber output.
There is a good link between rainfall and Thailand's rubber production. Rainfall gives soil
moisture and nutrients, which help rubber grow. However, the fact that there is a negative link
between the price of rubber and the amount of rubber available is important because the cost
of other goods like paddy rice affects the amount of rubber available. Rainfall is the most
important factor in controlling a rubber farm because it provides nutrients and moisture to the
land. A lot of rain over a long period can also hurt rubber production by washing away latex.
This is why not much rubber is made during wet seasons.
The study found that demand is less price-elastic than supply. This means buyers will pay
more in taxes (99.4%) than sellers (0.6%). Because of this, buyers in Thailand's rubber
market have to pay almost all of the taxes. To stabilize farmers' incomes, the government
should fund research and development into growing and collecting rubber, boost production
further down the line, and encourage farmers to plant new, high-yielding types.
To compete with other countries that produce a lot of rubber production and to develop the
rubber industry in Thailand, the government should bear the cost of development and
research of rubber and planting methods, encouraging farmers to plant rice using modern
equipment; this way can help the industry in Thailand.