ABBE3033 BUSINESS ECONOMICS

Question 1

Time to Allow More Competition to Bring Prices Down, Economists Urge

In its election manifesto, the Pakatan Harapan coalition had pledged to end monopolies granted to

certain companies to level the business playing field and give consumers more choice and perhaps

more importantly lower the prices of goods and services.

It had been reported earlier that the government would review the operations of certain companies,

such as Padiberas Nasional Bhd (Bernas), Puspakom Sdn Bhd, Pharmaniaga Bhd and MyEG Services

Bhd, because of their monopolistic tendencies.

Sunway University Business School economics professor Dr Yeah Kim Leng commented: "Both

local and foreign investors generally welcome policies that promote fair competition and open

markets with free entry and exit, as well as a level playing field.

Dr Shankaran Nambiar, senior research fellow at the Malaysian Institute of Economic Research, says

a business-friendly government is not one that helps companies make monopolistic profits: "I

wholeheartedly agree with the government's attempts to make markets more competitive. I think there

should be more competition in markets. Companies should not hide behind their monopolistic

practices, and this should apply equally to government-linked companies."

"Bernas, for instance, has enjoyed excessive profits for years. By removing its monopoly, not only

will consumers enjoy cheaper rice, but other companies will be able to enter the market and this is to

the advantage of businesses."

"Similarly, any exclusive arrangement that Pharmaniaga has with public hospitals should be

disbanded. Government hospitals should open their procurement processes to any interested

pharmaceutical company that is reliable and competitive. That will encourage the growth of such

companies and lower the costs of healthcare," he says.

"Monopolies are bad only if they abuse their position in the market," according to Shila Dorai Raj,

executive director of Vansure Consulting Sdn Bhd and founding CEO of the Malaysia Competition

Commission.

"In Malaysia, some monopolies were created during the development phase era and others during the

industrialisation and privatisation policy era."

"They were needed then and it is now timely for the government to assess and decide if the

monopolies created have outgrown their need and if they are still relevant to the economy."

Source: Adapted and modified from The Edge Markets, " Time to allow more competition to bring

prices down, economists urge ", viewed on 14 May 2020, available at <

https://www.theedgemarkets.com/article/time-allow-more-competition-bring-prices-down economist-

urge>.

Question 1 (Continued)

Required:

(a) Based on the article above, identify any TWO (2) reasons the government plan to review the

operations of certain companies like Bernas. (4 marks)

(b) Explain any THREE (3) characteristics of a monopolist like Bernas. (6 marks)

(c) Explain how a monopolist determines its profit maximising price and quantity. (4 marks)

(d) (i) Distinguish between allocative and productive efficiencies. (4 marks)

(ii) Explain why a monopolist is unable to achieve allocative and productive efficiencies.

(4 marks)

(iii) In your opinion, is a monopoly market structure good for society? Explain.

(3 marks)

[Total: 25 marks]

Question 2

(a) Ali and John work in the same factory. Ali is paid RM 500 more than John though they are

doing the same nature of work. The management has arranged such that Ali works on the

night shift while John works on the day shift.

(i) Identify and explain the factor that may explain their wage difference. (4 marks)

(ii) Describe THREE (3) other factors that explains wage differentials. (9 marks)

(b) The owner of a footwear business must decide on the profit maximising quantity of labour to

employ in his firm.

Explain what he should do in the following situations:

(i) Value of marginal product (VMP) exceeds wage; (2 marks)

(ii) Value of marginal product (VMP) is less than wage; (2 marks)

(iii) Value of marginal product (VMP) is equal to the wage. (2 marks)

(c) The Covid-19 pandemic has severe effects on the labour market in Malaysia. Discuss the

effects on quantity of labour and wages for the following situations:

(i) Many Malaysians return from Singapore to work in Malaysia; (3 marks)

(ii) The price of surgical gloves increases. (3 marks)

[Total: 25 marks]

Question 3

(a) Describe any THREE (3) factors that cause the short run aggregate supply aggregate (SRAS)

curve to shift. (9 marks)

(b) Using appropriate diagrams, explain the effects on aggregate demand or aggregate supply,

equilibrium price level and Real GDP for the following situations:

(i) Technological advancement in the agricultural sector in Malaysia; (4 marks)

(ii) Ringgit Malaysia (RM) depreciates. (4 marks)

(c) (i) Identify and describe the appropriate fiscal policy that the government can use when a

country faces high inflation. (5 marks)

(ii) In your opinion, explain whether the government should also use monetary policy to

solve the problem of high inflation. (3 marks)

[Total: 25 marks]

Question 4

(a) The table below shows the production of rubber and rice for Malaysia and Thailand,

respectively, before international trade.

Country Rubber (unit) Rice (unit)

Thailand 20 50

Malaysia 15 30

(i) Differentiate between comparative advantage and absolute advantage. (4 marks)

(ii) Identify and explain which country will have the comparative advantage in producing

rubber. (4 marks)

(iii) Identify and explain which country will have the comparative advantage in producing

rice. (4 marks)

(iv) Predict the trade pattern between Malaysia and Thailand. (4 marks)

(b) Malaysia restricted imports of cars when local cars such as Proton were first manufactured.

(i) Discuss any TWO (2) types of arguments that the government used to restrict the

import of cars. (6 marks)

(ii) In your opinion, should the government restrict imports of cars? Explain. (3 marks)

[Total: 25 marks]